Renttropolis Online Property Management

Once you have found the property then you need to put together a pro forma in order to see what the numbers look like. The quickest way to do that is to request a pro forma from the seller or the seller’s agent. Obviously the seller is going to try and paint the prettiest picture that they can for you so don’t be surprised by how good the numbers look up front. Once we have the property under contract we will request the real numbers on the property also know as financials, which should consist of at least two years of rent rolls and two years of tax returns.

Keep in mind that the pro forma is to paint a rosy picture and the tax returns are designed to paint a terrible picture (to pay the government the least amount possible if anything at all). So reality should fit nicely somewhere between these two pictures. What we are looking for is to be as accurate with the numbers as we can so as not to miss anything and make mistakes.

To help us not forget anything here is a checklist that you need to do before purchasing a property. You may use all of these suggestion, you may have to do a few more or you may not use hardly any of them depending on the deal you are working on.

Commercial Property Check list

Move forward only on green lights

1. Why is the seller selling their property?

a. This is a critical bit of knowledge that most people overlook. The seller will teach you how to sell them on your deal.

2. www.ofheo.gov to take a look at statistics in the area

3. www.bestplaces.net to check the statistics and demographics of the area

4. www.uschamber.org to find the local chamber of commerce and see what the future holds for the area and specifically this property.

5. Go to the city planning department and find out if the area is pro-growth

6. Check with the local police department for calls to the property over the last year

7. Call the local fire department for fire code violations and regulations that need to be in place for safety issues

8. Check with the local planning department to see what plans are for the area

9. Get a one page appraisal by licensed appraiser

10. Personally inspect the property

11. Order a phase one environmental report

12. Have a property Inspector inspect the entire property for foundation, termites, pests, roof, CO, radon, mold etc. problems

13. Get a full appraisal

14. Review the Rent Rolls for the past two years

15. Review the Financials for the past three years

16. What is the normal lease term?

17. What is the physical occupancy level last year:_____%

18. What is the property condition: ____ Excellent____ Good____ Fair____ Poor

19. Property value as of the last appraisal: $_________

20. Date of last appraisal: _________

21. Current lease rates at the property are: ____ Above____ At____ Below market rates.

22. What percentage of the property is occupied by Students?: _____%Military?: ______%Seniors: ______%

23. List any tenants or entities that occupy or control more than 20% of the space:________________________

24. What percentage of the income is attributable to retail tenants?: _____%

25. Do any units have…

a. Aluminum wiring?:____

b. Less than 60 amp electrical service?: ____

c. Well water?:____

d. Septic system?:____

e. Balconies?:____

f. Do any units require space heaters?:____

g. Furniture that is included with the rent?:____

h. Deferred maintenance (interior or exterior):____

i. Is the property in a flood zone?____

j. Is the property in an earthquake zone?:____

k. Is the property / leasing manager located on-site?:____

l. Are there any ground leases? (attach detailed terms of the lease if Yes):____>

m. Is the property dependent on a single industry or school for tenancy? (attach details if, Yes):____

n. Do any tenants receive government subsidies? (attach details if Yes and not on the rent roll).____

o. Has the property benefited from tax exempt bond financing or government subsidies?:____

Once you now better understand the overall picture of what is taking place then don’t be afraid to renegotiate the original contract using the new information that you have found. You will have much better leverage after having dug up all the secrets about the property then before. On the other hand somewhere along this process you may find some yellow or red lights so let me explain what those are.

A yellow light isn’t something that will kill the deal but can and should be resolved before moving forward. If you can’t get it resolved then you need to be willing to walk away. So for example you find out that the roof has not been replace in the past 30 years and it leaks. Here you would renegotiate with the seller to either have them replace it or have them lower the purchase price accordingly.

A red light is an item that will stop you right in you tracks and you immediately back out of the deal. For example you find out that the property is sitting on a toxic waste dump. You wouldn’t renegotiate with the seller (unless you specialize in this kind of clean up) you would just back out of the deal.

Property analysis or due diligence is one of the most important steps that you will take and you will quickly realize that this is where your money is made and lost as an investor.

Three Keys

There are three key reasons for buying income-producing investment real estate; cash flow, appreciation, and the tax benefits.

A word of caution here, if the deal does not work without the tax benefits, do not let them be the deciding factor. Tax benefits are purely a deal sweetener and should never be relied upon to make the difference.

