Real Estate Investing 101

Accepting Partial Payments from Tenants in Arizona... know the law.

Another in our ongoing series on legal issues. Please note that our legal issues series is based on Arizona law and may not be applicable in other States. Today's opinion is provided by the very talented and well regarded landlord/tenant attorney, Andy Hull. If you have questions, concerns or need counsel, please give Andy a call... he is a very helpful man. He can be reached at (602) 230-0088.

Today's topic is acceptance of partial rent payments. In the past, there was some grey area regarding this subject. However, things changed in late January 2009 when the Justices of the Peace in Arizona offered interpretations of the new rules of eviction in Arizona.

PARTIAL PAYMENTS:

Rule 13(a)(4) states that if a landlord accepts a partial payment without having the tenant sign a partial payment non-waiver form, the eviction will be dismissed. In the past, arguably the tenant had the obligation to come to court and raise that issue.

As a reminder, you cannot take any rent if the tenant is under any default notice (including for noise etc.) without having the tenant sign a non-waiver. Otherwise, your case will be dismissed.

If you accidentally accept the money, send it back. If it has been deposited, issue a new notice and wait until the first day of the next month to file the eviction.

We hope this information has been of value to you. If there is a topic of interest to you, please send an email to the Urban Team with your question and we'll do our best to secure an opinion.

Hope you had a great Memorial Day Weekend.

Gene Urban & Ron Urban
The Urban Team at Realty Executives
602-234-5777

 

Investing In Real Estate... Warren Buffett says it's a good hedge against the coming inflation

While perusing excerpts from the recent Berkshire Hathaway shareholder meeting an interesting headline caught my eye. CNN Money reported "Buffett wary of real estate slowdown ahead."  Based on the headline, I expected to hear that Buffett doesn't like real estate. The actual article talked little about real estate and rather more about real estate brokerages and mortgage companies.

Unsatisfied with another headline that didn't match the article, I Googled further. I found a interesting article about Buffett's take on inflation, one of my biggest worries.

 The article actually discussed inflation, I was encouraged. Next I was pleased to read Buffett likes real estate as an investment and recommends it as hedge against inflation. Here is an excerpt from the article.

The best way to fight inflation for the average consumer is probably this: Buy real estate with 20% down and a 30-year fixed rate mortgage. If you don't already own a home, this means you will likely be able to take advantage of the $8,000 first-time home buyer tax credit. If we get rampant inflation and you don't own a home, you will find your monthly rent obligations soaring. If you buy a home, your mortgage cost will remain the same as your salary increases, leaving you with more cash to save and invest.

The other nice thing about buying a home is that, even if property values appreciate slower than inflation, you can still end up ahead because of the power of leverage. For example:

• Buy a home at $100,000 with $20,000 down. Property value appreciates 3%. Inflation clocks in at 6%. So your property value goes up $3,000, but since your down payment was only $20,000, your cash on cash return is 15% -- easily preserving your purchasing power in the face of 6% inflation.

And that's a worst-case scenario because on average, real estate appreciation tends to beat inflation by a couple percentage points. Leverage magnifies that gain, meaning that inflation is actually the friend of real estate investors.

We were happy to read this from a man whose knowledge and long-term success is legendary.

Thanks for reading and just in case you don't know, we have what many consider the very best real estate search tool for the Arizona market. Click here to search for homes, foreclosure properties, condos, or land in the Greater Phoenix Arizona area.

Gene Urban & Ron Urban
The Urban Team at Realty Executives

OOPS... Trump Get Caught By His Own Lease

From our strange and funny story department comes a good one. Let's say you are the Donald... Trump that is.  Let's say you tell your attorneys to draw up a lease agreement you will use with the bazillion tenants you have in your various holdings. As you can imagine, the lease agreement just might favor Trump Corporation.

This is great, provided you are the landlord and not the tenant. According to Am Law Daily, it seems Trump Corporation used one of his own leases when renting several Manhattan co-op apartment units. Now Trump finds itself going to court for allegedly failing to pay rent totaling $87,000 and the lease agreement they are up against is their own. 

The attorney for the Co-op, Andrew Perel of Steptow & Johnson, says "If you don't pay the rent when Donald Trump is your landlord, he comes down on you like a hammer."

