Real Estate Investing 101

Rent Concessions & Broken Leases

Many landlords offers rental concessions as a way to attract new tenants. The signs are everywhere… “Free Rent”, “1/2 Off First 3 Months” and even “Free Plasma TV with 1 Year Lease.” When the market is saturated, like the current Phoenix market, landlords get creative.

We gotten some emails asking what damages a landlord can ask the court to consider regarding concessions and evictions.

As with all things legal, we turn to people with the “JD” thing behind their name and that person is most often Phoenix landlord/tenant attorney Andy Hull.  Regarding concessions and evictions, Andy says:

The normal lease agreement usually will have a provision for rental concessions that were given to the tenant as an inducement in signing the lease. These rental concessions then would be repayable as unpaid rent in the event the tenant does not fulfill the lease agreement.

The courts have seemed to be consistent in allowing rental concessions in evictions. The lease must specifically state that the concessions must be repaid as additional rent if the contract is not fulfilled. Most of the courts will also prorate the concessions for those used as of the date of the eviction.

We hope this info has been of help. If you need a knowledgeable landlord/tenant attorney in the Greater Phoenix Market, Andy Hull is a well known quantity. Just go to his web site for contact info and such.

Best to you,

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

Estimating Repairs on Foreclosure Properties

The following article on estimating repairs on bank owned or foreclosure properties came our way from the good people at Advantage Inspection Service. These are the guys we use for our personal property inspections.

Since many of our readers are buying homes in “AS IS” condition, we thought this info would be valuable and important. Enjoy.
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In 2009, 36.8% of all closed residential sales in the Greater Phoenix Area were lender-owned properties!
We all know that bank owned and foreclosure property sales are clipping along at a furious pace right now. Many consumers are caught up in the perception that they will undoubtedly save mountains of money if they buy a distressed property. Experienced brokers and agents know that this is not always the case. Repair costs can grow rapidly and turn a “great deal” into a time consuming frustration. Estimating repair needs and costs is crucial.

Your first step is a professional home inspection for several reasons. It is likely that the homeowner did not properly maintain the property as finances became strained. In some cases, an angered homeowner may cause both obvious and hidden damage to the property. It is not uncommon to see missing/damaged fixtures, appliances and components at a foreclosure property.

Start estimating. You can take the simple or detailed approach with estimating repair costs. A great first step is to go to www.fixfliprent.com/repairs where they have a free easy to use repair cost estimator. If you want a finely tuned estimate you can look at the Craftsman Book series of software. Trial versions can be found at www.craftsman-book.com/downloads which gives you the ability to estimate construction costs like a pro.

One final note. It is often a challenge to get the utilities turned on before the inspection. Persistence is needed in dealing with the various parties as you arrange for the inspection. Don’t give up and by all means have the home inspected. Who knows how many thousands of dollars it could take to repair an undiscovered defect.

For more information, feel free to give us a call or send an email.

David Swartz
Advantage Inspection Service
602-864-8331
www.azinspec.com

Landlord Gets A Judgment and Asks... How do I get paid?

We received an email asking how to collect on a court awarded judgment.  Being a legal question, we thought it best answered by someone with the letters JD behind their name. Again, it’s Andy Hull to the rescue and below is his answer to that fine question. If you have a question of your own, please let us know and we’ll track down an opinion. 

From Andy...

One of the persistent questions that I continue to receive is how do I get paid once I have evicted my tenant. Just because you have a Judgment that says the tenant owes you money and has to vacate by a certain date does not mean that you will automatically get paid. The Judgment should be reported on the tenant’s credit history and will show up in the future. If the tenant attempts to obtain a loan, buy a car, house, etc., the Judgment should show up and the tenant would have to pay that off before they could get the loan. The Judgments do carry ten percent (10%) interest per year and that interest would also have to be paid.

Realistically, keep in mind, the Judgment is nothing more than a piece of paper signed by a Judge and it is up to the landlord to try and collect on that. The easiest way to collect is a garnishment of wages if you know where your tenant is employed or garnishment of their bank account if they have sufficient money in the bank account. Otherwise, you may have to forward the Judgment to a collection agency. Keep in mind, any monies due and owing after the Judgment was entered for such things as property damage, future rents, etc. would have to be pursued in a separate lawsuit.

