Most successful real estate professionals will want to ensure you have a pre-approved mortgage in place before they take you out looking for a home. This is to ensure that they are showing you property within your affordable price range.

In summary, a pre-approved mortgage is one of the first steps a home buyer should take before beginning the buying process.

1. Location – Most people don’t want to live in the boon docks. The location of your rental property will determine how easy it will be to rent. If you have a lot of vehicle traffic, you may receive a greater response from a sign at the location than you will from a newspaper add.

Tenants want to live in nice neighborhoods close to all the amenities. They want to be close to the schools, stores, recreational locations, hospitals, and work.

2. Numbers – When buying rental property you want to check the numbers. Make sure you have all the expenses associated with that property and make sure it still has a positive cash flow.

Take into consideration the maintenance issues, any utilities not covered by tenant and amortize the cost of the big projects like furnace replacement, new roofing, siding or landscaping. These projects only happen once every 15-20 years but you may be coming in to this in the 10th year of that cycle. Remember to calculate your expenses high and your income low. This can save you some surprises down the road.

Expect the unit to be empty at least one month per year due to turn over. You will have to repaint and clean the carpets the first 2 weeks, then advertise and show the next 2 weeks. You should only count on 11 months of rent per year.

3. Lower Maintenance Buildings – You want to avoid homes that will require expensive routine maintenance. Some examples would be homes that have cedar-shake shingles or siding, wood sided buildings, wood frame windows, brick driveways, cedar decks, etc. Try to look down the road and determine the future maintenance needs. Remember the lower the maintenance the less headaches and larger profits.

4. Higher Home Prices – Check in towns with higher home prices, because this increases the demand for rental property. Look for the ugly house on the block that has a lower price, enabling you to purchase within the margins. After some interior and exterior paint, a little light landscaping and new curtains, viola’, a house that will get premium rent because of the class of neighborhood. If people can not afford to buy a home in this class they will have to rent. This will create a demand for rental property.

5. Below Market Rent prices – When buying rental property, look for rental property which has rent prices that are below current market rents. This will allow you to raise the rent and increase the value of the property. As per above, this may just need a little fluff to enable raising the rental price.

Rental property market value is determined by the amount of income received by the rental property. However keep in mind, if the rental property has renters when you purchase it, they may not like it when you raise the rent. Also check to see what type of lease is in place. The lease goes with the sale.

If the current renter is paying a substandard price and has 1 1/2 years left on the lease it could turn out to be a losing proposition.

There is only one way to cut a lease short as a new owner. You must remodel the place. Check with the local housing commission to see what the minimum cost requirements of remodeling are for immediate eviction of current lease holders. It is usually as little as $10,000.00 in remodeling cost to get a remodeling eviction. By the way, you didn’t hear this from me!

6. Good Rental History – Whenever buying rental properties, you must check the rental history. Check to see on average how long tenants are staying and do they pay their rent on time. Some areas of town are naturally quick turnover times. Near airports, loud bars or nightclubs, near military bases, etc.

7. Complies with Zoning and Fire Codes – Make sure you check to see if there are inspections required by local officials for rental properties and does this property pass those inspections. You never know the real reason the current owner is selling the property.

It may need extensive repairs to pass the inspections. A quick red flag would be if the electricity has been turned off for over 90 days. They will usually require an inspection before restoring power, especially if it is a known rental.

8. Less Than Twenty Years Old – This is self explanatory, if you restrict your selection to buildings that are less than twenty years old, you will limit the chances that the building will have any building code or maintenance problems.

The building could be near the maintenance cycle for roof, paint and possibly furnace but the structure will be sound and not needing upgraded windows, siding or cement repair.

9. Out of State Owners or Managers – When buying rental property, look for properties that are owned by out of state owners. It is hard to manage rental property from out of state and when these come up for sale, the owners are usually more concerned with selling quickly than getting top dollar.

In order to rent a place quickly you must live near by so you can show it at the caller’s request. Often times they will ask to see it in the next 20 minutes or so. Cater to their requests and show it quick. Most renters need a place within the next week or so and will not wait to see your place until next week because you are busy. Most times they will make a decision before tomarrow when it would be more convenient for you to show it. This has happen to us to many times.

Never give out the address for drive bys. Prospective renters will ask for the address to do a drive by and just look at the place. Don’t waste your time with these folks. Insist on showing it in the next 30 minutes or you will not give out the address as a courtesy to the neighbors.

10. Neighborhood is stable or improving – obviously avoid neighborhoods that are declining, look at the writing on the walls and stay out. Although these may look good due to the low purchase price, they are very difficult to collect the rents.

By finding neighborhoods that are stable or improving, it will be easier to rent the property and you will be able to increase the rent. The general consensus is, the better the neighborhood the higher the purchase price and the higher the rent prices, therefore the margin for profit is greater. The poorer the neighborhood the lower the purchase price and lower the rent prices reducing the profit margins.

