Notices, Disclosures and Addendums

พฤษภาคม 25th, 2009

When you invest in rental property, it is important to understand that much of what you can do is guided by local, state and federal regulations. In many cases, these regulations provide guidance for the disclosures which must be made to all tenants. This is a matter of law and failure to make proper disclosures can result in quite a bit of legal and financial trouble, so it is always best to ensure that you have made all of the proper disclosures.

While there are some disclosures which vary from one locality to another and it is always best to research the regulations for your own area, there are some regulations regarding disclosures that are common in most areas.

Lead-based Disclosures

This regulation is required by the federal government. To meet this requirement you should know when your property was built and specifically if it was built prior to 1978. In the event that it was, you will need to provide a specific booklet printed by the federal government regarding lead-based paint disclosure and have the tenant(s) sign a disclosure form. The booklet is called Protect your Family from Lead in your Home and it can be obtained from the EPA; Environmental Protection agency.

Hazardous Materials Notice

Be sure to check with your local ordinances to determine whether this notice is required. Essentially, it notifies tenants that a variety of materials were used in the construction and/or improvement of the property which may contain materials that could be hazardous or toxic.

Mold Notification

The subject of mold has become tremendously important in the last few years and is also one that can lead to a great amount of liability for property owners. Check with your local landlord’s association for guidance regarding notification of mold.

In some cases, the addendums which you provide to tenants may not actually have anything to do with potentially harmful elements in the property. In some cases, you simply may need to provide notification to tenants regarding specific rules and regulations which you establish.

One of the most common is a roommate addendum. This type of disclosure notifies tenants that each roommate is jointly liable for anything to do with their rental of the property. This prevents one roommate from skipping out and you facing a situation where the remaining roommate claims he or she is not liable.

A pet addendum is another important disclosure to consider if you are going to allow tenants to have pets in your property. Generally, it is best if you always have a description of the pet which the tenant will be bringing into the property. Perhaps you based your decision on allowing the tenant to have a pet because it seemed to be a mature, calm dog. Six months later; however, you discover that the tenant no longer has the calm dog and has replaced it with a puppy that is chewing up everything in sight. Making sure that you have a description of the pet which will be allowed to be in the property is always a good idea; otherwise, you may have no recourse since you agreed to let the tenant have a ‘pet.’ There is also the matter of exercising caution regarding certain breeds of dogs on the property. If you allow a tenant to have an aggressive breed of dog on the property and someone is bitten, you could be found to be liable.

Along those same lines, you may want to take a few extra steps to protect your property if you decide to allow tenants to have a pet. For example, increase your security deposit, just in case there are problems later on. Also, make a point to check with previous landlords while you are performing the reference check to determine whether the tenant has had a pet in the past and if so, whether there were any problems or damages. Finally, you may also wish to require tenants with pets to provide a copy of their pet’s registration papers as well as their vaccination records.

Tags: ,
Posted in InvestinginRentalProperties | 2 Comments »

Planning ahead for Maintenance and Repair Costs

พฤษภาคม 25th, 2009

One of the biggest problems for many rental property investors can be failing to plan for maintenance issues in their budgets. While it can certainly be quite tempting to see all income over and above the mortgage payment as profit, this can be dangerous when something breaks and you realize you do not have a budget to cover the cost of repairing it. The simple fact is that regardless of how well maintained your property might be, things can and will break from time to time so the best course of action is to plan ahead and budget for it so you do not struggle later on.

Ideally, the best time to begin thinking about your repair and maintenance budget is before you actually purchase the property. When you are looking at the numbers associated with the potential investment you will need to make in the property, it is essential that you take repairs and maintenance into consideration. Unfortunately, many investors completely forget to allocate funds they will need for repairs of the property and instead only take costs associated with taxes, fees and mortgages payments into consideration.

First, you need to consider those repairs that can be foreseen relatively easy if you are observant. For example, take into consideration the age of the roof. Generally, by studying the condition of the roof you can usually determine when you will need to replace it, more or less. The same is true of the home’s main systems including the air conditioning system. By taking into consideration the natural lifespan of many of these items you can typically predict when you will need to come up with the funds for these replacement costs.

