Are You Landlord-Material?

Written and copyright © of Loreena Yeo 2007

(1) How much money have you set aside for your rental property(ies)?

See, the question is if you have any money ready to be set aside for this business (after all, landlording is a business). I did not quite mean if you have any money set aside. Unfortunately, if you have to dip into credit cards to make the mortgage payment when your tenant cannot pay you, or if you have a plumbing issue, this is a good red flag to say that it may not work out for you. If you can put at least 3 months worth of payments aside (better at 6 months), you at least have a sound financial plan.

(2) Can you cashflow? Or are you going to feed some money into the property each month?

Work out the math. Factor in vacancy rates and estimate repair costs. Not just mortgage payments with property taxes and insurance. There is a real math behind this. What if the numbers do not work? Does it mean this landlording business is out? Not necessarily. Again, it depends on your individual situation. If you need help in figuring this out, contact me. I’d be more than happy to share with you what I know. No pressure and obligation. I feel the more information you have in your hands, the better the decision you make for yourself.

(3) Oppps………. let me back up. Do you work off a monthly budget and abide by it?

How is your financial situation at home? Are you living from paycheck to paycheck? (Red flag alert)… The truth is that I have heard many people saying that “They are doing okay” or “I got that covered….”. What does that really mean? Please let me tell you what it should mean before you really think you have that covered.It means you are on-time with all your personal bills. You are sitting on at least 3-months of cash savings (living expenses) and now that you are getting into the rental business, you should have at least 3-months of additional mortgage payments plus property taxes and insurance. This is the least you must have in order to sit on a strong foundation to begin considering landlording.

Why so stringent you might ask? The more savings you have, the more you can pad away your problems. Then you wont operate in a crisis mode. Having that $500 plumbing problem then because just a mere inconveninece for you.

Should you seek credit cards to fund your emergencies? Absolutely not. The rental business is purely a numbers game. If you have to seek a credit card for help at 18-20% interest rate, dont you think your entire ROI (return on investment) go out the window? Well, how about those 0% credit cards? Well, think again. It already says you are not financially ready for landlording, in my humble opinion.

(4) Do you plan to manage it yourself or hire a property manager?

Either way, property management can be successful if you have the right personality and tools to do it.
The benefits of handling your own rentals is that you save money. Typically, property management fees start around 10%. That means you will also need to factor this fee as part of your cashflow equation. The property manager takes the tenant calls for you, however, you still will need to play a somewhat active role in keeping on top of your property manager. So, instead of dealing with tenants, you deal with your property manager. Late fees are collected for you and typically split between the property manager and you. But we never wish that to happen.

You do not need to listen about Why Rent cannot be paid on time this month. Some real tenant answers are, “I need to buy new clothes for my kids or school items before the kids go back to school” or “It’s Christmas and I really dont want my kids to be without this season. After all, ’tis the season to love and give, right?”…….. Going back to school in August and Christmas occuring every December suddenly catch them by surprise. Be prepared that people make decisions with their money and it is beyond your control. I am not here to judge if it is right or wrong. It happens. (I do not say that ALL tenants are this way. But you need to assume the worst to make your most conservative decision).

The advice I provided may sound difficult or somewhat harsh, but as a realtor and a trusted advisor in your new endevours, I’d rather be upfront with you than to get you scrambling when you are already in the situation. Call me if you have considerations in becoming a landlord – whether it is here in the area or anywhere else. I’d love to share with you.

PS: I am a landlord and I have some experience in this field. I am not here to say whether this is for you because ultimately you do what you think is best for you. But you should hear all the goods and bads before you get your feet wet. After that, you will still have your own lessons to learn.

Related Article:
Is Landlording A Better Alternative to Selling in this market?

Is Landlording A Better Alternative to Selling?

Written and copyright © of Loreena Yeo 2007

No doubt that the real estate market has recently suffered some downturns. Many Sellers who plan to move on with their lives cannot or do not want to wait for the market to turn around are looking at different alternatives to selling.

Landlording comes to mind.

Is Landlording A Better Alternative To Selling In This Market For You?

Well, it depends on your situation.

(1) First of all, not everyone can qualify for having 2 mortgages in their name. Well, someone else has just made the decision for you.
(2) Even if you can qualify for it, should you?

