Jay Thomas's Everything Real Estate

Currently, the rental market is very favorable for tenants who are looking to lease property.  There is a plethora of available rental properties and monthly rents in certain parts of the country have been at an all-time low.  However, just because now is the time to carpe diem your way into a lease agreement, it does not mean that you should lay all judgments aside.  Whether or not the time is right to rent property, you should always know what your rights as a tenant are in regards to your state landlord/tenant laws.

First, take advantage of the Web and start off by finding your specific state’s landlord/tenant laws.  They can typically be found online, but if you have a hard time figuring out which link is right or not, then navigate your way to your state’s Attorney General’s Web page.  That will surely lead you to your specific landlord/tenant law.

Next you need to watch for the following red flags in the lease agreement you are about to sign.  Because each state law varies, you should research each of these red flags on your state website so that you know what and how it is that affects you.

• Can the monthly rent amount be changed, without notice, within the time frame of the lease terms?
• If the landlord doesn’t respond to your maintenance requests, do you have the liberty to go ahead and make the repairs yourself and deduct the expenses from the rent amount?
• How and when will your security deposit be disbursed or settled on once you vacate the property?
• Are there possible eviction proceedings that could take place?

In regards to the possible eviction proceedings, you need to realize that it may not necessarily be in regards to something you have caused or failed to pay.  Make sure that the owner isn’t in a foreclosure process with their current mortgage company as this has not been uncommon in recent years.  Be sure that you have an exit plan in place with your current landlord or property manager in case this should happen to you.

The moral of the story is that you should always be prepared.  Know your rights.  To accomplish this all you have to do is do a little research beforehand.

In today’s world, your credit score can have a significant effect on the financial aspects of your life. Your credit history determines loan and credit card interest rates, can raise your insurance premiums, and can even be a determining factor for getting a job.

Therefore, it’s very important to take steps to achieve and maintain a healthy credit score, and to check up on it frequently to ensure that it is accurate.

1. Pay Your Bills on Time

Your bill payment history accounts for roughly 35% of your credit score, and includes payment of credit cards, auto loans, mortgages, and utility bills. Recent late payments in your credit history have the greatest impact on your score, so if you’ve missed a payment before, avoid repeating this costly mistake!

If you want to boost your credit score, do whatever it takes to pay your bills in a timely manner every month. Use online reminders to help you remember to pay your bills, and inquire at your bank or check with your credit card company to see if they offer email reminders about due payments.

Many companies also allow customers to change the due dates for monthly bills, allowing you to streamline all of your bill payments into one or two occurrences per month.

2. Review Your Credit Report on a Timely Basis

Inaccurate or outdated information can appear on your credit report at any time, and this can significantly hurt your credit score. Identify and correct errors on your credit report quickly using the following steps:

• Request a Free Copy of Your Credit Report. You can order your free credit report online from AnnualCreditReport.com. This is the only website that offers free credit reports, and provides access to reports from each of the three major credit reporting agencies. Once you sign up on the site, you can stagger when you review each of your three credit reports, reviewing one report every four months or so. You can also receive a free credit report if you are denied credit.
• Review Your Credit Report. Once you obtain a copy of your credit report, review your contact information to make sure it is correct. Look for inaccurate information, outstanding balances, and late payments. If you have an open account with the company that reported the late payment, you can call them and ask that they remove it from your credit report. You may also notice a number of inquiries on your credit report, which often merely reflect credit card companies’ efforts to market their products to you. If any inquiries seem unusual, research to find out why they are being made on your account.
• Check Carefully for Bankruptcies and Charge-Offs. Review the details for any bankruptcies and charge-offs on your credit report to ensure their accuracy.
• File a Dispute. If you find errors or incorrect information on your credit report, file a claim to dispute and fix the errors with the reporting agency.

3. Never Close Old Lines of Credit

Many people believe that consumers should close old or unused lines of credit to improve credit scores. Actually, it may be more advisable to keep these lines of credit open.

A large portion of your credit score (approximately 30%) is determined by the amount of available credit you are using. If you have a lot of available credit, but only use a small portion of it, you can improve your credit score.

If you have a few credit cards that you no longer use, don’t let them languish – instead, use them occasionally for a few small purchases and pay them off in full each month. If you don’t use the cards, the issuers may reduce your credit lines or close your accounts. Closing a credit card hurts your credit score.

4. Open New Credit Judiciously

Based on the previous point, you might think that opening multiple new lines of credit will improve your credit score. This isn’t true, however, as opening several new lines of credit in a short period of time will negatively affect your score.

