Tenant Screening Tips and Tricks

This week we wanted to continue to look at tenant screening and the entire rental process, for those of you who are property managers or for those of you caught in the downturn and find yourselves new property managers.
The screening process is one of the most important decisions you make when owning a rental property. Its important to understand the law and its important to find the best tenant for you. Following is an article that lives on our real estate web site that you may find helpful. But first a quick look at the markets.

Of the 52 cities tracked by the blog housing tracker all but two had rising inventories for the week. This info is pulled from the MLS and so we tend to accept its accuracy. Inventory is increasing in almost all cities with some of the Pacific Northwest and Bay Area escaping the big hit soo many of us are taking.

Mortgage Rates Fall fo the Second Consecutive Week

Freddie Mac (NYSE:FRE) today released the results of its Primary Mortgage Market Survey® (PMMS®) in which the 30-year fixed-rate mortgage (FRM) averaged 6.67 percent with an average 0.4 point for the week ending June 28, 2007, down from last week when it averaged 6.69 percent. Last year at this time, the 30-year FRM averaged 6.78 percent.

The 15-year FRM this week averaged 6.34 percent with an average 0.4 point, down from last week when it averaged 6.37 percent. A year ago, the 15-year FRM averaged 6.43 percent.

Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 6.30 percent this week, with an average 0.5 point, down from last week when it averaged 6.31 percent. A year ago, the 5-year ARM averaged 6.39 percent.

Freddie Mac

May Existing- Home Sales Show Market is Under Performing

Lawrence Yun, NAR senior economist, said the market softness is understandable. “I think psychological factors are currently the biggest drag on the housing market, in addition to a disruption from tighter credit for subprime borrowers,” he said. “Household formation has slowed dramatically since late 2006, implying that many people are doubling-up – they’re adding roommates or moving in with parents.

“The market is underperforming when you consider positive fundamentals such as the strength in job creation, economic growth, favorable mortgage interest rates and flat home prices. It appears some buyers are simply waiting for more signs of stability before they get serious about getting into the market.”

National Association of Realtor

Tenant Screening Tips and Tricks

Have potential tenant complete and sign a standard rental application to provide personal and employment information and authorize the landlord to obtain a credit report and background checks. Obtain the applicant credit report through a Credit Reporting and Tenant Screening Agency

Do a thorough background check. Do call prior landlords. They are your best, most honest source for information regarding on your prospective tenant. Present landlords, wanting to get rid of bad tenants may not be most objective source for you.
  • Don't rush. The credit and background checks take only a few hours to complete.
  • Pay special attention to Fair Housing Laws. Many prospective tenants do know the law. The internet is a wonderful source for both tenants and landlords. Know what you can say and be careful to stay within those guidelines
  • Never discriminate based on race, color, national origin, religion, gender, family status or handicap or source of a person's income.
  • Check with your state and local laws to make sure you are complying with all regulations.
  • Tenant Associations and local rent boards are good sources for compliance questions. If dont have the time, you may want to look to professional property management.
You may and should consider the following when setting your criteria. More on this discussion can be found here.


Reverse Mortgages: A source of cash and Some New Opportunities

This week the housing slump continues with the western states of California, Arizona and Nevada taking the lead in foreclosures. It seems pretty clear that the slump will continue, now that mortgage rates are rising. The cost of money, in the form of higher interest rates, always makes home prices even more out of reach for many people. Consider that the variable mortgages that have been taken out in the last few years are re-setting and that the higher monthly payments will put more supply on the market. The only conclusion is that the markets will continue to slump until this surplus inventory is absorbed and that is now expected to take until 2008.