Here are some points to ponder:

(1) Are you landlord-material? Read more on this.
(2) After the landlord material consideration, are you just making an emotional or financially-sound decision?
(3) If the market was not in this condition, would you get into the landlording business in the first place?

When Sellers make this at-first-glance consideration, they assume that:
(1) You will always have a renter in the house (no vacancy ie someone is always there to pay this part of your mortgage)
(2) There will be no turn-over.
(3) There is no repair.
(4) Rent will always be on time.
(5) It is just a simple clean and vacuum, then the For Rent sign goes up again in the yard.

The questions that I have raised are truly significant. They are real and they can make or break you. As much as I believe in real estate, landlording is not for everyone. Landlording is a business and should not be used as an alternative until something turns around. So, make your EMOTIONAL as well as FINANCIAL considerations diligently.

Find out what it takes to become a landlord.

Are You Having Spending Fever?

Every once a while, I get into a spending fever. I’d feel that I’ve “deprived” myself because my family have learnt to deny ourselves of today’s luxuries.

In 2004, we felt it was time to buy something…. anything nice for us. So, we looked into a Chevy Tahoe – something I love very much (at that time)….. The payments were going to cost us $500-$600 per month. Yikes!!! Like all consumers think, we could afford it (those famous words)!

So, what did we ended up with?

For $500 – $600/month, we ended up moving up in house (yes, Frisco real estate!) . No doubt that we make to make this extra payments for 30 years, instead of the car for 5 years, I still think it is worth it.

Stephen Wolfe’s (the real estate expert in Birmingham, Alabama) blog about Dont Buy That Car! brought back memories of this specific experience…. I had to investigate if my purchase was still justifiable.

That same Tahoe I would be driving today would be worth $20,000 at BEST CASE scenerio. I would have paid $38,000. A depreciation of $18,000. Ouch!

In comparison, my house appreciated at least $20,000 – yes in this slow depressing market so Jim Cramer said. I also assumed that my house has maintained a zero appreciation value for the past 18 months. My family turned our first home in 2004 into our rental property. That property probably appreciated $20,000 – a very low ballpark estimate.

Per Dave Ramsey famous words, “Dropping like a ROCK!”…. and he is right. At this point in our financial life, we cannot afford to purchase a brand new car with the depreciation rate like it is. And guess what?

I’m driving a RX 330 today. I bought it 3 years used (and yes, it still depreciates but not like I would if it is brand new). I “feel” it is a much better car for me too.

My houses continue to appreciate and someday my car will be worth $500. A huge divide!!!

Is a little Home Improvement Project on your horizon?

Before you begin home improvement projects, get your favorite realtor involved…… Why?

Realtors have many resources that you can get some insights to. How about giving some good referrals of services they can share with you? A good and cheap tiling guy? How about some new hand-scraped hardwood floors? Or granite countertops? How about cheaper alternatives to Home Depot or Lowes? Do you know the best places to shop?

Some realtors are a central source of information. They know where to shop and whom to call.

More importantly, are the home improvement projects you plan to do worth the time, effort and money you put into? Use the knowledge and market insights to see what are buyers looking for these days… Some home improvement projects bring value while others do not, yet they bring marketability to your home when the time comes to sell.

If you are looking for a trusted local real estate expert, contact me. I will be delighted to share what I know about the home improvement projects that interests you.

Seller says, "Let’s Negotiate"

One of the episodes from Buy Me on HGTV remains pretty crystal clear on my mind and I do not think I necessarily agree with both the agent and sellers.

Setting the Stage:
The house has been on the market for a while before the Sellers interview this real estate agent to list it for them. The house has foundation issues and it is VERY Visible from the exterior bricks and the first floor.
Knowing this, the agent presented two strategies to the Sellers.

(1) List it “higher” than the original price that the Sellers could not sell it at the FSBO price.
(2) List it “lower” to reflect that the house needs foundation work performed.

What did you think the Sellers chose? Hint, hint: They said, “Let’s Negotiate”…..

My Comments:

I do not think that was the right pricing strategy to begin with. Even without knowing the market, and the fact that most For Sale By Owners overprice their homes, listing it HIGHER to try to get the house SOLD is definitely not the way to waste the Seller’s, the listing agent, the buyer’s agents and their clients’ time.
In this market where the HOMES are not in the PERFECT condition, most buyers just say, “NEXT!”…..The Sellers’ feel that with given enough Buyer’s interests, they can always “NEGOTIATE”. I am sorry but most of the time, it does not happen that way.