Sounds like this time, Trump is the nail...oops.

Arizona Landlord Alert... what if the AC system goes out.

Andy Hull, arguably the top landlord/tenant attorney in the Phoenix region, has provided us with this article on landlord responsibilities when an AC system or other essential service becomes non-functioning. We hope this info helps keep you and your tenant safe and happy. Thanks again to Andy, who can be reached at (602) 230-0088.
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As summer drags on, one of the more common questions we get is concerning failure of air conditioning at the rental property and what if any compensation the residents are entitled to. Generally speaking, as long as the landlord makes all reasonable efforts to repair the air conditioning problem, there is no compensation. The main statute in the Arizona Residential Landlord and Tenant Act is A.R.S. § 33-1364. This statute simply states that if the landlord deliberately or negligently fails to supply the tenant with essential services (air conditioning being one of those essential services), the tenant can do an number of things including going to a motel and deducting the daily rent from the motel bill, suing for diminished rental value, or obtaining substitute essential services (a rental air conditioning unit) and deducting those from the rent. However, as along as the landlord is attempting to make the repairs, these options are not available to the tenant. The courts have consistently found that if a landlord attempts to get an air conditioning repairman out, the repairman is backlogged with work for instance, and then needs to order parts from out of state, even if it takes three to five days to complete the air conditioning repairs, legally the tenants are not entitled to compensation.

The tenants, however, have other options. One of those is to give the landlord a 5-day Health and Safety Noncompliance Notice for failure to supply this essential service, and if the landlord cannot correct the noncompliance within five days, the tenant can terminate the lease, vacate, and ask for their deposit back. Also, if the cost of the repair is less than one-half of one month’s rent or $300.00, whichever is greater, the tenant can serve written Notice on the landlord and if repairs are not done, hire their own licensed and bonded contractor to come in and do the repairs. The tenant would have to get a lien waiver from the contractor that they would not place a lien on the property, pay the contractor’s bill, and then submit it to the landlord for the above deduction to be taken off the next month’s rent. However, the law is very clear that the tenant must elect between one of these three remedies and cannot do more than one. As a landlord you should document all of the efforts you have made to correct the cooling problem in the event that the tenant attempts to sue for compensation later. The same laws apply to heating and would apply to lack of heating during the winter months.

Gene Urban & Ron Urban
The Urban Team at Realty Executives

Phoenix 85006 May Be Good Area For Real Estate Investors

We just complete a post on our sister site, Urban Life, that may be of interest to real estate investors. The article is an analysis of Phoenix zip code 85006 and below is a quick excerpt.

Investor owners may continue to do well in this area as prices suggest the potential for positive cash flow and some increase in values during the coming years. Since nearly 60% of the residents rent, a number many think will rise with the increase in area foreclosures, a good rental base is in place. Much of the area may be to distressed to attract the increasing ASU downtown population, yet some pockets may be viable. Investors should be aware of potential for rent rates to be on the decline due to competition and low-income demographics.

To read the entire article, simple go to Urban Life.

If you would like to see what is currently on the market in 85006, please use the Phoenix real estate search tool provided below. All ARMLS active listings, including bank-owned properties, are available and the data is updated several times per day.

Best to you,

Gene Urban & Ron Urban
The Urban Team at Realty Executives
602-234-5777
Your source for sound investing information

OOPS... A look at strange, funny and sometimes weird landlord-tenant stories. Volume 4

It's time for another in our series of funny, sometime strange stories from the courts hearing landlord tenant cases. Thanks again to Andy Hull for his library of interesting tales.

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In one situation, the tenant applied for a new apartment and brought in a letter from an employer and letters from previous apartment complexes as rental references.  The manager, feeling something was amiss, took the copies and began an investigation of her own.  She was able to determine that these documents were forged.  She contacted the police who set up a sting operation at the apartment manager’s office so that when the tenant came in to sign the lease, they could arrest the individual.  A detective from Document Crimes came to the property, and the detective asked the prospective tenant to give a handwriting sample.  Without a blink of the eye, the tenant responded, “Oh, I couldn’t, I might break a nail!”  The tenant was arrested for forgery and taken away.