New foreclosures Rose to a Record level

New foreclosures rose to a record level in the first quarter, with 0.58% of all mortgages entering the foreclosure process, the Mortgage Bankers Association reported this week.
Much of the blame for the increase came from the jump in foreclosure starts in California, Florida, Nevada and Arizona, where speculators likely walked away from homes, the MBA said. Other states keeping the foreclosure inventory rate elevated were Ohio, Michigan and Indiana, where local economies were hurt by job losses.
And, as the Stanford Washington Research Group, part of financial services firm Stanford Group Co., told investors following the report, these states represent about one-third of seats in the U.S. House of Representatives -- helping to keep the issue of mortgage reform legislation on Congress' to-do list this year.
Further, the firm doesn't believe delinquency and foreclosure data will improve before the enactment of reform legislation, including the revamping of the FHA mortgage program and the imposition of restrictions on mortgage underwriting.
Mortgage Rates Spike as Treasury Yields Rise

Freddie Mac (NYSE:FRE) today released the results of its Primary Mortgage Market Survey® (PMMS®) in which the 30-year fixed-rate mortgage (FRM) averaged 6.74 percent with an average 0.4 point for the week ending June 14, 2007, up from last week when it averaged 6.53 percent. Last year at this time, the 30-year FRM averaged 6.63 percent. The 30-year FRM has not been higher since the week ending July 20, 2006, when it averaged 6.80 percent.

The 15-year FRM this week averaged 6.43 percent with an average 0.4 point, up from last week when it averaged 6.22 percent. A year ago, the 15-year FRM averaged 6.25 percent. The 15-year FRM has not been higher since the week ending July 6, 2006, when it averaged 6.44 percent.

Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 6.37 percent this week, with an average 0.5 point, up from last week when it averaged 6.24 percent. A year ago, the 5-year ARM averaged 6.23 percent. The 5-year ARM has not been higher since the week ending July 6, 2006, when it averaged 6.39 percent.

One-year Treasury-indexed ARMs averaged 5.75 percent this week with an average 0.7 point, up from last week when it averaged 5.65 percent. At this time last year, the 1-year ARM averaged 5.66 percent. The 1-year ARM has not been higher since the week ending July 27, 2006, when it averaged 5.78 percent.

Freddie Mac

An Extra Cash Lift Reverse Mortgages Expand to Second Homes
By Tom Kelly

Reverse mortgages for second homes, until now available through a handful of small regional banks, will soon be offered by at least two national lenders.

Bank of America, which recently announced an agreement to acquire the reverse-mortgage business of Seattle Mortgage, is expected to roll out the second-home wrinkle as soon as the purchase is completed this summer. BNY Mortgage, which recently introduced the first jumbo fixed-rate reverse mortgage, also will allow reverse mortgages on second homes under certain guidelines.

"The demographics of our seniors and the upcoming boomer group indicate there are multiple tentacles of financial planning tools that could be used in the long run," said John Nixon, executive vice president and chief operating officer of Reverse Mortgage of America, a division of Seattle Mortgage. "One of those tools would be helping people with significant equity in the second home to help tap that equity to make their lives more comfortable."

Washington Post

Reverse Mortgages

Many older Americans are seeking money to finance a home improvement, pay off a current mortgage, supplement their retirement income, or pay for healthcare expenses.They allow older homeowners to convert part of the equity in their homes into cash without having to sell their homes or take on additional monthly bills.

In a conventional mortgage, you make monthly payments to the lender. But in a “reverse” mortgage, you receive money from the lender and generally don’t have to pay it back for as long as you live in your home. Instead, the loan must be repaid when you die, sell your home, or no longer live there as your principal residence. Reverse mortgages can help homeowners who are house-rich but cash-poor stay in their homes and still meet their financial obligations. NOTE: Reverse mortgages are loans against your house and you do not have to have any income to qualify. You must be at least 62, living in your home as your principal residence and have equity in the home.

To qualify for most reverse mortgages, you must be at least 62 and live in your home. The proceeds of a reverse mortgage (without other features, like an annuity) are generally tax-free, and many reverse mortgages have no income restrictions.

As you consider a reverse mortgage, be aware that:
  • Lenders generally charge origination fees and other closing costs for a reverse mortgage. Lenders also may charge servicing fees during the term of the mortgage. The lender generally sets these fees and costs.
  • The amount you owe on a reverse mortgage generally grows over time. Interest is charged on the outstanding balance and added to the amount you owe each month. That means your total debt increases over time as loan funds are advanced to you and interest accrues on the loan.
  • Reverse mortgages may have fixed or variable rates. Most have variable rates that are tied to a financial index and will likely change according to market conditions.
  • Reverse mortgages can use up all or some of the equity in your home, leaving fewer assets for you and your heirs. A “nonrecourse” clause, found in most reverse mortgages, prevents either you or your estate from owing more than the value of your home when the loan is repaid.
  • Because you retain title to your home, you remain responsible for property taxes, insurance, utilities, fuel, maintenance, and other expenses. So, for example, if you don’t pay property taxes or maintain homeowner’s insurance, you risk the loan becoming due and payable.
  • Interest on reverse mortgages is not deductible on income tax returns until the loan is paid off in part or whole.
Getting a Good Deal

