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FAQ:
- What should I do on a monthly basis with my Rental property?
1. Do not forget to check monthly payment as soon as it supposed to be in your account.
2. If payment is not deposited - immediately call or start eviction process( 5 day letter, contact lawyer).
3. Call the tenant periodically to check the condition of the property and keep a good relationship with the tenants.
4. Check with your mortgage bank if the taxes and insurance are paid on time.
5. Insurance companies are not always properly updating changes of the policy - check with them
about policy and payment.
6. Home Warranty Plans are supposed to be renewed on time to continue coverage. Check with them about expiration dates,
and your mailing address to notify you directly as well as information about your tenants' names on file.
7. When new tenants move in to your property, check if they have switched utilities to their name.
8. Keep all information, docs and phone numbers for your property in one place.
9. Check if the term of the lease is expired to do a new renewal.[close]
- How difficult is it to evict tenants who do not pay their rent?
If you do all the right steps and the lawyer in charge does not waste your time by delaying paperwork submission to the court (which is quite possible based on my previous experience), it takes an average of 1 month to evict tenants.[close]
- After evicting tenants I may needed to do very expensive repairs. Can I get this money from the previous tenants?
After you complete all repairs (Please keep all docs and receipt), you can go to Small Claims Court and Claim that money from the tenants. In addition you can submit a claim to the collection agency.
In my experience your chances of getting money back are slim to none. This is a part of this business and in the long run an investor will have situation when they lose some money.[close]
- What does it take to rent a property?
The property has to be in good condition, the landlord has to hire a professional and responsible person who will represent him/her in this transaction, and the rental price has to be right. An ad should be placed in all the right places and a little bit luck. In average it takes 1 month to rent a property.[close]
- I do not want to use a lawyer to evict tenants. Can I do all of the necessary steps by myself?
The landlord can do the necessary eviction steps on their own if they can physically be in court; otherwise the landlord has to hire a lawyer.[close]
- Why should I pay Sales tax for my rental Property?
All cities in Maricopa County have their own sales tax Rate (1.5 % – 2.5 %).
The government considers your rental Income as a sale of service and your rental property is a business where you are providing this service. Please contact the local authority for the City where you bought your property to obtain a proper Sales tax license and pay this tax every month.
In addition each home owner who uses their property as a rental is supposed to register his/her property with the County Assessor to pay the proper amount of property Tax.
For a copy of the statute and information for Maricopa County, go to:
www.maricopa.gov/Assessor/Residential_Property_Links.aspx[close]
- What can I do if I get stuck with a bad check from a tenant or did not received payment on time?
First of all, try to resolve this issue with your tenant peacefully by calling them and requesting an explanation and immediate cash deposit (not check) to your account. Please try to talk without aggravating the situation and without posing any illegal demands or assumption that can give the other party any advantage and even worse, counter claims in court against you for harassing them.
The next step would be to send them a Letter of non-payment and give them 5 days to resolve the issue themselves. If this step does not bring result, the only option left is to contact a lawyer and start the eviction process.[close]
- When can I use the small claims court to collect past due rent?
You can use small claims court only after the eviction process has finished and the court has determined how much the tenants owe you. In addition, the landlord can claim any damages that occur during the process of evicting the tenants and after all repairs are done to the property in order to be rented again. Please keep all documentation and receipts for proof in court.[close]
- How can I determine the best kind of income producing real estate and what are the pitfalls when buying income producing properties?
A. To answer this question in full I would need to write a book. To be short and to provide an answer anyway, you have to:
1. Be realistic with your expectation.
2. Do not think that it is easy and be ready for worst.
3. Read a lot and ask a lot from professionals, but have your own opinion.
4. Understand that renting a property is a business activity and needs planning.
5. Do not go into this business without a good savings to withstand a potential bad time.
6. Protect yourself with proper insurances and keep in mind that somebody wants your money.
7. In many cases and especially at the beginning, rental income is only money to support business expenses and not a way of making real money. You are making money when you sell Real Estate![close]
- Why did you put charts for the stock Market on your Home page?
I think that an investor or buyers in Real Estate have to understand that all markets are connected. Interest rate that is given by banks is dependent upon the 10 Year Treasure Bond Yield and for this reason has to be monitored to predict future movements of Interest Rates.[close]
- Since sellers do not need a loan anymore, if the Interest Rate goes UP, why does it affect them?
Directly it is not affecting the seller, but it greatly affects buyers who are supposed to buy property from the Seller and if interest goes up it decreases the buyer’s financial ability and it affects the price of the property.[close]
- What kind of program from the Lender best fits an Investor and which one for personal property buyers?
