Posted by Clair-MO on September 19, 2003 at 15:29:50:
Eric, I encourage new folks who are needing to own a home but their credit is not up to par to go to a conventional lender for a loan so I encourage them to do a lease purchase or owner financing. Since I specialize in lease options and owner financing and I do apologize for not mentioning it before now.
FIRST AND LAST MONTH’S RENT A THING OF THE PAST? - Posted by Jerry - IL
Posted by Jerry - IL on September 18, 2003 at 14:33:29:
I’m about to start advertising for a tenant for my first rental unit. I know that the rental market is soft. Am I going to find a tenant to give me first AND last month’s rent plus a security deposit close to the equivalent of a month’s rent - or am I dreaming? What is customary now?
Thanks in advance,
Jerry in IL
Re: - Posted by eric-fl
Posted by eric-fl on September 18, 2003 at 16:46:14:
Screen, screen, screen. It’s all about the screening. I’ll take a tenant with A grade credit and recent pay stubs, who only has first + 1/2 months rent in security, vs. someone who has first, last, security, with crappy credit, and “can’t find” their pay stubs.
You may want to consider lease/options. nt - Posted by randyOH
Posted by randyOH on September 18, 2003 at 16:08:36:
nt
Re: LLC question-$1200? - Posted by Carl CA
Posted by Carl CA on August 17, 2005 at 19:23:10:
If the LLC is in California, there is a minimum tax of $800 due when
you file the LLC, and every year after that. Add attorney’s and filing
fees, and he’s not far off the mark.
Weather is great, but it’s tough to do business here sometimes.
Carl
Re: SCREEN, SCREEN, SCREEN - Posted by Jerry - IL
Posted by Jerry - IL on September 18, 2003 at 17:05:03:
I’m planning to charge $25 for an application and have a company do a screen for credit ($9) and evictions ($9). A criminal check adds another $17. Are you saying that I can do that stuff myself and ask for paystubs? If I were starting from scratch with you as my mentor, what items would you tell me to require of someone applying for rental?
Re: You may want to consider lease/options. nt - Posted by Jerry - IL
Posted by Jerry - IL on September 18, 2003 at 16:21:20:
My game plan is to accumulate enough properties (ten or fifteen) to have a passive income for retirement. I had the opportunity to sell this one at a great profit, but resisted in order to start my collection. This should have a good cash flow. If I did a lease option that resulted in a finalized sale, although it would be profitable, it would kill my golden goose. Is there something I’m overlooking?
Re: LLC question-$1200? - Posted by Sailor
Posted by Sailor on August 17, 2005 at 20:38:10:
I agree, which is why I became a refugee from CA many years ago. I literally ran away to sea & eventually washed up on the shores of NC (which also has its frustrations, but it is cheaper).
When forming an LLC you have to not only check the initial filing fee, but the ever-after costs. It should not take an attorney to fill in the blanks on the downloaded form.
Tye
Re: SCREEN, SCREEN, SCREEN - Posted by eric-fl
Posted by eric-fl on September 19, 2003 at 09:10:25:
Don’t overthink it. I outsource the credit check, because I have no choice, only companies that are members of credit bureaus can pull them. Then they fax me the report, and I take a look at it. One thing I’ve found, and I’m betting you’ll find the same, is that there is very little in-between. Credit reports are usually almost perfect, with maybe one or two late payments, (which isn’t bad, that’s just life, checks get hung up in the mail, whatever), or, they are horrid. Thousands of dollars in debt, chargeoffs, late payments all over the place.
If the credit looks good, then I typically call past landlords, and just generally ask if they were good tenants, and let them do the talking. I don’t even do this all the time - if their credit is stellar, I assume they paid their rent on time. After all, the “shelter” payment is usually the LAST thing to go, not the first. In other words, people shaft Visa long before they endanger the roof over their head.
If everything there checks out, then I call them back, and tell them the house is theirs if they are still interested. People are usually excited at that point, because it’s like they’ve “won” something. I’m not sure what the psychology is behind it, but I’ve never questioned it, since it works in my favor anyway. I tell them to bring first & security in cash or cashier’s check to the lease signing, along with paystubs. The paystub check is then the last thing I look at, with them right there, before we start filling out the lease. That’s really about all there is too it.
And, just in case you are wondering, of course we do take checks (or do a draft, for which we offer a discount), for all subsequent months. Also, think about it - if you’re doing a draft, why do you need the last months rent? After all, you write a check to yourself, as them each month, why should the last month be any different? Sure, they could NSF you in the last month, but then they’ve technically “bounced” a check to you, and there’s a lot more teeth in going after a bad check, than in trying to force someone to write one in the first place.
Oh, and I charge $20 for the application. Renters are used to this, every apartment complex charges for this, they expect it - why should you be any different?
Re: SCREEN, SCREEN, SCREEN - Posted by Clair-MO
Posted by Clair-MO on September 18, 2003 at 21:32:01:
I charge a $125 dollars for a credit check and background check. Tire kickers will not pay my fees and you want good folks who will be good tenants.
Maybe… - Posted by randyOH
Posted by randyOH on September 18, 2003 at 17:10:08:
Jerry,
I understand your concern. But I do not think lease/options are inconsistent with your overall gameplan.
The first thing to consider is that only about 25% of your tenants will exercise their option. So your holding period for your properties will be longer than you might think.
Yes, you might have a little more turnover in your properties than you would with a pure buy and hold program. But is that necessarily a bad thing?