Cash Flow is defined as the positive income stream generated from rentals paid by the tenants, less any operating expenses incurred in the operation and ownership of the property, including debt service. In general, investors look for a positive cash flow, where the income exceeds the expenses at an annual rate of return commensurate with the risk. The higher the risk, the higher the expected return to the investor. In some cases, investors see opportunities even if there is negative and/or little cash flow. In this case the investor sees a clear trend that will create a “value added” opportunity.

Appreciation – defined as the increase in value of the property during the period of ownership. Typically, the investor anticipates that the property will increase in value, and the debt owed on the property will decrease, thus the investor’s equity in the property, as well as their net worth, also increases. The beauty of investment property is that the tenant is doing all of the work and is paying down the debt. I like to think about that on days when I am on the beach and my property is working for me.

Tax Benefits can be defined in several ways but the two most often cited are mortgage interest deduction and property depreciation. A second word of caution is that this is a very technical area, and a qualified tax professional should always be consulted prior to making any decisions. You are allowed to deduct any interest paid on the debt used to acquire the property. In the early years, this can be a significant amount. Later on, as the interest on the loan is reduced and you are paying down more on the principle, you may wish to look at selling and trading into another property. The other benefit typically taken is depreciation or cost recovery. The IRS provides for several different means of determining the amount of depreciation an investor can take on a property. Some of the keys to how large your write off is to determine the investor “basis” in the property, whether they are engaged in the business of real estate, and the adjusted gross income of the investor. A second consideration is whether or not the property is acquired through a 1031 exchange. While cost recovery deductions increase an investor’s after-tax cash flow, a Section 1031 Exchange allows for an investor to continually “trade up” to higher value properties while deferring the capital gains taxes due on the appreciation.

Who invests in real estate?

Private real estate investors are a wide cross-section of people: a fireman, a lawyer, a retired businessman, a regional manager for a Fortune 200 company. I’ve worked with all ages, creeds and points of view and they all have a couple of common interests. They enjoy making money, they feel good about investing for their retirement and they love the tax benefits. Most use the tax-deferred exchange method on a regular basis to upgrade their portfolio and defer the tax until later. Some investors start young while others wait until their kids have completed school and they have some extra money each month. All of the investors I have worked with believe strongly in the wisdom of real estate investing, have a good sense of value, and are great with “the numbers.”

How do I get started?

You can do it the old fashioned way and drive around taking note of the income-producing properties you see. They’re everywhere. You probably won’t see “for sale” signs on many of these properties, but that doesn’t mean that they can’t be bought. You will have to visit the Courthouse and check the ownership records. In some counties, you will be able to access the property ownership on-line through the assessor’s office.

As the saying goes, “everything is for sale, at the right price.”

Poking around and doing it yourself is time consuming and unless you have the right skill set, it will be frustrating and not very fruitful. I would recommend you retain the services of an experienced investment property broker, to help you investigate, analyze, and acquire property.

The final means of acquiring investment property is to investigate acquiring a Tenant In Common interest in a stabilized property. The advantages of a TIC investment are: they are tailor made to the exact amount you are investing (because it is a fractional interest);higher leverage (pre-arranged by the sponsor); institutional properties with credit-worthy tenants; predictable cash-flow;easy tax reporting; no management obligations; and all of the due diligence has been completed and ready for your review. The primary disadvantages include high loads; the potential lack of liquidity; some unscrupulous sponsors, primarily lacking in experience; risk of partnership treatment; and the nature of the TIC itself (it can be burdensome). Further, TIC investors generally must be accredited investors, meaning they must meet certain income or net worth thresholds. Nevertheless, for passive investors, the advantages of TIC’s clearly outweigh the burdens.

I always recommend that you work with a professional adviser, be it a CPA, a lawyer or a real estate broker to determine a target price for an acquisition. Other professionals can include a property manager, a commercial insurance broker, a commercial appraiser, and a commercial lender. The lender can play an important role in qualifying the buyer prior to an acquisition, or in pre-qualifying a property for financing before acquisition.

Overall, an investment in income-producing real estate is a great long term investment, realizing that it is not as liquid as stocks and bonds; it should be approached with a healthy dose of estate planning first. The TIC industry has made investing even easier and deserves a good hard look into the possibilities.