If you are considering a reverse mortgage, shop around to compare your options and the offered terms. Learn as much as you can about reverse mortgages before you talk to a counselor or lender. It will help you ask more informed questions, which could lead to a better deal.

If you want to make a home repair or improvement or need help paying your property taxes, you may want to find out if you qualify for any low-cost single-purpose loans that may be available in your area. Area Agencies on Aging (AAAs) generally know about these programs. To find the nearest agency, visit Ask the AAA for information about available “loan programs for home repairs or improvements,” or “property tax deferral” or “property tax postponement” programs.

If you are interested in a federally-insured HECM, know that all HECM lenders must follow HUD rules, and that many of the loan costs including the interest rate will be the same no matter which lender you select. Still, some costs including the origination fee, other closing costs, and servicing fees may vary among lenders.

If you live in a higher-valued home, you may be able to borrow more from a proprietary reverse mortgage. But it generally will cost more. The best way to see key differences between a HECM and a proprietary loan is with a detailed side-by-side comparison of future costs and benefits. Many HECM counselors and lenders can provide you with this important information.

No matter which type of reverse mortgage you are considering, be certain you understand all the conditions that could make the loan due and payable. Ask a counselor or lender to explain the Total Annual Loan Cost (TALC) rates, which show the projected annual average cost of a reverse mortgage, including all itemized costs.

Its Your Property


Apartment Rentals: Multi Housing Sector is Alive and Well

Where housing will bounce back and when

When it comes to real estate, the questions on everyone's lips are: How low is low, and when's the perfect time to buy back in? hat moment has passed in Seattle and Charlotte — both metros hit bottom in the first quarter of 2006 and have since posted price gains of 12.3 percent and 6.3 percent, respectively, according to National Association of Realtors (NAR) data.

Ripe for investment? Philadelphia and New Orleans. Based on housing inventory and local economic conditions, both should hit price troughs by year's end and bounce back with moderate gains around 4 percent in 2008.

Long and Short-Term Mortgage Rates Reach 10 Month Highs

McLean, VA Freddie Mac today released the results of its Primary Mortgage Market Survey® in which the 30-year fixed-rate mortgage averaged 6.53 percent with an average 0.4 point for the week ending June 7, 2007, up from last week when it averaged 6.42 percent. Last year at this time, the 30-year FRM averaged 6.62 percent. The 30-year FRM has not been higher since the week ending August 10, 2006, when it averaged 6.55 percent.
The 15-year FRM this week averaged 6.22 percent with an average 0.4 point, up from last week when it averaged 6.12 percent. A year ago, the 15-year FRM averaged 6.23 percent. The 15-year FRM has not been higher since the week ending August 3, 2006, when it averaged 6.27 percent.
Freddie Mac

Full Commissions Make a Comeback

The tough market for home sales may be spurring a surprise side effect on real estate commissions: For the first time in years, the average commission rate on closed sales nationwide rose slightly last year.

According to a review of revenue and cost data from hundreds of brokerages by the industry publication Real Trends, the average commission rose by nearly one-fifth of a percentage point last year, to just under 5.2 percent. That turnaround came despite the growing number of real estate firms that offer discounted standard commissions or limited-service options in which consumers pay lower fees but perform some of the tasks traditionally handled by full-service real estate agents.

Rental Properties Can Be a Good Investment

If you own to rent it can be very helpful to understand why renters move and what amenities they choose in their new digs. If we can isolate the major needs of tenants we can begin ot offer those amenities ourselves and we can certainly punch up our new listings advertising by highlighting those amenities for ourselves.