New credit accounts for about 10% of your score, and credit reporting agencies constantly monitor your activity, so open new lines of credit judiciously. If you find good deals on cash back credit cards or credit card sign-up bonuses, tread lightly.

5. Carefully Mix Credit Lines

The mix of credit lines accounts for about 10% of your credit score. If you have a mix of credit cards, loans, and other types of credit, you can positively impact your score. Walk this line carefully so that you do not overextend yourself, however.

Final Thoughts

In addition to paying your bills on time and maintaining lines of credit, other factors play a role in determining your score. For instance, the length of time you have had credit also accounts for about 15% of your credit score.

Over time, as you build and establish your credit, your score will improve. With careful, regularly scheduled awareness and monitoring, you can improve your score and enjoy all the benefits that come with a solid credit history.

What are some of the other strategies you’ve used to raise your credit score?

A “good real estate investment” can mean different things to different people. For this article, the definition of a good real estate investment is:

A real estate ownership interest, whether a personal residence or rental property, that increases one’s net wealth by a fair rate of return on their invested cash equity; for the corresponding amount of risk they are taking by owning a relatively high risk asset.

What that means is that if you are going to put your invested cash equity into real estate, your net worth should improve by a greater amount than if you invested in a similarly risky asset. And “invested cash equity” isn’t the property price; it is how much cash you took from your bank account to acquire the property, which includes your down payment, plus closing costs, plus rehab costs.

Realize a lot of things can go wrong with real estate ownership, so you had better get a fairly high return on your invested cash equity for it to be a “good deal”. So you ask, how would one figure that out?

For investment properties

Your returns are part cash flows and part appreciation in value. For example, if your property rental income minus expenses produced $250 per month positive ($3,000 per year); and your invested cash equity was $50,000, that’s a cash on cash return of 6.00% ($3,000/$50,000). And that is a pretty darn good deal in real estate.

To add to that, let’s say you project net appreciation in value contributing an extra 1.0% or 2.0% return per year (after subtracting your projected estimated costs of capital repairs and improvements). Summing the cash flows and net appreciation could equal about a 8% to 10%+ projected return per year on a long term basis; and if you achieve those numbers….. that is a good real estate investment!

Some investment properties don’t cut it! Most fancy condos or beach houses, where the net rental income is very low compared to the purchase price, usually have projected negative cash on cash returns. So if you buy a fancy property with negative (4.0%) cash on cash returns, even if it appreciates 2.0% per year, you are typically at a 0.0%, or worse, return on your equity cash investment. And that isn’t a deal most experienced investors would take.

For personal residences

You will also be putting down a large amount of cash equity and the calculations are really a little more complicated and difficult because you need to look at how much you are paying in housing expense versus how much that amount would be if you were just renting someone else’s property. So the overall question again is, “Is your wealth going to improve by owning the property?”

Some general guidance herein. As a general rule, if you are not planning to own it for at least five years you will most likely not be adding to your wealth. Any appreciation in value will not compensate for the 8.0% to 10.0% transaction costs on the buying and selling of your property. And even worse, the monthly ownership expense is usually higher than if you just rented a similar property. Therefore, if you don’t plan to own the property a long time, and the longer the better, you will probably do better renting and leaving the hassles and costs of ownership to a landlord.

So a good real estate investment is really one that will increase your net worth over time. The longer you own it, the better the chances for that appreciation in value and wealth building.

As proof positive on this, find someone who has owned real estate for 20, 30, 40 years and ask them what is a good real estate investment? It is generally easy to find them, they are retired, living comfortably, and usually happy to tell you about the properties they bought decades ago!

Regardless of the current state of our economy and the housing market, buying a home is still a great investment. However, the resulting taxes that accompany owning a home can lead to confusion and uncertainty.

In most cases, you need to itemize your taxes in order to take advantage of all the tax breaks that accompany home ownership. This might seem overwhelming, but the benefits of completing this process make up for the inconvenience.

SOURCE: Money Crashers

Homeowner Tax Breaks:

1. Mortgage Interest Deduction

Mortgage Interest Deduction (MID) is a top tax break for homeowner, which can save you a significant amount of money. In the beginning, the majority of your monthly mortgage payments go toward loan interest, and you can deduct all the interest from your mortgage on your taxes. Keep Form 1098, issued by your lender, with your important records. This form explains exactly how much you can deduct and serves as proof if you are audited by the IRS.

2. Mortgage Insurance Premiums

Homeowners with new mortgages with a loan-to-value ratio higher than 80% must carry some form of private mortgage insurance (PMI). This insurance protects the lender against loan default. Typically, once you reach 20% equity in your home, you can avoid paying private mortgage insurance.