Here comes my own disclaimer

IRS Circular 230 Disclosure: Exchange Equity, LLC and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with Exchange Equity, LLC, of any of the matters addressed herein, or for the purpose of avoiding U.S. tax-related penalties. You should always seek the advice of a tax adviser, lawyer, or real estate broker when investing.

So, these requirements, they don’t seem so outrageous, and they’re not. But, you’d be surprised to find that it’s not always to easy to decide on who will be most likely to fulfill these requirements, and on a regular month to month basis. Here are some tips to help you along with your hunt for the perfect tenant/s.

TAKE CARE OF YOUR HOUSE AND OTHERS WILL AS WELL:

Consider that before you advertise you may want to invest in some repairs and updates to your property. If you want to attract renters who’ll respect your place and treat it with care, as if it were they’re own, then you need to present it in a well kept, well-loved state. Likewise, you are going to want to know what is in need of repair, and what has recently been repaired before anyone moves in. This aspect is also about competition. Really, you want your rental property to shine in comparison to other properties that prospective tenants are considering. If your tenants think they’re getting a great deal, on a great home, they’ll stay.

BE A DILIGENT SCOUT:

First of all, you want to source out a good pool of folks to choose from. This means some grunt work on your side and some creative approaches to marketing your property. Think about it like a real estate sale. Your marketing and staging should appeal to whatever niche you think your particular property will draw. If it is a real family home in a great family neighborhood, advertise in and around the area, at shops and stores and businesses. There might be a local family orientated magazine or paper. If so, make sure to put in an add there. Obviously, have a sign on your front lawn for those driving through the neighborhood. If you’re advertising on a website and can place some images, definitely do so. Make sure the images are appealing, of high quality and really show off your home and the assets you are marketing. Slip “for rent” signs in other rental building in surrounding areas. You might consider offering a bonus to listing agents, friends or neighbors for successful referrals. Think outside of the box to find as many legitimate spots to advertise your rental property, and in such a way that you feel you’ll draw the crowd you are aiming to rent to.

HOLD AN OPEN HOUSE:

Hold an open house on a weekend. This is a great way to just focus in on your search. You’ll have a chance to see people coming through the home and reacting to it. ( you might get some ideas on what you could do to improve its marketability if you listen in on some hush-hush conversations!) Likewise, open houses for renters, as with real estate open houses can create a bit of pressure on people- such that, if they are interested, they’ll most likely sit down and fill out an application right then and there. Your are adding a healthy dose of competition into the mix. This is also a good way to reign in a captive audience in a more condensed time period. You can then focus on the applications you have and narrow down the options. So, during your open house, have a table set up with pens and applications ready.

APPLICATIONS: COVER THE BASICS

Make sure that on your initial applications you request at least the past five years of the applicants work experience/history. You want to get an idea as to what they’ve been up to, where they’ve been living, how long they seem to stay at each job, what line of work they’re into and how stable that work force is. Check in on personal and professional references. Three of each should be a minimum, and I would highly recommend actually following up with a phone call or e-mail to check in on them. You’ll find out a lot from others.

You application should also request information on their current/ongoing expenses. Do they have monthly car payments? Other loan payments? You’ll need to assess whether or not they can truly and comfortably afford your rental property. An ideal tenant will be able to afford rent, and have room to spare for any emergencies that may arise. After all, in most cases you’re looking for someone who has the stability to stay on for the full term of your contract and beyond.]

You application should inquire about where they are moving from and why they left. Obtain information/contact from their last landlord and follow up with a phone call.

When reviewing applications, know that an incomplete application can be a bad sign. Unless they’ve indicated that they’ll get back to you asap with the particular information, well, it’s best to look to those who’ve followed instructions and given you the information you need to move forward with the selection process. An incomplete application, can be a tell tale sign of unreliability.

MAKE THE PHONE CALLS:

In your conversations with the referees from prospective tenants, the kinds of questions you might ask are:”Are they reliable?”, “Do they regularly show up on time at work?”, “As a landlord, were you sad to see them go?” Remember you can’t really ask personal questions, nor can referees say straight out that someone is a bad tenant, employee or person. But if you ask some indirect, albeit pertinent questions, you’ll most certainly find the information you need to make an informed decision.

THE RENTAL AGREEMENT: ARRIVE ON THE SAME PAGE

When you do decide on a tenant/s, try to schedule a time to go through the rental agreement with them. Clarify areas where there may be some confusion and be specific with expectations, on both ends.