Based on my experience, buyers move on and do not want to deal with a (1) overpriced listing (2) a house with problem on top of that.

Towards the mid-part of the show, Summer turned into Fall and there were still no offers. Eventually, the listing agent suggest to lower the price 8% – a very difficult choice for the Sellers to make, yet they agree.

My Comments:
The Sellers in their minds have set that their house is worth XXX – original listing price with the agent. Now, having to reduce it 8% is more than they can handle. It feels like the agent is trying to take a piece of their soul. Well, in the first place, the Listing agent did not set reality in the Seller’s mind.

Winter came and the Listing agent suggest to reduce it another 5%. By now, the Sellers are not in good terms with the agent. No one was happy. And the house continues to stay on the market. Show ends……

My Comments:
This is a harsh reality where an overpriced listing – to begin with hurts everyone. According to the show, the house was on the market for 2 months while the Sellers try to sell on their own. Then from June into the Winter months (February) was another 8 months the house sits with an overpriced listing and problem (Foundation). A good wake up call.

Sharing A Different Buying Message

More media splashes this week about the looming sales of the housing market. Well, you have seen it in just about every major news publication. Should buyers stop buying now and wait till the prices drop “even further”?

When investing in the stock market or even the housing market, most buyers use the common emotional reactions: buy when everyone is buying (or the market is HOT). In a Buyer’s market (where there is more Buyers than Sellers), and especially with the stories we constantly here that prices will continue to drop for at least xx months, most buyers hold off their plans in hope that prices do continue to drop further.

However, do realize that real estate is a local concept. By that I mean, the effects and results of them are totally dependent in the areas you are interested in purchasing. Even in a slow market, there tend to be pockets of areas within your city that are “hot” or “hotter” than others. Some neighborhoods continue to thrive and increase in price. Hence, working with a local area expert would be essential in guiding you through the right process. Respectfully, it does not quite work with just what the news are saying.

In general, buyers love SALES….. Know that the “higher” the discount, the “more” we as consumers feel that it is time to buy. If you enjoy sales, you should enjoy the “SALES” that is going on in the housing market right now. We do not necessarily say this house is ON SALE or have stickers or banners all over the house (I will admit that would be a little over the top and cheesy), but you can most generally assume that the Sellers do understand that it is harder to sell in this market now and will seriously evaluate the offers that come in. They do know that they are not sure they will get another offer on the table tomorrow. Just like the stock market where the price per share has dropped, as a good investor, you would want to buy then instead of on the “high” time. Why?

This leads to my next point. When you invest (especially when you buy a home), you are investing in your family and your home. You are not buying to speculate the market. While real estate professional do not guarantee that the price you pay for your home will be higher when you are ready to sell it, you should not use this concept to make your purchase. You buy with the long-term mindset. It may be unfortunate that you might need to sell the next six months for whatever reason, but do understand that when you make the buying decision, you are buying for long-term reasons.

At the time of this publication, we are in early September. Sellers are continuing to cut prices – in the Dallas metroplex/ Frisco and surrounding city real estate markets. Buyers can expect to still have a good selection of inventory to choose from whereas in the Winter months, there tend to be less inventory for your selection even though prices may/ could be lower then. It is a chance you take and back to the buying for long-term philosophy, is it worth $2000 or $5000 wait? Who knows how much lower it may be.

Interest rates is still considered historically low. While I have never seen the 15-18% interest rates back in the 80s, long-term fixed rates today remain low. Good mortgage companies with good loan programs continue to stay in business. If you fear the fall of subprime mortgages and you were on the borderline: qualify versus non-qualify status (understand where I am coming from with my next statement, I am not here to burst your American Dream – I am in building people’s American Dream of homeownership), you do need to consider your purchase or the amount of your purchase. Can you really afford it?

The difference between 1% rate difference in mortgage for $200,000 (a very common and realistic number for the Dallas metroplex) is approximately $125 per month. If this amount would make or break your monthly home budget, you should not consider this loan amount in the first place. Remember that over time, your salary tend to increase – unfortunately with the rest of the consumer products you need to purchase also.