Until you reach that level of equity, if your adjusted gross income (AGI) is less than $100,000 (or $50,000, if married filing separately), you may be able to deduct the amount that you paid. If you surpass that income level, the deduction is either reduced or eliminated. If your AGI is $109,000 ($54,500, if married filing separately) then the deduction goes away altogether.

3. Energy Star

Installing energy-efficient windows, doors, and skylights can result in another tax deduction. In order to take advantage of this tax break, you must install the items by the end of the year. Additionally, they must be installed at your primary residence, and they need to meet Energy Star program requirements.

If you meet the necessary criteria, you can receive a tax credit equal to 10% of the cost of the products. The credit for windows and skylights is capped at $200, the limit for doors is $500, and you cannot deduct installation costs. The IRS does not state what documentation you need to prove that you paid for these costs. However, you should hold on to all receipts and Energy Star labels for any qualified improvements you make on your home. There are quite a few green energy tax deductions for home improvement.

4. Points

Points refer to charges or fees paid by a borrower to obtain a home mortgage. If you have your first mortgage, you can deduct these charges in the year that you paid them if the loan is for your primary residence and you didn’t pay excessive points. If you have refinanced your mortgage, you can deduct points over the life of the loan. Check the IRS rules for details.

5. Property Taxes

As long as they are based on the assessed value of the real property, you can deduct state and local property taxes. If you pay your property taxes out-of-pocket, you need to locate your bills to determine how much you paid. Most homeowners pay through an escrow account; if you do the same, the information also appears on Form 1098.

6. Construction Loan Interest

If you take out a construction loan to build a home, you may qualify to deduct the interest. You can only use this deduction for the first 24 months of the loan, even if the actual construction takes longer.

Final Thoughts

If you stay organized and focused and keep excellent records, you can take advantage of every tax break, deduction, and credit at your disposal. However, you should seriously consider consulting a tax professional when preparing your taxes for the first time after you buy your home.

You will likely encounter various technical restrictions and confusing guidelines, and you certainly don’t want any problems with the IRS. A professional can help you find more tax breaks, and you will get the best return on investment when you understand and take advantage of each and every one. Which tax breaks are you taking advantage of as a homeowners?

Perhaps you’ve found a house, or maybe you’ve just started the house hunt, but regardless of where you are in the home-buying process, you need to consider some key questions before you even think about making an offer. Buying a home is a big commitment — financial and otherwise — so take the time to weigh pros and cons.

Here are five questions every home buyer should ask themselves:

Will I own it for at least five years?

The first and most important item you should ask yourself before you consider buying any property is whether you will own it for a long time. People buy property in hopes of increasing wealth and five years is about the break-even point for earning appreciation in value above the buying and selling transaction costs. Therefore, if you don’t plan on holding the property for longer than five years, skip it! Renting a home is NOT necessarily throwing money away. Buying and selling quickly will usually leave you worse off financially than if you just held off on becoming a homeowner.

Do I love the home I want to buy?

One of the second most important items is do you love the property? Real estate should be held for the long term, and loving a property should perpetuate a happy enduring ownership. So don’t buy a property if you don’t love it or at least really like or want that particular property. And don’t buy just “to buy” or if someone tells you it is a good idea. Buy what you want, when you are ready, and buy a home that you will proudly boast about to your friends over the years and years.

Can I afford it?

It  is more expensive to own a home than anyone anticipates.  Even if the mortgage lender qualifies you for a certain loan amount and property price, you need to make sure YOU can afford it. Lenders don’t generally take into account child care expenses, health care expenses, expensive lifestyles and habits, etc. So make sure that you can comfortably afford your housing payment, still pay your other bills, and still save at least a little more for retirement. Also, if you are not sure of your continued employment situation for any reason, wait until your situation is stable so you can make those mortgage payments.

Is the home in good shape?

Here’s another warning: Fixer uppers rarely sell at a big enough discount to compensate for all the work that needs to be done. The cost of construction and property rehabilitation is outrageous, and unless you are a contractor, it almost undoubtedly will cost much more than you anticipate. So leave the “needs TLC” or “fixer-uppers” to the contractors. You want to buy something in decent shape and livable condition so you don’t get mired in rehab disaster. (Ever seen the movie “The Money Pit“?)

Do I know about the neighborhood?

Did you do adequate research, look at enough properties, learn the neighborhoods, and learn about property ownership before you made an offer? If you just moved into town or if you don’t know the area, rent for a while and search out the perfect community in which you would like to live within your financial means. As with any big investment, the better you educate yourself the lower your risk of something going wrong.

While there is no risk-free real estate, considering the questions above should increase your chances of having a great, long-term, property ownership experience.