When considering the potential repair and maintenance costs you may run into as you shop for property, it is important to take several factors into consideration. Property type should be one of the first factors you consider because the type of the property can affect repair costs later on. For example, if you purchase a brick property you certainly will not have to worry about painting it in a few years.

The size of the property should also be taken into consideration. Smaller properties are typically easier and less expensive to maintain than larger properties. Larger properties are more expensive to maintain because it simply costs more money for repair and maintenance issues such as replacing the roof, repainting the exterior and exterior, etc.

Surprisingly, the location of the property can also play a role in how much you need to budget for repairs as well. Take into consideration the distance of the property from your location. If the property is located more than 30 miles from where you are located, you are going to spend more money traveling to the property and that can add up quickly.

Finally, consider how you plan to manage the property. Do you plan to handle most of the maintenance work on your own or will you hire help? Hiring outside help can be more expensive overall; however, you must also consider the amount of time you have available for making repairs and your own skill and experience level.

It is also important to remember that there will typically be some problems which will come up completely unexpected and unscheduled. You will need to make sure that you budget for these items as well so that they do not hit you too deeply in the pocketbook. Generally, it is a good idea to plan an annual budget of between 1% and 2% of the value of the property for repairs which may come up unexpectedly. For example, if you have a $100,000 property you would need to plan to spend between $1,000 and $1,500.

By planning ahead and budgeting for maintenance and repair issues you can make sure you are prepared when these items inevitably arrive and will not be financially surprised.

Tags:
Posted in InvestinginRentalProperties | No Comments »

Rental Property Investment Offers Numerous Advantages

พฤษภาคม 25th, 2009

More and more people are becoming interested in investing in rental property due to the large number of advantages offered by owning rental property. One of the largest of those advantages is the fact that when you invest in rental property, you are able to take ownership of an asset that is tangible. Compared to other types of investments, this is a tremendous advantage. It can be difficult for many people to get excited about stocks and bonds; however, gazing at a piece of rental property that you personally selected and are maintaining can provide you with the same pride in ownership that you received when you bought your first home. Rental property is also an income-producing asset which can be a much appreciated inheritance for future generations.

If you have had concerns about investing your hard earned money in financial instruments in the past but are aware that you need to invest your money in order to grow your wealth, real estate offers the perfect solution. While the stock market is notoriously fickle in terms of fluctuation, real estate has historically held a strong foothold in regards to appreciation. Even with the current softening of the housing market, investing in real estate represents an excellent investment opportunity. To a large degree this is due to the fact that many consumers are finding it difficult to qualify for a home mortgage loan but still need a place to live that is comfortable and safe.

Income is another tremendous advantage of investing in rental property. While you will need to deduct the mortgage payment if you finance the property and any relevant expenses, a rental property is often able to produce ongoing income for you.

The value of appreciation should not be overlooked either. Generally, such properties improve in value over time. While appreciation can never be guaranteed, if you take the time to choose a property in an area that is stable then there is a very good chance that the property will continue to increase in value as time goes by.

Rental property owners are also able to take advantage of leverage. This is because you have the ability to purchase a rental property with funds that are borrowed. As a result, you are able to begin taking advantage of the benefits offered by owning rental property while only investing a percentage of the total value of the property. In addition, since the property itself will secure the debt you do not have to worry about using other assets to secure it.

Tax advantages are another important benefit of owning rental property. If you obtain a mortgage on your property, you will frequently be able to deduct your mortgage interest payments. There are also a number of other tax deductions which can potentially be taken when you own rental property including the cost of repairs and improvements.

The fact that you can be your own boss when you invest in rental property is a benefit which should not be underestimated. Whether you are considering quitting your current job to become a full-time rental property investor or you are looking to supplement your current income, you can benefit from the fact that there is a tremendous amount of independence to enjoy by owning and operating rental property.

Tags:
Posted in InvestinginRentalProperties | No Comments »

« Older Entries