Buying with the long-term mindset is also a form of FORCED SAVINGS. Understand that your buying psychology, you will continue buy – from clothes, to restaurant food, a boat, a car or an RV. When you purchase real estate, you set a fixed amount of funds aside to make your payment on a house – typically an appreciated asset in the LONG RUN.

There are also lots of financial and emotional benefits to homeownership now, rather than later. Tax benefits can be another topic in itself to discuss…… The physcological, pride and a sense of belonging that are priceless.

So, what should you as buyers now? You decide for yourself. Waiting is an option. It could be a right option for you. But think through it. If it is to save more for a rainy season, great. If it is to speculate that prices may fall even further, know that you as a buyer can control the price you want to pay – regardless of what the news tell you.

Related Articles:
Frisco Real Estate Home Report – Summer 2007
What Do You Get For Your Money In Frisco
Subprime Mortgage Dampen Your American Dream

Frisco Real Estate Market Report – Summer 2007

With the children back in school, I have unofficially declared that the Summer is over. Here in Frisco, Texas, we have had the best summer – weather-wise, I mean. It is not as hot compared to previous years and unfortunately, for the real estate market, it too as not sizzling hot like just the year before.

851 homes sold in Frisco, Texas from Memorial Day through Labor Day. They ranged from the lowest priced home at $75,000 to $1.67 Million dollars. When compared to the same time last year (2006), the most expensive home sold was $2.25 Million dollars. As predicted, it takes a little longer for properties to sell: 73 days at an average when compared to 58 days the year before.

The biggest market movers in the Frisco market are the 150K – 250K price range, then followed by 250K – 500K. Properties are taking approximately 30-45 days longer to sell.

My Comments:
These numbers are possibly the result of the tightening of lender requirements which dampen the entry- and move-up markets. The splashing news about the foreclosures and the fall of the sub-prime mortgages did not help. Even though buyers acknowledge that this is “their market ie buyer’s market”, many of them choose to monitor the market very carefully. The Texas real estate unlike the California market has not live the “roller coaster” swings: where it is worth $250K when purchased, then in 6 months be worth $500K and a year after that, cannot find a buyer at $166K.

For buyers, you can control how much you want to pay. Hence, working with the area expert is key in guiding you in knowing how much to pay.

For sellers, immaculate homes in the great neighborhoods are still selling, but that is now the exception rather than the rule. Pricing is the key. Acknowledge the fact that it takes longer to sell, hence be willing to price it correctly upfront will assist you in moving on a lot sooner.

The Frisco real estate market statistics I provided above is an overall market summary. Each neighborhood is different (and yes, some are still HOT on the Buyer’s lists) and strategy in selling each home is as unique as the Seller itself. For a unique home marketing plan and evaluation of your home’s value, call me. If I can help you develop a strategy, call or click the buying or selling links.

Extreme Circumstances Deserve Extreme Measures

Most of the places in the country are facing a Buyer’s market*. There are just more houses than are buyers out there. As a result, the prices are typically lower. With the splashing news of subprime lenders going out of business, it makes buyers harder to qualify for loans. There are still 100% loans out there but the availability has significantly dropped. The adjustable rate mortgages were at one point “easier” to qualify because of the “lower” debt to income ratios are also adjusting “up”. In short, the pool of available clients have definitely impacted Sellers of residential real estate.

Thus, it become even more crucial to work with a real estate expert who knows the market and knows how to move your property. Despite the current market conditions, there are still buyers out there.

Home Improvement shows such as Designed to Sell and Get It Sold are some examples of what a real estate expert may require you to do to sell in today’s market. Some episodes require homeowners to go through extreme measures to update their properties. Moving walls, remodeling the entire kitchen and alot of elbow grease. These are some methods Sellers employ in order to achieve their goal: Move on. On the other hand, these shows did not portray the entire true picture of the real work that goes into the process. They get it done for very little money (some as low as $2000). Realistically, unless you have the time to find pennies on the dollar resources, it is very hard to achieve $2000 worth of work in the amount of “stuff” they do. But the concept holds true. Staging works.

Ask my real-life clients: The Milners. They worked tirelessly for two-full months to put their house on the market based on my recommendations. They are very capable homeonwers who could tile, paint and tear down arbor on their own. They definitely put their fair share of sweat equity. No doubt, the projects took them a little longer to complete than anticipated but in the end, they made their house the best in its price range and condition. I listed their house on Friday evening at 9pm and received an offer the very next day at 4:30pm (to the 1st family that viewed it).

