What Make A Good Renter?

Is a good renter someone with great credit, or large deposit or maybe  high income?  The approach landlords take in qualifying their renter could be changing because of the housing crisis and the large number of foreclosures.

The main objective of renting your home should be to have a qualified renter that will pay rent on time and take care of the home to some degree.  Large deposits can maximize renters responsibilities to the care of your home, but what can be done to help minimize renters late pay or simple non payment and evictions.

The qualifying approach I encourage landlords to take is one similar to underwriting a loan.  The question that everyone should ask themselves before renting their home. Can my renter make the payment on a consistant basis and how?  This question is always answered by employment.  There are a number of way to increase the odds of finding a good renter just by looking at their employment.

Time on the job - The length time at the current employer is the first thing you should look at.  If a potential renter has been employed for a number years this helps build a case that consistant income can help provide for timely rental payments. 

Proof of income - Not only knowing where your renter works, but knowing exactly how much he makes is very important.  It is not out of the question to ask for the last two paystubs and last years W2’s.  While this may seen extreme, you have answered two critical questions.  Does your renter really work and how much do they make.

Debt to Income Ratio - While pulling credit can give you an idea of credit score and repayment history, how are you going to judge individuals that have gone through foreclosures and bankruptcies.  Sometimes a bad borrower is a bad borrower and you need to decline them for your rental,  but in today’s market place you will find more good renters with bad credit than ever before.  My suggestion is to look at credit, income and employment and determined a debt to income ratio .  This will illustrate whether they have sufficient income to cover their rent and debts.

This process is very similar to qualifying for a home mortgage.  It is up to the landlord to develop their own guidelines as to what is acceptable to their market place.  This is a very simple process to help increase the odds of a good renter - check employment, have proof of income, and determined debt ratio.

If you're new here, you may want to subscribe to our RSS feed or sign up for our real estate social network. Thanks for visiting!

Tags: Credit, debt, employment, income, landlord, lease, rental, rental-property, renter, tenant

Could you imagine driving by a bad car wreck without looking? Could you imagine other drivers whizzing by without gawking at the carnage? Neither can I. Yet, that is exactly what seems to be happening with the economy. Sure, everyone knows about the foreclosure mess and mortgage crisis because the news outlets feast on these stories. But what about the other things that are going on?

Bear Stearns

Bear Stearns was one of the major players in the mortgage and credit debacle. At one point the company’s stock was selling for over $170 per share. On March 12^th the stock was at $57 per share. The following weekend the government agreed to make $2.4 billion in loan guarantees to keep the company afloat. That Sunday it announced that it had arranged a takeover by JP Morgan Chase for $2 per share. This economic news was absolutely stunning.

Looking for the latest on the situation that night, I tuned in the local 10 O’clock news. I was sure that this would be the lead story. Not a word. It was just the usual drivel about car accidents, robberies and a murder or two. Granted, those are serious happenings if it involves you or a loved one, but the economic news affects us all. I surfed through the other channels and could find nothing. It was news on CNN and Fox News, but nothing at all on the local networks. It was as if this had no significance whatsoever.

Ignorance Is Bliss

Most people seem to walk around with blinders on. If something doesn’t affect them directly they ignore it. Politicians know this and that is why they make ridiculous promises that they can’t possibly keep. People just want to know what they are getting, not what it is going to cost. I hear people talking about the stimulus check and when they are going to get them. You don’t hear any talk about the long-term consequences of the Government taking on more debt to pay for those checks.

The light at the end of the tunnel is an oncoming train. The National Debt keeps getting larger. Most people are unaware of the biggest Government scam of all. The Social Security Trust Fund is nothing more than a stack of IOUs. Social Security runs a surplus every year, which is used to fund the Government’s insatiable need for cash. That house of cards is due to come crashing down sooner rather than later. With all of the baby boomers retiring, Social Security is expected to go from an annual surplus to an annual deficit in about ten years. This means that not only will the money no longer be available to feed the Government’s spending machine, more money will be needed to pay for the retirement checks.

Where Will The Money Come From?

I clearly recall my grandmother telling me stories of living in Germany after World War One. When Germany lost the war they were required to pay an enormous amount of money to the victorious nations. The German economy couldn’t come close to raising the capital needed for the payments. The solution? The German Government just printed more money. It reached the point where the currency was practically worthless. My grandmother told me how the workers were paid twice a day because the currency was devaluing so fast. The women would collect the money and rush to the food stores where a loaf of bread would cost a bag full of money. This rampant inflation caused political unrest, which ultimately caused the Government to collapse.

Here in the United States we are nearing another Presidential Election. The candidates all talk about change. My fear is that it will just be more of the same. We can’t keep robbing Peter to pay Paul. Some hard choices need to be made. As individuals we need to pay more attention to what is happening around us. I am reminded of the saying that states “there are those who make it happen, some who watch it happen, and others who wonder what happened.”