Once you have a Judgment, if you wish to pursue it and you do not know where the tenants are employed but you do have a forwarding address for them, you may wish to explore the following. You can serve upon the former tenant what is commonly called a Judgment Debtor’s Exam. This is a subpoena from the Court that the tenant must appear back in front on the Judge and bring in proof of their assets, bank accounts, property they own, place of employment, tax returns, etc. Whether the tenant is honest enough to bring this information is always a risk. You can also send the Court Constable to their new home with what is called a Writ of Execution. This is an Order to the Constable to seize any nonexempt property and try and sell it. However, most property is going to be exempt unless the tenant has such things as a collection, etc., but this would be for the Constable to determine.

Beyond that, there is not much that can be done.

Again, thanks to Andy Hull. If you need an experienced landlord/tenant attorney in the Greater Phoenix area, Andy’s office number is 602-230-0088. If you need a great real estate person on your team… we’d like to apply for that position.

Gene Urban & Ron Urban
The Urban Team at Realty Executives
602-234-5777
Gene@UrbanTeamAZ.com

Investment Property Insurance... options and thoughts

We asked Kimberly Adams, an insurance specialist with Liberty Mutual to provide advise and thoughts on the subject of insurance for investment properties and owners of such. Below are her observations.

We will be posting additional articles on the subject of insurance for real estate investors and their properties.

The Importance of Landlord’s Insurance

As a real estate investor, or more specifically a landlord with the tenant-occupied property, you have to whether you are protected from or wide open to the biggest risks of owning a property you do not live it. To keep it simple, the biggest concerns of a landlord are: the structure, your liability, and potential loss of rent as a result of a circumstance that has rendered the house unlivable.

Sure, you may not live there, but someone and their loved do. Is the property covered for losses caused by fire only, or do you have a broader amount of perils insured against? (i.e., vandalism, wind, hail, accidental overflow of water, and so.) Based on the cost of the policy, you may have selected a basic policy not realizing that other than a fire, all other losses are your out of pocket expense. In Arizona, there are 3 types of Landlord, or Dwelling policies – basic, broad, and special. Take the time to know which you have.

Your next biggest concern is…what if my tenant sues me? Your responsibility is to know that your property is in the utmost safe & sound conditions structurally, electrically, and environmentally. Why? Should for any reason a situation arise due to substandard property maintenance or even a fraudulent claim, you could find yourself in an overwhelming lawsuit, costing you all value in this investment, and possibly more. Your liability coverage is intended to protect you and your assets from large verdicts or settlements due to accidents, and/or malicious tenants.

You can never have enough liability protection when it comes to investment homes! After all, you don’t have to be a millionaire to be sued for a million dollars. Selecting the maximum limits or taking an Umbrella policy is wise, if not imperative.

It is also suggested that Renter’s Insurance be mandatory in your lease agreements. This requirement simply adds a layer of liability protection and insures your tenant's possessions are protected.

What happens if the property becomes unlivable due to one of the perils/losses named on my policy? Can you afford to pay that mortgage without incoming rents? Loss of Rent coverage buffers you from the burden of lost rental income for the duration of time required to restore the property back to livable conditions. Typically, Loss of Rent coverage is 10% of the dwelling/replacement cost coverage of the structure. If your property is insured for $100,000, you have $10,000 for Loss of Rent. Know confidently what your situation would look like in the event of the worst-case scenario.

Ultimately, know with certainty that you can sustain the great unknown. Don’t bog yourself in the infinite “what ifs”, but be sophisticated enough to understand what coverage & partnership you truly have in your Dwelling Insurance package.

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Kimberly Adams is a licensed Sales Representative with Liberty Mutual Group, in Arizona. Liberty Mutual is the nation’s eighth-largest provider of personal lines of insurance products. The company sells full lines of coverage for automobile, homeowners, valuable possessions and personal liability insurance. Call (480) 205-1783 or email for current coverage analysis and rate information.

The Pros & Cons of Buying A Home Warranty Policy

One tool a real estate investor will want to explore is a home warranty policy. In this post we will discuss the pros, cons and cautions of home warranty policies.