HUD produces a study every two years or so and polls tenants that have moved. Paying attention to our tenants is the best way to create strong interest in our available rentals and to assure good tenant rentention. Keeping good tenants assures a stable cash flow. This allows us to plan with some assurance new business activities and helps us stay on a stable maintenance program.

Why do renters move

According to the US census Bureau about 1 in 3 move every year. With home sales slowing we see rentals gaining strength and in my market, San Francisco, we see apartment sales which are based on cash flow and are bought for investment reasons not emotional reasons (as family homes are often bought).

The first reason given in the HUD study was to begin a family. This means to us that if your tenant has notified you with a thirty notice to terminate and you have a larger unit coming up, you should consider an offer to move them to the larger unit rather than letting them go.

Target Market: new families. If you have a large unit vacancy then you might consider new families as a target market. Please be careful of Federal fair housing laws, you cant discriminate for or against children. Post flyers in laundromats, near family clinics, family birthing classes.

The second reason given for a move was job location.

Target Market: We think it would be good for an owner to be aware of transportation, location to highways and emphasize being close to any large companies or industrial parks in your area. The target market should certainly include employees in these locations and your listings should mention ease of travel or even travel time to large employees. Place flyers near work places with good access to your area, local community papers, internal company newspaper

Another big reason when choosing units is price.
The take away: Know you market. Price you unit or home according to the area and your amenities. If you price too low you may wait years to get to market value for that unit, especially if its rent controlled. If you price too high, you may wait months for a rental causing a loss in the unit.

Action Plan
1. Search craigs list for units in your area with the same size and amenities. We like to use craigs list as a MLS for rentals. Its been very effective for establishing a ball park number.
2. Drive your neighborhood and notice for rent signs. Call them and get a sense of your local market before you price your home or unit.
3. Notice the curb appeal of units in your area.There are many cosmetic upgrades that are inexpensive yet create interest.
a. Try some flowers or landscaping to make the front more attractive at little cost to you
b. Try offering some high tech amenities such as DSL or wireless in the building
c. Offer storage if you have under utilized space such as a basement area
d. Consider installing a revenue sharing plan for either storage units or laundry room. There are companies that will provide the equipment on shared revenue basis.

Fair Housing

Be sure you are aware of fair housing laws as they relate to what and how you can describe a property or you can face a discrimination law suit.

Fair housing laws prohibit making, printing or publishing a notice, statement, or advertisement that indicates any preference, limitation, or discrimination based on a protected class. Advertising must show that all people and classes are being equally considered. Fair housing laws address all types of statements newspaper, radio, magazines, and television. All of the above including vacancy signs are advertising and must not prohibit making any statement indicating a preference or put limits on housing. There are some exemptions but it is advisable to be sure that you are among those exceptions before you advertise

Images in Advertising: If you customarily use advertising with photographs or drawings of people, try to use men, women, children, people with disabilities, and people of all races, nationalities and ages in a way that reflects the population as a whole. A key is to be sure to use images that are representative of society in general.

Language: Avoid using words or phrases that show a preference or discourage anyone because of his or her protected class. If you describe the property itself and not the targeted audience, you are safer under fair housing laws. Make no assumptions about the needs or desire of a protected class that may seem to categorize them.

Marketing to a protected class: Be careful with your language. Do not make assumptions about the need of a group of people. It is best to objectively describe the property and allow the prospective applicant to determine their needs, but it can be mentioned that your unit has access for the disabled or that you are near schools and playgrounds and that families are welcome. There are other exceptions. It is advisable to always be careful and consult with your attorney or apartment association.

Its Your Property


Short Sales An Answer For Tough times

Many areas of the country are seeing an alarming increase in foreclosures. There are quite a few options that can minimize the damage done by such a loss. The short sale is one, but beware it is not for everyone.

Home prices: More pain to come: The outlook for home prices this year - already expected to post the first drop on record - got worse Wednesday as an industry group cut its forecasts for sales and prices for 2007.

The National Association of Realtors said it now sees the median price of existing homes sold falling 1.3 percent this year. That's almost twice the 0.7 percent drop forecast just two months ago, and is worse than the 1.0 percent drop in prices it estimated in May. As recently as March, the group was forecasting a 1.2 percent rise in the median existing home price for this year.