The Federal Reserve announced today that they will keep interest rates low until at least late 2014 in an effort to help jump-start the sluggish economy by making it less expensive to borrow money across all segments of the economy.

What this means for home buyers and current homeowners is that mortgage rates for a purchase loan or to refinance will remain remarkably low in the near-term, keeping affordability high. The 30-year fixed mortgage rate fell below four percent in mid-October 2011 and has dropped as low as 3.67 percent in recent weeks.

Here’s a quick comparison of mortgage rates and affordability using today’s rates compared to 2008:

Today’s rates: For a home buyer shopping for a home today assuming 20 percent down and today’s interest rate of 3.7%, they would be able to afford a $215,000 home with a monthly mortgage payment of about $1,000 per month (including principal and interest).

2008 rates: If a home buyer shopped for a home in 2008 when mortgage rates averaged roughly 6 percent, the same home buyer would only be able to afford a $165,000 home for $1,000 per month (including principal and interest)

Difference: $50,000

Many news reports point to the subprime lending mess as the cause for the housing slump. But home sellers should know that plenty of people with good credit are simply cautious buyers, which can keep sales down.

In most areas it’s a buyer’s market, so people can be picky. Most buyers in this market will try to re-negotiate based on the findings of their home inspection. If the seller is unwilling to make repairs or lower the price, they may walk away because they knew other properties are available.

But sellers do not have to stand by with their fingers crossed to secure a fair sale.

More and more home sellers are getting a pre-listing home inspection that helps identify potential deal-breaking issues before the house is listed on the market. This way, sellers can fix problems and worry less about a buyer walking away late in the deal process.

The following are “The Fearsome Four” when it comes to real estate deals:

Roofing Concerns:

A new homeowner does not want the expense of roof replacement shortly after closing. Many sellers believe that if their roof is not presently leaking, it is in acceptable condition. But an astute buyer knows that a worn roof needs to be replaced before it leaks.

Electrical Problems

Older panels are often undersized and might even pose a fire hazard. Although an upgrade is usually straightforward, the potential fire risk can be scary for prospective buyers.

Structural Issues

Major structural issues are one of the least common defects found in homes, but when they do occur, they can be costly to repair, and can really stop a buyer in his tracks. Fortunately, there are often repair options that will make the sales process go smoother. But it will often require another inspection by a structural engineer or repair professional, and additional time, to determine what can be done.

Synthetic Stucco or Exterior Insulation Finish Systems (EIFS)

Overall, EIFS can be effective, economical alternatives to traditional stucco. Unfortunately, improper installation can lead to trapped moisture behind the siding. This can cause structural damage and mold, and can cost tens of thousands of dollars to correct.

Sellers lose some advantage when they are caught off guard by issues, even minor ones. In a market where every edge counts, sellers can use tools like pre-listing home inspections and repair records to show that they are conscientious and have taken appropriate steps to sell responsibly and  competitively.

Remember, these tips are only general guidelines. Since each situation is different, contact a  professional if you have questions about a specific issue.

1. Communicate first

How well do you know your neighbor? Have you considered that they may have a good reason for not mowing their lawn or a broken-down vehicle in their driveway? It is easy to jump to conclusions, or harbor feelings of anger. But sometimes, it’s impossible to know or anticipate what your neighbor’s situation might be. Before you do anything, like call the police or municipal code enforcement agencies, it is wise to talk face-to-face with your neighbor. Approach your issue respectfully and see if any amends can be made. You may get an unfriendly response, but sometimes, the mere act of your concerns may prompt a positive response you would have never anticipated.

2. Talk to other neighbors or a homeowners association

If you live in a neighborhood with a homeowners’ association, it may be most appropriate to address your concerns in this group setting. You can vet the problem, including steps you’ve already taken to try and mitigate the situation. If you don’t have an association, it can still be be helpful to seek the counsel of other neighbors. If you are renting, you may also take the issues to your landlord, who may have ties to the neighborhood that can achieve better results.

3. Research your rights

While you may hate the color your neighbor chose for their home, it probably isn’t something you have any control over. There are other issues, however, that can be brought to your city or local government. Contact your code compliance departments to see what issues they have addressed in their jurisdiction. If there’s a potential safety or health violation, local authorities will want to be involved, especially around these issues:

• dilapidated structures, fences
• abandoned vehicles — either in the street or on properties
• outdoor storage or junk
• yard maintenance
• trash disposal
• vegetation overgrowth
• vacant buildings
• parking or common area issues

Issues of noise and animals are usually delegated to the police and animal control, respectively.

Some cities will even offer a mediator to come to your neighborhood and work with the opposing parties to find a solution.