: It is very difficult to answer this question without knowing the clients’ specific financial situation, but in general, a purchaser has to determine first for how long he/she wants to own the property, how much down payment he/she has to give and what ratio between monthly payment and Rent is acceptable financially. In the current market, the most common program is 5/1 ARM.[close]
- I constantly hear the abbreviation 5/1 ARM or 10/1 ARM. What does it mean?
All those abbreviations are for different loan programs that have became common for House buyers.
Let’s take for example: 5/1 ARM.
a) 5 - means for the first Five years loan will be fixed.
b) 1 – means after 5 years the loan becomes 1 year adjustable, which means it can change up or down every year.
In all cases your payment will be calculated based on 30 years repayment of the principal
(Money that you borrowed).[close]
- Why are many people selecting INTERST ONLY programs?
In an environment when the Purchase price of property is higher than a buyer can afford, it is the only way for him/her to qualify, by paying only INTERST, instead of paying PRINCIPAL + INTERST.
Interest only programs also make sense for people who do not intent to hold property for a long time (investors or flippers) or when prices for properties are going UP much faster than interest that you are paying to the lender and the buyer can withstand a loss of equity in a sudden need to sell property with loss.[close]
- If I do not have 20 % down - can I get a “good” Interest Rate from the lender?.
: Keep in mind that an interest rate, when you purchase property, depends on many factors with an order of importance like this:
1. Credit score
2. Income verification or not (availability to check stable income for the last two years)
3. Monthly Payment/ Income Ratio (has to be below 30-35 %)
4. Down Payment (with a down payment below 20% it is very common to use a second loan to eliminate primary mortgage insurance that is not tax deductible for the primary residence owner). Lender calls those programs 80-10-10 or similar names.[close]
- Can I pay my principal if I selected an Interest ONLY program?
When you choose your program with your lender you have to specifically ask him to give you a program without a prepayment penalty. In this case you can pay your principal any time you have extra money.[close]
- Rental property can incur repairs or loss of income from the tenants on a monthly basis. Tell me if I can deduct those loses?
If you are reporting your RENTAL Property as a RENTAL BUSINESS (Schedule E), you are basically able to deduct any reasonable expenses that you incur while running your business.
I can not describe all deduction, but the most common are:
1. Interest Paid to the Bank.
2. House Repair expenses (Please keep all receipts).
3. Advertisement or management expenses.
4. Moving expenses for the owner to buy, repair or evaluate property and tenants.
5. All legal expenses to deal with tenants.
6. Insurance for the property, Property Taxes and HOA fees.
7. Monthly services (landscaping, pool service, etc.) if you pay for them.
8. You can depreciate your house (consult with your Tax advisor).
In addition you have to report Yearly Income as your Profit.[close]
- I saved some money and would like to start investing. Do you think it is good idea?
In general it is good idea to be an investor, but first and most importantly each person has to have an investment plan, which will include priorities in life in order of importance:
1. Saving money in your account for the emergency reasons.
2. Saving money for possible loss in your future investments.
3. Health insurance for you and members of your family.
4. Retirement savings.
5. Saving money in case your investment needs improvements
Only after all those steps it is good idea to buy investment property!!![close]
- I hear all the time that if I own property for 2 or more Years I am not going to pay Capital Gain Taxes?.
It is very complex question that has several answers.
I strongly advise all of you to consult with a CPA about this issue.
I will try to give some information about those rules:
Rules are different for the property in which you are living (Primary residence) and Investment Property.
If you sell your Primary Residence after two years of living – the answer is yes, you are not going to pay taxes on a gain of up to $500,000.00 if you own it with a spouse or $250,000.0 for each co-owner. Keep in mind if your profit exceeds this amount you pay Capital Gain taxes (15% Federal).
If you are selling an investment property will be paying taxes on your gain no matter how long you owned your property.
The only difference is determined by how long you owned your investment property before you sold it:
a) Less than 1 year – you pay income tax as if it were ordinary income ( Based on your yearly income + Gain)
b) More than 1 year – Long term Capital Gain Tax – 15 % Federal.
In addition you pay State Capital Gain Tax.[close]
- If I sell my investment property what deductions can be used to decrease my Capital Gain Tax?
Any expenses that helped you sell the property:
1. Real Estate commissions
2. Additional Closing cost
3. All repairs and house improvements before sale of the property.
4. Keep in mind that the depreciation amount of an investment property is taxed when you sell it at the rate of 25 %.[close]
- Can I convert my Primary residence to an investment property and back. And what kind of Taxes I will pay when I sell the property?