Now, although this may seem like a lot to consider, it’s better to spend the time up front to find solid tenants rather than deal with the numerous issues, and legal problems that can arise with tenants who do not fit the bill.

There are questions that you need to ask yourself if you are going to fit into this category. The first question that you need to ask yourself is are you handy around the house? This is needed because under this category you need to be able to fix most small problems that will come up in your rental house. Sometimes for example you might be asked to fix a small thing when you are collecting the rent.

The type of house you buy will be a big factor in how much work you will be able to do on the property. For example you might want to look for a ranch house if you are afraid of heights. You never know when you may need to go onto the roof and fix something. Personally I thought that I am not afraid of heights until it came time to step off the ladder and get on the roof. When you look down 2 stories that first step is very intimidating. But with that being said I have worked with people who think that it is no big deal. So that determination has to be made by the individual.

The next question that you need to ask yourself is are you very good at keeping up with things? By this I mean are you going to be there every time a problem arises? This is important because this helps build a good relationship between you and your tenants. If you are not available there may be a build up of resentment towards the you as the landlord. This resentment no matter how little it may be is very hard to mend once it gets rolling.

This problem can be minimized if you posses good people skills and are able to smooth things over easily. I have seen small disagreements work there way into big problems usually leading to the tenant leaving the house.

Strengths of this type of the hands on landlord.

You do not have to rely on anyone to get a job done.

This aspect is a great advantage to you as the landlord in all aspects. You could take a small problem and eliminate it quickly before you could even get a hold of someone to do the job. For example you could stop by on the way home from work and take care of the situation. I will generally carry a tool box stocked with many different supplies that I may need to fix small problems. This strength really helps in the landlord tenant relationship.

Provides a great way to keep track of your property.

Doing everything yourself gives you a great opportunity to see inside your house. This way you can keep close tabs on the way a particular tenant is taking care of your property. I have used the act of collecting the rent as a way to see the house. I don’t do this with all houses that I rent. It would take me to long and I would always be tracking down tenants to collect the rent. I usually have the tenants mail the rent in these situation. This is usually determined after about 6 months of really keeping the house well maintained. Other houses that I see as a potential problem, I always collected the rent in person. But that is determined on a case by case basis.

Develop a personal relationship with your tenants.

Being there personally as the home owner will give the tenants a good feeling about you and put a personal feel to the whole situation. Hopefully this will translate into a better landlord tenant relationship, which in turn means that you get your money on time etc…

Weaknesses of this type of landlord.

Requires a lot of your time.

Obviously the physical act of driving to a rental house takes a lot of your time. If you don’t have a lot of free time then this could be a big problem down the road. Of course buying a house close to where you live could help greatly in reducing this problem. And how much time you have to devote to fixing potential problems will factor into how well you do them.

Develop a personal relationship with your tenants.

I realize that I listed this as a strength of this type of landlord type. But I found that it can also be a weakness in a way because of the fact that you may be taken advantage of by the tenant. A good way to reduce this risk is to try and always keep a business like relationship and avoid getting to close. I found that this problem does not really show up if you keep the relationship very much tenant to landlord.

Listen to my live interview on www.thinkBIGradio.comCall-in Number:
(718) 664-9989
To Ask Questions or listen live if you are not near a computer.

Monday 3/10/2008
8:00 PM central Standard
9:00 pm eastern standard
6:00 pm pacific standard
7:00 pm mountain standard

45 Minutes

Melissa Ward – www.newward.com, www.renttropolis.com

We will be talking about Renttropolis Online Property Managment Software… how online systems can make your life easier and more productive.

If you can’t listen live……its ok… The shows are archived on www.thinkBIGradio.com and you can find me by name and month of my interview anytime.

It is almost certain that any case that does go to court involving a landlord will end up in one of the 218 county courts in the country which deal with all but the most complicated civil law proceedings. Each court has Bailiffs who enforce court orders and seek to collect money if a judgment has not been paid.

So as a landlord you have filed court proceedings and the day is fast approaching when you will have to appear. What does a landlord need to do?