Finally, a tenant came in upset because the air conditioning had been down for a couple of hours.  He got very loud with the office staff and they asked him to please get out of the chair and leave the office.  As he stood up, he didn’t notice a plastic baggie with a green leafy substance falling out of his pocket. The property manager noticed it and was quite sure it was marijuana.  She called their crime free police officer to come over and verify that.  The tenant came back to the office approximately an hour later wondering if anyone had seen a baggie of exotic tobacco that he had ordered from Europe and he had somehow misplaced.  The manager said, “No, but we did find a baggie of marijuana which the police are now having their lab analyze as well as fingerprinting the baggie.”  The tenant immediately turned and ran from the club house saying, “I forgot about an important meeting I have to be at.”

We hope you've enjoyed another offering in our series. Come back next Monday for more. If you have a good story of your own, let us know.

Gene Urban & Ron Urban
The Urban Team at Realty Executives
602-234-5777

LLC'S Can Create Problems as Well as Solutions For Home Investors

During our last Real Estate Investors 101 workshop, Judy Giel of MetLife Home Loans talked about problems associated with financing and LLC's.

Limited Liability Companies, aka LLC's, are often formed by real estate investors to create liability protection, increase anonymity, provide debt protection and many other reasons. However, they do present some problems and complications that we'd like to share with you.

Before we address concerns, please be advised that we are not attorneys or CPA's and we strongly suggest you consult with professional counsel prior to making any decisions or changes.

The problems we'll discuss pertain to investors who have or will have mortgages associated with their properties. If you bought your residential property using a lender to fund the purchase, you did so in your own name, notyour LLC. Residential lenders lend to people, not businesses.

Many investors re-title the property in the name of their LLC. Doing so can invoke the "due on sale" clause in your loan instrument. Actually, it does invoke the clause, whether the lender takes action is a different story.

Historically, most lenders have not taken action; However, the current industry problems have created policy changes. In talking to several lenders, they said their banks rarely invoke the due on sale when a property is transferring into an LLC and they probably wouldn't if you arecurrent with your payments. Again, we reiterate, consult with an attorney to get the most current info and rulings.

We mentioned that banks lend to individuals, this is true for refinancing too. When refinancing a loan you will have to transferthe property out of the LLC and back into the borrowers name. The transfer is likely to costa few bucks depending on who does the work. Check with your LLC preparer for exact costs and don't' be surprised if it is over $500.00.

Well, we hope this info provides you value and service... our objective here at Real Estate Investing101. In an upcoming post we'll have a real estate attorney describe the benefits of forming an LLC. Check back often to see what new info we're putting out there to help you be an informed person.

Gene Urban & Ron Urban
The Urban Team at Realty Executives
602-234-5777

OOPS... A look at strange, funny and sometimes weird landlord-tenant stories. Volume 3

Another post about the strange, funny, and sadly true stories of tenants, landlords, and judges. We want to thank Andy Hull, landlord tenant attorney in the Phoenix area, for never ending supply of tales.

Below is this week's chronicle:

A tenant wanted to transfer apartments because her sister had put a demon curse on the apartment that she was currently in.  She informed the management that demons would come out at night and beat her up in her bed while she slept.  Of course, she had no bruises or other evidence of any injury... just an evil sister who liked to use demon curses when angry and mad.

One tenant showed up in court for nonpayment of rent and explained his situation as follows.  He had to go back to the Midwest because his father-in-law became extremely ill.  He had just returned from the Midwest when he found out that his wife’s sister (who was his ex-wife) had also become ill.  He immediately said, “I know what you’re thinking, but I’m not from Arkansas”.

Here is a story from one of our readers...

The property manager (PM) for a single family home gets a midnight call from a tenant explaining that she had just had her car stolen. The PM consoled her as best as possible and asked why she called her at midnight to to tell him this. The tenant responded, "Because I need you to come over right now and put up a fence around my driveway so no one steals my other car."
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That's it for this week, keep coming back for more stories of strange, weird and funny.

Ron Urban and Gene Urban
The Urban Team at Realty Executives
www.urbanteamaz.com
www.UrbanLife.com
602-234-5777