You can convert any property from investment to Primary and back.
If you have lived at the property 2 years or more from last 5 years before its sale, you will not pay Capital gain tax on any gain up to $500,000.00 if you owned it with a spouse or up to $250,000.00 for a single owner.
If you rented property before, you would need to pay 25% on the amount that you depreciated during the years that property was reported as an investment property.[close]
- Is it easier to sell investment property with tenants at the property or when property is vacant?
The answer depends on market condition and the ratio of Rent to Monthly payment for a future investor.
One year ago it was very easy to sell property with tenants, but when property prices increased exponentially, it became much more difficult to sell property with tenants.[close]
- What is the average closing cost to buy property?
Closing cost can depend on the price of the property and the loan program that you are purchasing. Without any additional points it can be about $2000 - $2500. This amount does not include prepaid amount that can be $2000 -$3000.[close]
- What is the difference between the closing cost for a purchase and refinancing?
. Basically there is no difference because you are obtaining a new loan and all fees have to be paid to the new lender and all documentation and preparation fees will be paid again. Keep in mind that after refinancing you can get back your escrow balance that is left in your account.[close]
- Why get something appraised?
Appraisers give you their professional opinion on the value of what you have. With that knowledge, you can decide how to take care of the item, whether or not to insure it, and how much to sell it for if you decide to part with it. Appraisal reports are used as proof of value in estate, divorce and other legal cases, and with the IRS and with insurance companies should you have a loss or damage to your property.
Why is it important to get a professional appraisal?
You may think because of something you have seen on television, that you can get an item appraised in 10 minutes or less and that the appraisal may even be free. However, in the appraisal world as is true everywhere else—you get what you pay for. Accredited appraisers take time to research the background of your possessions and understand the market for them. Qualified appraisers do not guess at values on the spot.
There are many people who call themselves appraisers but who are not accredited and have no formal training. It is important to hire an appraiser who is accredited by a reputable valuation organization like the American Society of Appraisers (ASA). Members of ASA adhere to the strictest ethical standards and are required to have years of experience, education and training before they are accredited[close]
- Process of Eviction - Steps
How to hurry up the Forcible Detainer
(eviction) Process:
Steps for Non-Payment Issues:
Day 1: Rent is Due
Day 2: Serve the 5 day non-payment of rent notice by personal service (in hand) or post
and mail service (on door and certified mail).
Day 7: (or Day 12 if certified): Send Information to law office (use client cover sheet)
Day 8: (or Day 13 if certified): Forcible filed
Day 9: (or Day 14 if certified): Receive notification by law office that eviction was filed
Day 15: (or Day 21 if certified): Court Date-You get a Judgment and Writ Date, (This
date is dependent upon when the court has the first available date)
Day 20: Call or fax the law office if you need the Constable because the tenant hasn't
moved
What to Send to the Attorney on First Request:
1. Copy of the Client Facsimile worksheet filled out with your account number.
2. Copy of the lease and current ledger.
3. Copy of the Five Day notice and service information (how you gave it to tenant)
TOP TEN THINGS LANDLORD FORGET TO DO/NOT TO DO:
1. Satisfy the Judgment once the tenant pays it off.
2. Prepare and send a security deposit letter to the last known address within 14 business
days after tenant vacates.
3. Prepare and send the 21 day letter immediately after the writ of restititution. Landlord
must take an inventory and store the tenant's property for 21 days after the Writ is
executed. Tenant must pay cost to move and store only before they can recover their
stuff. (note list of exceptions to rule such as medicine, etc.)
4. Have a tenant sign a Partial Payment Non-Waiver if you take partial rent.
5. Order a Writ of Restitution on the 6th day after Judgment. The Writ of Restitution
must be ordered by the landlord because it will not issue automatically. Writ expires 30
days after the original writ date.
6. Don't take any money from tenant if landlord has given them any kind of notice. All
notices become void if landlord takes money after giving notice.
7. If the landlord posts the five day notice (or any other notice), landlord must also send it
certified mail and wait an extra five days for mailing.
8. Don't cancel the forcible detainer unless landlord actually gets certified funds. Tenant's
check may be NSF.
9. Landlord can file a civil suit for all money/damages owed after an eviction or a skip.
10. If landlord gets a tenant association letter, call attorney immediately.[close]
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Ask a Question
You can contact me with questions and if I feel the question would be beneficial to answer publicly, it will be added to this FAQ section. Otherwise I will contact you personally with the contact information provided.
I look forward to hearing from you!
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