Tags: debt, deficit, Economy, real estate, social security, sub-prime crisis, subprime

Perhaps I’m showing my age as I rapidly approach the half-century mark. But I clearly recall a time when there was shame attached to being in debt. I grew up in a working-class neighborhood of modest homes at a time when people never seemed to move. It was a major event if someone moved in or out and there was constant whispering about the couple who ultimately divorced. Occasionally there would even be a rumor that someone was having problems and needed to take out a second mortgage. Gasp! Oh, the horror and the shame!

That was back in the time before credit cards were rampant and you actually had to go to the bank to get cash (for you younger ones, there was a prehistoric time when ATM cards didn’t exist). People worked till 5pm but banks closed at 3 o’clock. You actually had to plan your spending so you wouldn’t run out of cash on a weekend since the banks were closed. Perhaps people weren’t as fiscally irresponsible since they needed to be somewhat conscious about their spending.

Fast-forward a few decades and the picture is very different. Many of the financial problems we have today can be traced to easy credit and fog-a-mirror mortgages. People used their home equity as their personal piggy bank thinking the boom would never end. It seems that people didn’t learn to be financially responsible because it wasn’t necessary. We’ve gone from the “save for what you want” of a generation past, to the “I need, I want, I have to have it now” of today.

Lather, Rinse, Repeat

Credit providers have been extremely successful in their marketing. Today people don’t seem to stop and think. Take that 0%, easy finance plan for that major purchase, it’s the same as cash! Why buy a $15,000 car when you can lease a $30,000 car for the same payment? Owe more on your old car than the trade-in value? No problem, we’ll just roll the remaining balance into the payments on the new car. Have you run your credit card debt up into the stratosphere? No problem, we’ll just refinance for the eighth time and pay those bills off yet again.

So what do you do after you’ve done the financial version of “lather, rinse, repeat” so many times that your payments now exceed what you earn every month? Easy! We’ll just declare bankruptcy. There are so many lawyers out there advertising for this business that it is no longer the scarlet letter it once was. The “B” word was once whispered because there was such a stigma attached to it. Now filing for bankruptcy is so open that no one seems to care.

What Happened To Accountability?

It seems as if we’ve become a nation of victims. So few people take responsibility for their own actions. “It’s not my fault, it was the greedy___ (fill in the blank).” It seems everyone is out to blame the real estate agent, mortgage broker, salesman, etc. Now these “victims” are waiting for the Government to bail them out. The Government, a picture of fiscal responsibility itself, is only too happy to oblige. Of course, the people who live within their means and use debt responsibly get nothing, but what else is new?

There once was a time when defaulting on a debt could put you in jail. The Federal Government abolished debtor’s prison in 1833. Maybe it’s time to bring it back.

Tags: Credit, debt, real estate investing

I see so many people who are just itching to be real estate investors. However, a common theme seems to be “I want to buy and rehab a house but I don’t have any money.” Not only are they lacking funds for investment, they have little or no income and are hopelessly in debt. Then they ask about getting funding or using creative financing techniques. This is a disaster in the making.

It seems that our society has been conditioned to expect instant gratification. We are bombarded by ads for “easy financing”, “12 months same as cash”, “no payments until 2009″, and on and on it goes. The big game is coming, we can’t possibly watch it without that big screen TV. We know we shouldn’t fall for the sales pitch, but we do. We convince ourselves that the 12 months of 0% financing is too good a deal to pass up. Besides, we’ll be able to pay it off before the interest kicks in. Of course, that doesn’t happen and all of that “free interest” is added back in. Now the burden of debt is even greater.

Financial Planning Background

I spent over 15 years as a Certified Financial Planner before moving into real estate investing. I was constantly seeing people who were approaching 50 years of age with kids in college. They were concerned about retirement yet had been unable to save for it. Between the mortgage, two car loans, kids in school and a mountain of credit card debt they were in a hopeless situation. Unfortunately this seems to be the rule rather than the exception.Some startling facts:

• At age 65, 97% of Americans do not have enough discretionary funds to write a $600 check.
• In 2003 more people filed for bankruptcy than graduated from college.
• In 2003 household debt was $2.3 trillion!
• On average, 42% of household income goes to paying interest with interest charges exceeding $600 billion.
• Major credit card companies spend more than $500 billion each year in advertising.
• 83% of college students have a credit card and most graduate with thousands in credit card debt
• Sears processes 700,000 credit card applications every month!

The Solution

The formula for creating wealth is so simple: Spend less than you make! Instead people are looking to get rich quick or find the “secret” to creating wealth. Our society is so focused on keeping up with the Joneses that they fail to realize that the Joneses are broke.

Most people have no idea how much they spend. They do not create a budget or set financial goals. Invariably they are unable to understand why they are always broke. Part of the problem is the use of credit and debit cards instead of cash. Studies have shown that people will spend more when using a credit or debit card instead of paying with cash. Try leaving the cards at home for a week and only use cash. You will feel a difference.