Justice Firstly, a landlord should dispel any romantic notion that a landlord’s court appearance is a mechanism to bring about justice after months of suffering at the hands of a bad tenant. One landlord neatly summarised the legal system governing the renting of property:

“it’s got sod all to do with who’s right and who’s wrong, just who’s filled in the proper bits of paper and knows their bundle of papers really thoroughly.”

This means that even when you as a landlord know that you have done the right thing, this will count for nothing in the eyes of the law. Landlords should realise that going to court is case of proving a set of events against a list of very specific criteria. It is nothing to do with justifying that you the landlord are a good person and that your tenants are bad.

A landlords preparation for a court appearance Careful preparation is definitely the key to any landlord’s court appearance, particularly if the landlord is representing themselves. A landlord really needs to know what the Civil Procedure Rules (CPR say about the area of law they are taking action over. For example, the repossession of a landlord’s buy-to-let property following a period of non-payment of rent. Civil Procedure Rules (CPR for those landlords that haven’t come across them before are the procedural code that sets out how the court deals with cases in a just manner. Landlords before going to court should be aware of it and in particular the first few parts of the Civil Procedure Rules (CPR that deal with how court business is run in respect of paperwork, dates of service, etc.

It’s all about the evidence a landlord can present

As I mentioned previously the secret for any landlord who wants to obtain justice is providing sufficient evidence. Before going to court a landlord will have to submit a pile of documentary evidence. This folder of documentary evidence is known in legal parlance as a “bundle” and it should contain all the evidence that a landlord refers to in their statement. This might be letters that have been exchanged between the landlord and tenant, rent statements, the tenancy agreement, etc. A landlord should prepare their table of contents carefully, giving the date, a name for the entry (e.g. e-mail from defendant to landlord) and a one-line summary of the important point in the document. (For example a defendant states that they have no money available to pay rent). It is important that the landlord numbers the pages in the bundle and that they know what is where in case the judge decides to ask a question about it. A landlord should put post-it notes on the edges of their own copy so that they can find things quickly and simply. A landlord should present the court’s bundle in a ring-binder folder so the judge can easily get to the pages that the landlord refers to (this is a requirement of the Civil Procedure Rules (CPR anyway.)

A landlord should establish a clear timeline of everything that has happened to assist the judge in their determination. The landlord should also endeavour to give precise dates and amounts of money.

Finally, in preparing their statement, where a landlord makes reference to letters, e-mails etc, a landlord should make a note in their statement of the exact page number where this bit of evidence occurs in the landlord’s bundle. This will help the judge when referencing the evidence and is also a requirement in the Civil Procedure Rules.

Most importantly a LANDLORD SHOULD BE WELL PREPARED. More importantly, they should be better prepared than their opponent, THE TENANT.

Tips for landlords on the court appearance

1. Firstly, a landlord should try and stay calm. A landlord should present their case in a dispassionate and calm manner. Getting worked up or annoyed will not help a landlord’s case but getting across the facts and evidence will.

2. Court appearances are often brief. Landlords shouldn’t expect an epic appearance. Where the defendant (the tenant) fails to show which is quite common and the evidence provided to the court is clear cut, the whole thing could be over in 5 minutes.

3. It is always useful for the landlord to have the basic facts on a single piece of paper as an ‘aide memoir’ and for easy reference listing the page or paragraph reference in the landlord’s bundle of evidence (the landlord should bring the full details as well just in case)

If for example, the landlord is seeking possession under section 8 grounds the landlord might have the following information to hand:

* Tenancy start date
* Date the Section 8 Notice was served and how (proof of postage if the landlord has it)
* Arrears figure worked out to the set date. I normally do a large print spreadsheet for the judge to see.

4. A landlord should keep their answers to any questions short (yes / no). A landlord should be clear and concise. Landlords will probably find that the tenant will waffle on annoying the judge and digging a deeper and deeper hole for them selves. Remember a landlord can never prove a negative. For instance, that a tenant has not paid rent. Instead, a landlord should ensure that they lodge whatever evidence they hold and then claim that a tenant has not paid the rent; they should let the tenant prove that they have.

Remember all the evidence that a landlord has produced in court should have been submitted beforehand within a landlord’s witness statement. The judge and the defendant will get a copy of this before the hearing.

5. Landlords should be aware that courts and even judges are not infallible. Therefore a landlord should always check any judgement carefully to ensure that the law has been correctly applied. If in doubt a landlord should always seek clarification from the court, or if a landlord is still unsatisfied they should seek professional advice. There have been cases for where the admin staff working at the court have not been clear on the judgement and issued an incorrect judgement or even that a judge has misinterpreted the law!