Mortgage Rates Rise Again on Growth In Durable Goods Orders: The 30-year fixed-rate mortgage (FRM) averaged 6.42 percent with an average 0.4 point for the week ending May 31, 2007, up from last week when it averaged 6.37 percent. Last year at this time, the 30-year FRM averaged 6.67 percent.

The 15-year FRM this week averaged 6.12 percent with an average 0.4 point, up from last week when it averaged 6.06 percent. A year ago, the 15-year FRM averaged 6.26 percent.

Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 6.19 percent this week, with an average 0.5 point, up from last week when it averaged 6.02 percent. A year ago, the 5-year ARM averaged 6.26 percent.
One-year Treasury-indexed ARMs averaged 5.57 percent this week with an average 0.6 point, down from last week when it averaged 5.64 percent. At this time last year, the 1-year ARM averaged 5.68 percent.

SF Chronicle: Usually, when something sounds too good to be true -- it is. But as more people are facing the possibility of foreclosure -- losing both their house and their credit in a process fraught with humiliation -- a little-known transaction known as a "short sale" may seem like a dream come true. Short sales occur when a lender allows a homeowner in default to sell a house for less than the total value of the loan. In most cases, the lender then forgives the remaining portion of the debt.

Short Sales An Answer For Tough times

Well you bought your home during good times and now times have changed. Your property rentals are down or you’ve lost your job and cant carry the mortgage. Worse than that, the markets have changed and you cannot sell for what you’ve paid. Still you have no choice but to sell or foreclose. There is one possibility besides foreclosure and that’s a short sale.

What is a Short Sale?
Its not a Get Out of Jail Free Card

A short sale in the mortgage world amounts to a lender agreeing to accept a pay off less than the original mortgage. For example, if your mortgage was $200,000 and all your property would bring in todays market was $160,000, a lender may agree to accept the lesser amount to clear the debt. That amounts to a forgiveness of $40,000.

Why Would a Bank Say Yes?

It’s a resignation on the part of the lender that this is the best it will get. Banks do not want to foreclose and they do not want to take the property (known as a deed in lieu of foreclosure). They are not in the property management business and foreclosure look bad on the books. It may even affect their ability to borrow if the lenders have too many foreclosures on the books, its not a stretch to wonder whether they have been prudent lenders. There are down sides to this procedure and it may not be the best alternative for you. 1. If their is a second mortgage on the property, its not likely the second lender will agree. 2. The IRS will consider the $ 40,000 of mortgage debt forgiven by the bank as gross income and the tax bite may be prohibitive. You would need to talk to your adviser (just when you can afford it right?) to confirm that the tax implications of a short sale make sense for your situation. 3. You cant fake this, you must truly be destitute. The seller will need to be in default. That is to have stopped making mortgage payments. 4. You must clearly have no equity left in the property for the lender to agree to accept less than the full debt owed. 5. It will be reported to the credit reporting depositories and it will remain on your credit report for 7-10 years. It’s a derogatory

What the Buyer Needs to Know

1.You must have a firm offer before you ask the lender to approve the sale. 2.You do not have a deal until the lender approves your deal. The agreement with the seller is not the final agreement. The lender must agree to the purchase. It can be wise to create a contingency here requiring the lenders to respond within a specific time frame. This will give you a reason to back out if its dragging on. 3.The deal can be held up because lenders often will want to re-negotiate the commission structure, even though you have signed a listing agreement with your agent. 4.You can expect be offered the property “as is”. This can be ver
y a costly so we think you should have the property inspected by a building inspector, home inspection and a termite report. If you cannot negotiate the “as is” component of the sale, cover yourself by knowing what you are buying. Make the deal contingent on your approval of the properties condition.
5. Even if a bank approves a short sale in principal, they make not accept any of the offers or they may simply bury the offer and never respond.

Why Do Banks Do It

1.Banks do not want property they want cash flow.

2.It may cheaper and less time consuming for the bank than a foreclosure process

Why Do Owners Do It

Although its reported to the credit agencies as a derogatory, its less severe than a foreclosure or bankruptcy and may be a bit kinder on your FICO score. If you are looking for a short sale deal you might start with the lenders “Lis Pendens” list. This is where lenders start the foreclosure process.