All Forum Posts by: John Stevenson

Appraisers learn the market by watching data on listed and sold properties. Once you pick an area that you are interested in, start examining the properties that are on the market. See if you can figure out the answers to these questions:

Why are they on the market? How long have they been on the market? Are the listing prices going up or down? Are there more foreclosures or "standard" listings?

Answers to these questions will help you gauge what is going on.

Then turn to sold properties and ask yourself the same questions only add:

How long did it take from the listing date to the selling date? Were there any sales concessions? What is the percentage of difference between the sales price and the listing price.

Some of this data maybe difficult to access if you are not licensed or have access to the MLS, so a good realtor mentor maybe willing to help out.

Good luck

PS Investing in the foreclosure market is where it is at for residential investors.

Make sure that when you figure the rent amount you take into consideration the "normal" houses in the area. If the standard house is 3 bedrooms and is renting for $850, you are not going to be able to double the rent just because you offer twice as many bedrooms. I doubt the demand will be there.

Comments about the lack of bathrooms is a serious consideration. In today's market, the demand is for 2 full bathrooms for every 3 bedrooms. In your scenario you would need 4.5 bathrooms to support the 7 bedrooms. Instead you only have 2.5. Unless you plan to upgrade, you will take a hit when you go to sell the property.

There maybe an incentive to rent, at least temporarily.

What are realtors saying about the economy? If housing prices are expected to appreciate at a rate higher than inflation over the next 3 - 5 years, it may make sense to rent it out for a few years to capitalize on the appreciation. Even with the expenses going out, as long as you break even every year, when it comes time to sell you still make money.

In the meantime, if the job situation goes sour, at least you know that you have a place to go back to. If after a few years, everything is going good, then sell with no regrets.

As to a good property manager. If you go the rental route, I recommend asking any property manager for 5 - 10 past or present clients. Then give them each a call and ask them for their candid opinion.

I agree with Rich. I would put a FSBO sign out front.

If a realtor approaches you with a buyer, you should sign a single transaction listing agreement. In other words, you allow this realtor to bring a buyer this one time. He/She should not think that they are your agent.

You do not need to list your property with this guy to sell it to his buyer. Generally, if you have an unlisted house, his commission should be halved because he is not "representing" you. He is only bringing a buyer.

Once the house is rehabbed, it is up to you if you want to list it or try a FSBO.

With regard to the pet deposit. Another way to get around it is to tack on a pet fee to the rent. If a person really loves their cat, they should be willing to pay an additional $25 a month.

It is another way to "increase" the rent.

Paul,

If you do your homework you will be okay, especially since you are from Chicago. If I was in your shoes, I would first establish any bank financing that I would be needing. Get a pre-approval letter so you know exactly where your investment ceiling will be located.

Then I would plan a trip to Chicago to go look at properties (with my bank letter). Your confidence will increase dramatically if you physically inspect the properties. I would even pay a good highly recommended licensed contractor to accompany you for the day. This way you can get his/her impressions right there on the spot. You can always have a home inspection done after you return home (make a satisfactory inspection contingent on the offer).

A couple of days would be minimum, a week preferable. I know there is a cost to travel to Chicago, but then you can get your network of professionals in place and save some major potential headaches down the road.

Good luck!

Steve,

When offering the "early payment discount" it really depends on how you think your tenants will respond, what is the market rent in the area and state legal requirements.

For example. If $800 is top rental dollar, then do not advertise $850. You will just have to explain that there is a $50.00 late fee (if legal).

But.. If the market can support $850, then advertise your place at $850 with an early payment discount. I have done it both ways with success.

Of course, you need to be familiar with the legal restrictions found in each state. It would be best to consult with a real estate attorney just to make sure.

With regard to the pet deposit, my opinion is that it would be above and beyond the security deposit - but again you should double check with a real estate attorney just to make sure.

Another thought on this thread would be to prepare a comp workup of other similar properties in the neighborhood and show them how many days they averaged on the market for a standard sale.

This way you can help the family decide if they are willing to wait to get a market offer or if they really need to liquidate the property to sell in less time.

Additionally, I agree with the other comments, one quick sale below market will not create a market. Especially if you include comments in the sales listing that this was a highly motivated sale.

I have included pet deposits in my contracts. I usually include an additional $100 - $150 pet deposit. You could also put a rent increase clause for a pet, maybe an additional $25 per month/per pet.

Instead of a late fee, I write an early payment bonus. Let's say that the rent is $800 and is due on the first. I write under the rent section that the rent is $850 and is payable on the 10th. If paid before the 10th, the rent is $800. It seriously cuts down on late payments. Has worked great! Your tenants think they are "making money" by paying on time and if they don't, you get a bonus.

For a first time investor, I would never recommend buying out of your area. Even if this is your first time in real estate investing, as a resident you will be quite knowledgeable of the good areas and the "low rent" districts. You will have a better understanding of the economy and rental rates. You are also there to oversee the property - even if you still hire a PM to handle the day to day tasks.

There are some national areas that have super discounted properties, but there is a reason for it. Unless you know why that particular property is so highly discounted, I would never take the risk.