First, let’s think about the mathematics behind it. Granted each market or city is going to have a different result, but for where I live in the Philadelphia area this holds true. By doing a little research and finding comparable apartments in your market, you can find out what the magic number is. What are the three features that are going to stick out about any apartment? The condition of the rugs, the bathrooms, and the kitchens. If any of these items look worn or beat up, it is going to be harder to rent and you won’t be able to get as much for it… that is just a fact of life. So let’s say you spend $3,000 to upgrade the kitchen and bathroom(s). Yes, it is possible to spend that little on upgrades and I will show you how later on. Assuming the rest of your unit/building is in good condition, that $3,000 investment can produce an extra $200 a month in rent for me per unit. At $200 a month, you made your investment back in just over a year and you are now making more money per unit. Think about it. If a prospective renter is looking at two apartments: one with a dated kitchen and one with a modern kitchen and bathroom, which one is he/she going to choose? Not only that, but a nicer apartment is going to command a higher rent which in turn brings in a higher income renter who is less likely to abuse and destroy the apartment.

For some of you, I am sure that $3,000 to renovate a kitchen and bathroom(s) probably made you chuckle. If you are still shopping at the big box stores for your supplies, then you have a reason to laugh. To update both the kitchen and the bathroom in an apartment using their cabinets could easily cost you double if not triple. After doing a lot of research, I found a source for cabinets that saves me at least 30-40% per apartment. I started buying my cabinets on-line. If you do a search for RTA Kitchen Cabinets, you will find my secret. Not only are they cheaper, but they are also made of stronger materials and easier to assemble and install. By buying cabinets on-line, direct from the importer/manufacturer you can get them much cheaper because they don’t have the high overhead cost of a retail store. I have been using them for years now in my apartments, and you wouldn’t be able to tell the difference if you put them side-by-side with store bought or store ordered cabinets. The biggest benefit is that you don’t have to wait 6-7 weeks for cabinets like you do if you go to Home Depot or Lowes. These are delivered straight to your office or property in around 2 weeks.

So the next time you are trying to figure out why you empty units, or the guy across the street is renting his units for hundreds more, take a look at your kitchens and bathrooms. I simple upgrade will not only get you a quick return on your investment, but it will also continue to generate more revenue for years to come.

When you own rental property, you may spend money on advertising. Promoting the vacant site, whether in small print ads in newsletters, newspapers, magazines and the Web, or in big signs and billboards, can be a necessary expense. It’s also a deductible one. So are the expenses you incur to maintain your property in good condition.

Remember that because you are a rental property owner, the fees you pay related to that property can also be written off. For instance, if you pay a management company to collect rents and take care of your property, that cost can be subtracted on your tax return. Of course, every savvy real estate investor knows about the magic of depreciation. This is an expense that is really just a gift from the IRS to real estate investors. There is no out of pocket expense and everyone expects the property to increase in value. But the IRS still gives investors a deduction as if the property were decreasing in value. That’s about the best kind of deduction you can get.

“Magic?” you’re asking. “Isn’t depreciation just a loss in value of my property? So how is this a good thing?” Simply put, depreciation is the biggest tax break for real estate investors – money in your pocket for things you already buy and there is minimum effort needed to collect on it. How does depreciation work? It is the distribution of the cost of a long-lived asset over the estimated life of that asset. In the case of a residential rental the time period is 27.5 years. You may deduct 3.636% (1/27.5) of the purchase price each year. This will be a steady deduction over the life of this property.

Sometimes we desire to speed up the process of depreciation to put more money in our pockets. In the case of land improvements or personal property also called “chattels” the life span can be as short as 15 all the way down to 5 years. Appliances, cabinets and carpets are all examples of things that depreciate over 5 years. A $1,000 refrigerator yields roughly 20% or $200 in depreciation each year. Total this up over all your personal property and just like magic money comes rolling back to you.

Now that you know what depreciation can do for you, I’m sure you’d like to know how to do it. Chattel Appraisal is a strategy to separate out land improvements and personal property components from the real property owned. You must be careful not to value the land too high or too low, make sure you are depreciating the property over the right period of time, and verify you are utilizing the right foundation for depreciation (many will use a basis that is too low, missing out on $$$.) These are all things you can do yourself – simple, but time consuming. Now that you know the wonders depreciation can do for you, get out there and make some magic!