A home warranty is simply an insurance policy that covers the repair or replacement of various items and appliances in your home. Most policies cover AC & heating systems, plumbing, electrical systems, and appliances such as garbage disposals, ranges, microwaves, dishwashers and more. Many policies offer coverage for refrigerators, washers, dryers and a swimming pool/spa for an extra fee. The exact coverage varies from company to company as well as the exact product you purchase. Below are links to a few of the many companies you may explore in the Arizona market:

American Home Shield
Fidelity National
First American Home Buyers Protection
Old Republic

There are pros and cons for  buying a home warranty policy. Below is an overview from our experience.

The Pros:

• For many, a home warranty buys ease and piece of mind. When a problem comes up you have a third party to call for diagnostics and repairs. Costly fixes such as an AC unit may be made for a small out of pocket expense.
• Many repairs are covered that may be beyond your capability.
• You call one number for just about everything. You don't have to keep a list of service providers.
• Many home sellers, including banks, will provide a policy for the first year of ownership as part of the contract. Don't be afraid to ask for one when you make your offer.

The Cons:

• The annual premium of a policy is generally in the $500.00 - $600.00 range.
• There is a trip charge for each item you call in for repair. Fees vary but are generally in the $60.00 range.
• Each repair requires a separate service call and fee. If your tenant tells you there is a plumbing leak and an electrical problem you are likely to be charged for each item.
• Home warranty companies are insurance companies and may try to reject your claim, especially if they find the problem was due to a lack of general maintenance.
• The home warranty company's service tech will generally try to repair rather than replace.

Cautions and Advice:

• Many people have trouble getting claims covered... a common issue with insurance providers. We recommend you find and keep the company's local representative name and number handy. They can often resolve problems and get claims covered.
• Make sure and have appliances such as AC systems and water heaters serviced on a regular basis. Keep copies of the service receipts handy so you can provide them if needed. Many claims are denied due to lack of maintenance.
• Read your service contract fully and know what is and isn't covered. Be tough and don't give in when your claim is denied. Notice, we said when, not if.
• If you are working with a Realtor, know that he or she may have a fair amount of pull with the warranty company. In our case, we have placed hundreds of policies on homes and the warranty companies want to keep our business. Call your real estate agent if you have a problem and ask for help. 
• Look at AC coverage carefully. Some companies do not cover crane fees if your AC unit is roof mounted. Others charge for freon disposal or if they have to bring the unit up to Federal standards such as the required 13 seer rating. Your real estate agent can help you through this mine field as well.

After reading this you may think a home warranty is too difficult. Personally, we always put them on homes over 8 years old unless the AC unit and hot water heater have been recently replaced. Those big ticket items can be a killer. Plus, we know how to get claims accepted and like the convenience.

As always, feel free to drop us an email or call us at if you have questions. We truly like to be of service.

Ron Urban & Gene Urban
The Urban Team
602-234-5777
gene@urbantamaz.com

Who Should Be On Your Real Estate Investment Team?

Growing up we played a lot of sports. Ron played football under John Madden at San Diego State and my sport was water polo at UCSB.

One thing we both learned was the value of putting together a great team.

You'll want to do the same when you decide to become a real estate investor... this is true if you plan on buying only one home or many. Below we've put together a list of the various people you'll want to consider.

BUYING/ACQUISITION TEAM:

MORTGAGE LENDER:
Unless you are paying cash for all your properties, a mortgage lender will be a crucial player. One thing we've learned in our 20 years in the business is that not all lenders are alike. There are a lot of amateurs out there that can get you in trouble. 

We recommend that you hire someone with a lot of experience with non-owner occupied real estate loans and a clear track record. We personally prefer mortgage bankers over brokers. We've simply found to many variables, especially in underwriting policies, when using a broker. 

REAL ESTATE AGENT/BROKER:
Let us say up front that we are Realtors. That said, most true investors do use a real estate agent or broker when buying investment property. A good agent will know the market conditions, have access to data and valuation tools most lay people simply do not have. We qualify a good agent as one who is:

• Full-time in the business with a minimum of 5 years, preferably over 10.
• Knowledgeable about the various markets.
• A strong negotiator
• Conversant in the math skills required to evaluate investment property
• Someone you feel you can trust
• Someone who shows you the best properties available, not just his or her own listings.
• We recommend you interview several agents to find the one who you find most competent.