Update: Guess where are the Milners now? Well, they are off to the next phase in their lives: help plant a church in a different state – with no house (or house payment) to sell in their minds.

In the Milners very own words:
“Loreena, you were so helpful in your advice on how to prepare and stage our home. We never dreamed it would sell the first weekend! You under-promised and over-delivered! You did your research, you made solid recommendations, you were thorough and well-prepared. You did what you said you would do and then went beyond – How can we thank you enough! You’re wonderful!”

So, guess what? STAGING WORKS!!!!

A can a paint $22, Tiles in kitchen floor $500, Peace of Mind: Priceless.

Another proud story of extreme circumstances that deserve extreme measures.

Working With A Top Producing Agent

It is almost adamant that some real estate clients only want to work with Top Producing agents. They are the best of the best. They come with experience. In this case, picking a top producing agent could almost yield the results you want. Or would it?

Top producing agents do not necessarily mean that they are best for your situation. There is a fine line between a numbers churning salesperson and a salesperson whom you can trust. Evaluate their style and their ways of conducting business. You need to be comfortable to find a professional that fits your needs as well as your personality. After all, this relationship could perhaps last a very long time.

Some say that “newer” agents work harder because they are more motivated and enthusiastic. Yes and No. While the energy is high, the experience in negotiation may be green.

There should be a balance between picking a top producing agent (simply because of the “status”) versus one that works hard for you, in your best interest and have enough experience to get the best deal for you.

Is Buying always better than Renting?

Is homeownership on your horizon? Are you excited about your possibilities? Wow… you can finally paint the wall black, green or purple just because you can!!! How cool would that be?
So, you pay $1,000 in rent now. For $1,000* in mortgage payment a month, you could buy a $150,000 home at 7% interest for 30 years. In the Dallas/ Fort Worth market, $150,000 buys you a pretty good starter home.

Hold on….. before you go on further, let’s ponder on some important issues of homeownership first.The $1,000 in mortgage payments have not even included the property taxes and insurance. Okay, so let’s back up to a little less house then. Let’s assume that the property taxes and insurance is approximately $250 per month. That makes the mortgage payment (principle and interest) to about $750. At that amount, you are probably looking at a house valued between $110,000 – $120,000. Still not bad.

So, here you are. You put your signature on the dotted line. Your real estate agent called you to tell you that your loan closed and funded. You received the keys. You now own your American Dream. You move in and you are happy.

New homeowners start to think differently. The mix and match furniture from the college days suddenly do not fit the taste of their new home. They did not like the wallpaper the previous owner left behind. The yard needs to be mowed, edged and trimmed. The garage needs some organization. So, what would a “regular” new homeowner do in this situation? They go out to make Home Depot and Lowes their second home. They could also qualify for a reserved parking spot just because of their frequent visits. These are the unseen foreseen expenses that homeownership incurs. How much is ever enough? So, out they go to get a Home Depot or Lowes store credit. Zero percent interest for 18 months? Sounds like a no-brainer. Have pure intentions of paying this way before the zero percent deal ends? But life got in the way? Before you know it, you are looking at more debt.

Even if you are disciplined enough not to do home improvement projects and do not mind using the couch Aunt Janet gave you, homeownership could have maintenance costs to consider. Remember in your apartment days, when the air conditioning unit is not cooling enough, you pick up the phone to call the apartment manager? Gone are the days. When your heater goes out, you pay for the repair. When your toilet gets clogged, you sign the invoice.

It is not my intentions to dampen your spirits. But if I was your realtor – the one who watch for your best interest, if I did not discuss these scenerios about your possibilities and just share with you about homeownership as a bed of blissful, sweet smelling roses, I feel I did not paint the whole canvas.

A well-prepared new homeowner is a smart planner. Remember that your home should be a blessing for you. It should serve you and your family well for many, many years, not the other way around. So, if you feel that homeownership is on your horizon, pick up the phone and call. I’d love to share tips and strategies with you to make your American Dream a pleasant experience.

House Rule: Is Buying ALWAYS better than RENTING?
The answer: In the long-run, yes. In the short-run, no. It can leave a bad taste in your mouth for a while.