4. File a complaint

If your own attempts to mitigate an issue have failed, you can take it a step further. In most instances, photos, notes and dates will be necessary to document your case. Each municipality will depend on the amount of time they’ll take to deal with the complaint. Most cities will first send a formal warning and inspector to follow up with the neighbor. While some cities allow anonymous complaints, you may have to identify yourself in further proceedings.

5. Municipal court and beyond

It’s rare, but some neighborhood problems will be directed to the civil or criminal court system depending on the severity. Obviously any illegal activity will fall under the jurisdiction of the police and homes that are determined to be a health hazard can be torn down by the city.

End problems before they start

The easiest way to avoid neighborhood issues is to build a good rapport with your neighbors. You don’t need to be best friends with the people living on either side of you, but waving and making an effort at small talk can go a long way.

1. Change locks

Unfortunately, you can’t assume the keys you’re holding are the only keys to your home that could exist out there. Play it safe and have all the locks changed as soon as you can.

2. Re-program garage door opener

Again, it’s better to be safe than sorry when it comes to the security of your new home. Most garage door remotes have a reset button that you can hold down to reprogram the opener. If you want more concise instructions, note the make and model of the opener and contact the company to walk you through the steps.

3. Replace furnace filter

Most manufacturers recommend that a furnace filter be changed once a month during the heating season to ensure the most efficient performance. While there are higher-quality filters that may not require monthly replacement, it’s still a good idea to check the filter monthly and, of course, replace it when you move into a new place.

4. Install new batteries in smoke alarm and carbon dioxide detector

You have no way of knowing when the batteries were last changed and if the home has been unoccupied, it’s probably been awhile. Test the alarm and detector and put new batteries in each. This investment of time and a few dollars is well worth it, given the stakes.

5. Replace toilet seat covers

We probably don’t need to go into specific details, but most people insist on swapping out toilet seats.

If you’re renting an apartment and you wonder why the landlord charges a high security deposit, it could be because they’ve been burned by inconsiderate tenants who trashed rental units, moved out in the middle of the night or perhaps left an awful mess in what is considered an important investment by the owner.  Landlords don’t take too kindly to that, and often charge higher security deposits to cover the possibility of it happening again.  However, this is not the only reason landlords charge higher security deposits.

The main reason a landlord may charge more is if a tenant throws up red flags to the landlord or property management company during the application process.  These red flags may or may not be intentional, but can include:

• Not properly filling out or completing all of the application fields.  Incomplete information on an application can come across to the landlord as the tenant might be hiding or avoiding something.
• Details are sketchy.  If you’re not exactly sure of dates or how long you lived in your last rental property, don’t guess at it; be sure and accurate.
• The previous landlord references won’t divulge any information… good or bad.
• The tenant has already started off requesting renovations to the property or making demands for lower rents if they do the renovation work, when they haven’t even turned in their application yet. This is a sign that the tenant may not be able to afford the place.

This is all in addition to the obvious reasons of misrepresentation of facts, embellishments and other white lies, big and small.  To some, this might seem like an automatic denial of a tenant’s rental application.  However, when the market is tight, sometimes a landlord has to take a chance on a flawed application in order to get the property rented and get their vacancy rates down. To mitigate risks, the landlord will charge a high security deposit, in the chance that the red flags end up as real issues.

Whether or not a landlord has been burned or even if there are no red flag warnings coming from the tenant, there might be other reasons that a landlord will ask for a double security deposit.  They may include:

• The landlord just remodeled the rental unit and they’d like to protect their investment.
• The tenant might have pets.
• Possibly the tenant hasn’t been on their job a long time, or they may be in a temporary status that is not secure employment.
• The landlord may have been burned by the previous tenant.  This is a tough situation for the current/new tenant moving into the unit.  It may not seem “fair” but the landlord has a right to do so.

Ultimately, the reasons for a high security deposit could be for nearly anything and the landlord doesn’t necessarily have to tell the tenant why they are charging more in most states.  As a landlord, if you feel you have to explain, it can generally be summed up with reminding the tenant that the security deposit is fully refundable.  As the tenant, you need to remember that as well.  The deposit is refundable and all parties need to make sure that the lease states as such.

Both landlords and tenants should be familiar with their state’s landlord and tenant laws.  It is typical that there is a cap on how much security deposit a landlord can charge or hold, such as no more than two month’s rent.  There are also other important things to watch for in state or city laws, such as time frames that a landlord has in refunding a tenant’s security deposit or itemize damages withheld.

The bottom line is that with a security deposit, no matter how large or significant it may be, it is most likely refundable.  As a tenant, do your part, take care of the unit, pay your rent, fulfill the terms of the lease and chances are you’ll get your money back.