Snowball Your Debt

In his book, The Total Money Makeover, Dave Ramsey advocates creating a debt snowball. You do this by listing your debt from the highest to the lowest amount owed. Then you make the minimum payments on all but the smallest one. You use every available dollar to attack that smallest debt. When that is done you take the money you were paying on the smallest one and add it to the minimum payment on the next smallest. You keep repeating the process until all of the debt has been paid. This creates a snowball effect, which will allow you to pay off everything you owe. For this to work you must not acquire any new debt.

Financial logic would seem to say that you should pay the debt with the highest interest rate first. However, for psychological reasons, you should pay the smallest debt first regardless of the interest rate. The benefit that you get from achieving a financial victory will far outweigh the difference in interest.

Financial Freedom

Most people desire financial freedom. However they do not understand how to achieve it or are unwilling to pay the price to do so. Imagine how different your life would be today if you had worked years ago to eliminate all of your debt. What could you do if you had no bills other than basic living expenses?

“It’s clearly a budget. It’s got a lot of numbers in it.” - George W. Bush

real estate investors, financing, debt, mortgage, bankruptcy, wealth, rich, wealth

Tags: Credit, debt, financial freedom, real estate investing

According to the Star-Telegram, lenders in Southern California are scooping up foreclosed properties at a rate much faster then they can get rid of these homes. “At some point — maybe this fall, maybe in 2008 — the lenders’ inventories will grow so large that they will have no choice but to cut prices aggressively, many agents and analysts predict. That, in turn, will put more pressure on individual sellers, who will have to reduce prices if they want to find a buyer. As values fall, more people could lose their houses, which will swell the lenders’ inventories even more.”

Has all of the predicted doom and gloom in housing become a reality?

I’ve been saying for years now that this overheated market simply cannot sustain itself. I’ve shared with you stories of policemen and others buying million dollar homes in the Los Angeles area, which they had no business doing. This has been happening around the country, and these stories have all been warnings that the perfect storm was on its way.

It looks like we’re in the heart of the storm!

I hope to cover over the next few weeks and months how people can best deal with this market, and what, I believe, has led to the current financial crisis. This housing market will hurt many people, but you don’t have to be a victim! We’ll help you learn to get out before it is too late. We’ll help you profit from the massive explosion in foreclosures. We’ll help you become a contrarian investor that makes sensible decisions that will not only help you save your credit, but that will potentially save your financial future as a whole.

Stay tuned . . .

We’re not going to leave you out there on your own through this impending housing (and possibly economic) crash.

Tags: bubble, debt, Economy, federal reserve, Foreclosures, Housing, housing, housing-crash, Interest Rates, mortgage crisis

Blog Business

• The 5th Edition of the Carnival of Real Estate Investing was hosted at Mortgage Manifest this week and felt our post Keeping Your Tenants Happy During the Holidays was worthy of a mention. Once again, we’ve found ourselves absent from the Carnival of Real Estate, which focused on videos, web 2.0, and comedy. Other then the time we hosted the carnival — a few weeks back — we can’t seem to break into the carnival. I’m starting to feel like we’re in high-school all over again!
• Thanks to Derek Burress for his mention in today’s Real Estate Countdown!
• Much love to our friend Teresa for meme tagging me this weekend. I was unavailable to come out and play, but it seems like the virus has spread even without my help.

Back to Real Estate

• I’ll start with a question: Is there Really A down Time Of The Year for Real Estate? What do you think? Join the conversation!
• Think the economy is just chugging away? Don’t look now, but State of Emergency: The USA is $50 Trillion in debt and unsustainable. Sadly, our government has been ignoring any sense of fiscal responsibility, incurring huge amounts of debt, and putting the burden on my generation (and that of my future children). After finally starting to reduce our debt, Bush - like him or not - came to power and may have sunk us. Lets just hope our creditors don’t come to collect!
• The IEMortgageBlog shares a great post with us about What’s Important About Qualifying For a Home Loan. This is a good read for all those fist-timers out there.
• USA Today looks into the Los Angeles housing market and explores why, while monthly sales volume is down over 20%, median home prices have continued to climb. “The lack of affordable housing in Los Angeles has reached “crisis” proportions, says Mayor Antonio Villaraigosa, and the exodus of the middle class is hurting the city.”

  I can vouch for this report. I’ve been looking around at some of the homes in the city and prices aren’t coming down; it has to be unsustainable, though. Small starter homes in middle class neighborhoods are starting in the $800,000’s. I don’t know of too many middle class families who can afford that kind of money. It does look like things might be changing soon, at least from the ground level. I can’t go 10 houses in my neighborhood without seeing a For Sale sign.

Tags: Angeles, biggerpockets, carnival, debt, Economy, estate, loan, Los, real, Real Estate Investing, trillion, Villaraigosa