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TIPS FROM MABEL Renters’ Rights New landlords need to know what the rules are regarding tenant relations. Student Public Interest Research Groups in most states publish a Renter’s Rights Handbook. In Oregon the Handbook is available at 541-346-HELP or on the web at www.ospirgstudents.org. State statutes regarding tenant and landlord relations are also available from most state bar association web sites. Most communities also have Rental Owner Associations. You’ll find numbers in the phone book, or call one of the property managers in your community for information. These organizations are invaluable to first-time landlords. Take advantage of their experience and expertise. The Steps to Your First Rental Purchase 1. Define your investment goals. For example, do you intend to buy one duplex a year for the next five years? Or are you going to buy one house and move your college-age child into it, and rent other bedrooms to other students? Everyone’s goal will be different. 2. Evaluate your purchasing capacity. Develop your financial statement. 3. Make an appointment with a loan officer or a mortgage broker and get a loan approval. 4. While you are doing the above read the real estate advertisements—both for rent and for sale—in the weekend newspapers and in real estate flyers. 5. Pick two or three neighborhoods where you will focus your investing. 6. Develop your criteria for the property you want to buy. 7. Find and engage a buyer’s agent to help you through the process. 8. Find two or three properties that fit your criteria. 9. Purchase one of those properties using the strategies you have worked out. 10. Hold and rent the property until a time that makes sense for you to sell it or refinance it. 11. Repeat as necessary to move you along your pathway to your financial goal. Where Can You Find the Cash to Invest in Rentals The First Steps One simple answer is, of course, spend less and save more. For most of us living in the most consumer-oriented culture in history, that can be hard to do. But it can be done. Start with your credit cards. The average American owes $8,000 on credit cards. Most pay only the minimum balance each month. For the majority of credit card holders, that means that their balance actually increases each month even if they do not make a single purchase. David and Tom Gardner, authors of The Motley Fool books on investing suggest you cut up all but one credit card. Then put that card away for emergencies. Don’t carry it with you when you shop. Force yourself to use cash for all purchases. If you can’t afford it, you can’t afford it. While you are getting your credit card debt whipped into shape, spend one week recording every thing you purchase—EVERYTHING. Then take a long, critical look at the list. In our hectic lives we pay little attention to how easily the money slips away. It isn’t unusual to find that you’ve spent $10, or even $20 on a couple of lattes and a muffin or two each day. Well, $20 isn’t a lot of money, now is it? But, multiply that $20 by 5 and you’ll see you’re spending $100 a week. Now, if you multiply that by 52 weeks in a year, you can see that you’re spending $5,200 a year on something you might not even miss if you didn’t have it. If you can’t live without the caffeine jolt, how about buying a good travel mug and making your coffee at home? Can you take your lunch to work? How much would you save if you decided to make pizza at home once a week instead of taking the family out? Itemizing your expenses for a week, or several weeks will reveal many places for you to save toward your dream of rental ownership. There may also be chunks of money under some rocks you haven’t turned over yet. Step Two—Your Equity If you own your own home, the equity you have in the property may be the biggest piece of cash you can put your hands on. There are several ways to access that money. First, you can refinance your home. Mortgage interest rates are still low. If you haven’t refinanced already you may find that you can do so, pull a goodly amount of cash out of your equity, and not raise your mortgage payment much if at all. Since you will be wanting to establish a relationship with a lender or a mortgage broker as you begin your investment career, now is a perfect time to do it. All the steps required for refinancing your home are the same steps you’ll follow in obtaining a loan for your first rental purchase. Practicing on a refinance may make you more confident when you buy your first rental. Refinancing is just one way to get cash out of your equity in your home. Another way is to establish an equity line of credit. The process is nearly identical to refinancing, but the outcome is a bit different. Instead of being handed a lump sum at the end of the transaction, if you are given an equity line of credit (ELOC) you have essentially established a bank account. You will be issued checks which you may disburse at will. With an equity line of credit, you will be charged interest on the balance which will be based on the amount you have spent from the account. The payback time depends on the amount you eventually borrow, and is normally 15 years copyright © 2003-2004 Mabel Armstrong. All rights reserved. |