If you have to sell occasionally, you just buy another property below market to replace the one you sold at a profit. That does not sound too bad to me.
You will still have a portfolio of properties generating cash flow. But with L/Os, you have a better cash flow, build equity faster and have fewer tenant problems.
What downside can you see to this? Maybe you can show me something I am missing. I have tried it both ways. No comparison. Hands down in favor of L/Os.
I have thought about it over and over. I think… there must be a downside to this. But I just cannot come up a major argument against it.
And, of course, the best thing about it is that it just works. If someone told you they had a way to get your tenants to give you a deposit equal to about five months rent and then pay rent 10% over the market AND take care of the repairs, you would probably not believe it.
So you would probably say… but what happens if they exercise their option and buy the house? Yeah, that is really terrible. You have to sell the place for 10% over market and you don’t have to pay a realtor commission.
Now, of course, if you cannot go out and buy another house to replace the one you sold, I suppose that could be a problem. But I would think you could go out and buy another house for at least 20% below market which adds even more to your overall equity.
Let me know your thoughts. I am still trying to see the downside to L/Os.
Randy
Re: SCREEN, SCREEN, SCREEN - Posted by eric-fl
Posted by eric-fl on September 19, 2003 at 08:59:37:
$125 for a rental app?! I hope that’s a misprint, otherwise I’m moving to your market…
Re: SCREEN, SCREEN, SCREEN - Posted by Jerry - IL
Posted by Jerry - IL on September 19, 2003 at 03:52:36:
Clair-
What happens if you have three takers at $125 or do you stop taking apps when the first one pays? Do you refund any part of it to the ones who come in second?
Re: Maybe… - Posted by Jerry - IL
Posted by Jerry - IL on September 19, 2003 at 03:58:30:
Randy-
I’m a big proponent of lease/options. I think they’re great all around. I just have this hang-up about losing my “keeper”. I’ve done my first four deals this year and this place is the only one that was worth keeping. I look for the right price-to-rents ratio and it’s hard to achieve. Then, when you find the ratio, the property isn’t always in a location or situation where you’d want to live with it. Maybe it’s that I’m new at this, but I had a game plan that involved not grabbing the money now, but building a retirement in five years (I lost my retirement two years ago at age 60). I’m willing to change my perspective, but that happens to be where I’m at now.
Jerry in IL
Re: SCREEN, SCREEN, SCREEN - Posted by Clair-MO
Posted by Clair-MO on September 19, 2003 at 10:22:13:
Eric, That isn’t a misprint $125.00 is what I charge folks for a credit check and a background check. When folks asked me why so much? I explain to them if I get 3 creit reports from the 3 major credit reporting agencies it will cost about $49.00 and a background check going through a private investigator will cost $75.00 to $100.00. In all reality it I am charging enough where tire-kickers will not want to pay it but folks who are looking for a good home but has some problems with their credit will pay the $125.00 without blinking an eye! Doesn’t that make sense?
Re: SCREEN, SCREEN, SCREEN - Posted by Clair-MO
Posted by Clair-MO on September 19, 2003 at 10:57:23:
It is good to hear from you, Jerry! Jerry Chern, am I right? To answer your question: “What happens if you have three takers at $125 or do you stop taking apps when the first one pays? Do you refund any part of it to the ones who comes in second?” First of all, you are weeding out the tire-kickers. Secondly, the folks who are looking to purchase on a lease option or owner financing will be more than willing to pay the $125 without asking any questions because they desparate in getting a home of their own. Does this make sense to you, my friend? $125 for running a credit report and background check is non-refundable! If you have more than three folks giving money for a credit and background checks informed them that you are getting homes every month and if the home they are needing is taken by another. You don’t give back the $125 which is non-refundable but keep these folks in mind for further homes. What you are doing is building up a buyers’ list. Does this make sense to you? If some folks ask why so much money for a credit and background checks simply explain to them if you purchase 3 credit reports from the 3 major credit agencies you will be paying $35 to $49 and a background check through a private investigator will be between $75 to $100. So you are doing them a favor by charging them $125 but if they want to get them (creit reports and background checks) they will be paying more than what you are charging. Hopefully I have answered your questions.
Keeper?? - Posted by randyOH
Posted by randyOH on September 19, 2003 at 10:58:44:
Jerry,
I guess I don’t understand the concept of a “keeper.” I would think the objective would be to make as much money in as short a time with the least amount of effort and problems.
But, if you can find a good tenant who will stay put and pay a reasonable rent, I would say go for it. If you get tired of tenant problems, you may want to think about doing a lease/option.
Good luck,
Randy
Re: SCREEN, SCREEN, SCREEN - Posted by eric-fl
Posted by eric-fl on September 19, 2003 at 14:23:42:
I’m not knockin’ it, take it if you can get it. Let’s just clarify what we’re talking about here. Are we talking about just straight renters, or lease/option or owner-finance type tenants? Your approach seems like it would make more sense for the latter, but if you can get it for either, then I’m impressed. You must make quite a pitch.
Re: SCREEN, SCREEN, SCREEN - Posted by Jerry - IL
Posted by Jerry - IL on September 19, 2003 at 19:30:25:
Clair-
Thanks for your posts. As always, you make sense. And yes, it’s me.
Jerry in IL
Re: Keeper?? - Posted by Jerry - IL
Posted by Jerry - IL on September 19, 2003 at 19:32:11:
Thanks, Randy.
The beauty of this game is that if you got in right, your options are many and varied if you change your direction.