Now if you are a business owner, the rental fees you pay to support your business should be recognized. Your business may work out of rented space. If so, the cost of the location is deductible. So are any property taxes you may pay for the landlord as part of the lease. Maybe your business has a parking facility that you rent. If so, the same rule applies.

Perhaps your business requires storage of goods. If you are renting warehouse space don’t forget to deduct the fee. Even storage of a much smaller kind-a safety deposit box that contains business-related papers-qualifies.

Paying rent is usually a part of being both a real estate and a business owner. Make it work for you.

Warmest Regards,

Tom

Tomorrow comes. No check. You call again. Still no check… “give it another day… I mailed it with plenty of time.”

Maybe you’re the lucky one who actually gets the rent on the fourth of fifth of the month (with a postmark for the first or second) and hope and pray that the check is good. Or, more likely, you are one the unlucky many who starts an eviction later than they should and never gets that rent.

Well, beyond some property management tips to help prevent that in the future, I can share with you something that I have been using that completely eliminates the “check is in the mail” excuse.

It’s called automatic rent collection.

Here’s how it works. When your tenant signs the lease, you give them two options:

1. Automatic rent collection free of charge or
2. Regular “mail me a check” rent collection with a manual processing fee for each payment

The overwhelming majority of tenants offered these choices will pick automatic rent collection.

With the company I use, ClearNow.com, the tenant fills out an enrollment form and attaches a voided check to the application and we submit it.

Then, each month, the rent is automatically drawn from their checking account and deposited right into my bank account.

What’s great about it is that I can see very quickly whether rent was deposited and know that the amount is good (no bad checks).

I get an e-mail summary and can login to my bank account and/or my ClearNow account to check the status of any tenant’s payment. If there was not enough money in the account, I can immediately start the eviction process and stop the process when payment is made. There is no room for, “my payment is in the mail”; it’s either there or not.

So, stop the “check is in the mail” excuses for good and start collecting rent automatically.

You have looked at 6 (maybe 12 deals) and you are finding it near impossible to make them cash flow based on collecting a reasonable rent and getting 30 year fixed rate financing.

Take a deep breath. This is one of the most common problems for real estate investors and what I believe to be one of the things that discourage many people away from starting a lucrative real estate investing business. There is hope though.

First, unless you happen to be lucky enough to live in or near a city that has a low income area where you can still buy “rental houses” where the values are about 100 times the monthly rent, you need to realize that finding these deals is like the Easter Egg hunts you had as a kid. You got to look at a lot of deals to find that special one that will work.

How many will you need to look at? It can vary, but I do not think that looking at 100 is out of the range of possibility.

What?! So, I need to look at 100 houses to find one that will work? Yes, you might need to look at 100 houses, making better distinctions about what might work and what will not work to find a good deal.

You may also find that putting out marketing to find motivated sellers makes finding these types of houses easier rather than just looking at houses that are for sale by owner or listed with a real estate agent.

Buying houses at a discount and/or with good terms can significantly improve your ability to make a house cash flow, especially if the interest rate on the terms you can get from a seller is much better than the current rate you could get from a bank or lender.

What if you have some houses that are very close, but none that will have positive cash flow? First, keep looking. Second, there are some ways to ethically increase the amount a tenant pays you in rent which could make a negative cash flow house a positive cash flow house.

For example, if instead of just renting the house, you sell the house on a rent-to-own, you can get payments that are on par with what your actual mortgage, taxes and insurance expenses are because they need to be able to pay your actual mortgage, taxes and insurance payments to afford that house.

When you interview your potential buyer, you explain that market rent is $1,000 (or whatever it is), but that if they have $10,000 to put down toward purchasing the house their mortgage payment with taxes and insurance would be $1,400 (or whatever it is).

You tell them they need to pay the $1,400 but that you will credit the $400 above market rent toward the purchase of the house when they do go out and get their own loan and buy the house from you. In the meantime, they rent with the payment that resembles your mortgage payment.

James Orr is a professional real estate investor and marketing expert.

You can subscribe to his real estate e-newsletter and access audio downloads, articles, marketing materials and educational real estate videos at his Real Estate Investing blog.

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