HANDYMAN OR GENERAL CONTRACTOR:
There is a good chance, especially in the current foreclosure market, that a candidate home will need some work. You may have the skills and time to do some or all of the work yourself. If not, a good handyman or contractor will be essential.
A contractor or handyman will help you evaluate the costs and time line of bringing the home to rentable condition. His or her input will be important in determining CAP rate and thus the maximum purchase price you'll be willing to negotiate. Important criteria includes:

• Ability to provide an accurate cost analysis.
• Ability to perform the needed repairs on time and on budget.
• A background in investment housing and best materials to use in a rental application.

THE BUSINESS TEAM:

REAL ESTATE LAWYER:
The Boy Scout motto of Be Prepared is the focus here. At some point in time you will probably need to initiate eviction proceedings on a tenant… it comes with the job.

Pre-planning an action plan and having the necessary paperwork drawn up in advance is important. If and when the time comes, immediate action is your best course and can often help in actually training and retaining a tenant. When they learn that you don’t mess around, they are not as apt to either.

A lawyer can provide you with the necessary lease agreements and other paperwork to keep you safe and on course as well as advise you on specific issues. Some believe it is best to hire a real estate attorney who invests in rental properties him or her self as they will have working knowledge of the issues.

ACCOUNTANT:
An accountant/CPA will be invaluable. Understanding the tax consequences of rental property is tedious and usually beyond most investor’s abilities. In addition, a knowledgeable accountant can provide strategies and advise that will may you more profitable and keep the IRS off your back. Your accountant may help you determine and set up an LLC for your business if needed too.

PROPERTY MANAGER:
We can’t say whether or not you’ll need a property manager. We recommend you interview a few and find out exactly what services they provide. At the conclusion of the interview you have to ask yourself if you have the resources and skills to do the job yourself. (See our page on Property Management for more details.)

TENANT SCREENING SERVICE:
Finding a good tenant is of great importance. One of the tools you will use is a tenant screening service. Tenant screening provides you with a variety of important information about the quality and background of your future tenant. Services vary by company. We recommend at least the following information be gathered:

• SSN Validation
• OFAC/Patriot Act Search
• Evictions + Suits
• Liens + Judgments
• Bankruptcies
• Criminal Records Search
• Sex Offender Search

Tenant screening services may be offered ala carte by property management firms and can be found online by Googleing “tenant screening service". 

MISCELLANEOUS TEAM PLAYERS:
You may want to interview and have on hand some or all of the following service providers:

• Bookkeeper
• Insurance Agent
• Landscape Maintenance
• Plumber
• Painter

Residential Real Estate Property Manager... do I Need One?

A good question to ask is if you need to hire a property manager. We can't answer that question... that truth lies in your talents and abilities.

Below we've outlined some of the services a good property manager can supply. We'd advise you read through the list and determine, with great honesty, if you have the skills, personality and time to self manage.

Fundamentally, a property manager handles the day to day duties involved with owning a rental home or property. If you lack the time or expertise needed, an expert property manager can help you.

A property management company can help you:

• Market your rental property to potential tenants. A good property manager knows market conditions, understands how and where to find good renters and how to determine viable rental rates.
• Fill vacancies with the best possible tenants. A good property manager should evaluate your prospective tenants, run financial & criminal background checks, negotiate lease agreements, explain the rules, and collect deposits/upfront rent.
• Maintain and keep your rental property in good condition. A good manager will coordinate any necessary repairs and oversee ongoing services such as landscaping, pool maintenance and such.
• Property managers should provide monthly business reports. They may provide other financial services such as setting up escrow accounts for deposits, bank accounts for income and expenses as well as financial statements required by your CPA.  
• Collect rent.
• Execute eviction proceedings if tenants violate the conditions of their lease. Some have specialty lawyers on retainer who can help with this process.
• Comply with federal, state and local laws. See the Arizona Landlord Tenant Act.
• Respond to tenant requests and deal with problem tenants.

How did you do? Can you handle most or all the tasks outlined? If you feel pretty good, perhaps a few good books on skills and techniques may be all you need. If the list looked pretty daunting, a management person may be your best route.

Like with any industry, there are both good and bad property managers. We STRONGLY (notice we put that in all caps) advise you to interview several people. Get and follow-up on their references. Naturally, we've gotten to know a few people who are good at the job and we'd be happy to give you their contact info if needed.