A property manager must also collect rent checks every month and deposit them into various accounts, ensure the condition of the property, and is the person contacted in case anything within the property needs repair.

When in charge of many different properties, a property manager must be organized and keep consistent records. This comes in handy if at anytime you need to evict someone from a property. Which may be a long process, and requires that you show all evidence of misconduct.

One thing a property manager must remember is that they are required to keep the best interests of the property owner. This may, sometimes, become a problem, but simply keep in mind that the owner is your boss, and if they are unsatisfied they have the option to find another property management firm. Thus, keeping them happy is a priority.

There are a number of property management types, including, commercial and residential property. The best, most lucrative avenue would be to do both. And have the enthusiasm and skills needed to juggle all the different responsibilities.

One of the ratios they use is called loan-to-value ratio also known as LTVR. To calculate this indicator, they will divide the amount that you own in commercial loans or mortgages between the fair value of the property. This value will represent the amount that a seller and buyer agree to pay for the property in the market being both satisfied. The LTV ratio will rarely go beyond an 80%.

The second reason of the considerations of commercial loans is the Debt Proportion. The lender of the mortgage market will look at the income of your business and then fix the amount of debt you owe each month. Their bills are denominated debt obligations and are divided by their monthly income-to-debt ratios. The rates of the debt must be maintained at a low level. Not exceed more than 40% in most cases.

Commercial loans are granted also on the basis of Debt service coverage ratio, or DSRC. However this is only requested when the commercial loans in question are large. The lender wants to see if your current property generates any income.

There are two parts of this relationship: net operating income and debt service. Operating expenses can be high for rental property. The net operating income is the income that your company has left after paying the repairs, taxes, insurance and all other expenses incurred in managing their assets. Debt service is a mortgage payment. The DSRC is obtained by dividing the net operating income for debt service.

A mortgage credit institutions will like that this ratio exceeds 1.0. If lower, the commercial mortgage lender will know that the net operating income is not high enough for the owner to obtain a benefit.

Mortgage credit institutions and commercial lenders will look at these three ratios and decide what commercial loan is best for you and less risky for them.

Good companies manage all aspects of the exchange. They provide service that is quick, easy to use and backed by experience. In good companies, experienced attorneys are the managers. The senior staff will be rich in experience with regard to investment property transactions. The specialized team of attorneys mainly deals with more complex reverse and build-to-suit exchanges.

The main parameters that distinguish a good and bad exchange company are speed, service and the security they offer the client. Speed lies in the pace at which the company prepares the document. The documents are then sent to the closing table, allowing the seller to close and proceed with the exchange. Service is the dexterity in preparing all documents required for the exchange, including reminders of 45 and 180-day time limits and extensive complimentary consultations.

Security comes in the form of an unconditional guarantee on exchange funds from Insurance Companies: high value fidelity bond coverage and Professional Liability insurance cover.

These days, banks are working with Exchange Service providers. The Cole Taylor Bank of Chicago is one of the largest independent banks in Chicago, and joined hands with Nationwide Exchange Services (NES) of Cupertino in California in a strategic alliance for handling Cole Taylor’s tax-deferred 1031 Exchange business. This Chicago bank specializes in serving the business banking, real estate lending and wealth management of closely-held and family owned small and mid-sized businesses. Cole Taylor Bank is an Equal Housing Lender.

Nationwide Exchange Services is a leading Qualified Intermediary for Tax-Deferred 1031 Exchanges and has conducted thousands of successful 1031 Exchange transactions. It is applying advanced technologies and secure business processes to enhance standards of financial security, visibility and customer service to establish new standards for products and services in 1031 tax-deferred Exchanges.

The alliance enabled the Bank to become part of the NES team and benefited in becoming the primary financial custodian for NES in the Midwest Region. The alliance also helped the bank to offer their customers an expanded set of tax-deferred 1031 Exchange products, such as reverse and build-to-suit exchanges, at the most competitive cost structure.

The systems from NES combined with the bank Cole Taylor’s financial security and brand recognition has spurred confidence in the customers. Collaboratively, they bring distinct advantages to all 1031 customer sets, right commercial developers and corporate entities to individual investors.

In a market where banks aren’t lending much to anyone, preparation is your best course of action. Know that the banking industry cannot and will not be like this forever. Banks make money when they lend money to you. At some point they’ll resume their typical lending practices. Your job right now is to learn as much as you can about the real estate business while properties are sitting idle. Remember, if they aren’t lending, for the most part, no one is buying. New investors will always be able to buy properties. The banks are still giving money to individuals who own fewer than five properties. For the larger investor it’s much harder to get financing. They are most likely the ones who will want the property you are interested in. Having some of that competition out of the running creates a great opportunity for the new investor.

Most new investors need to do their research now and study the market and the business. Learn how to be an investor. Study the banks and lending institutions to determine which is best for your situation. Find a realtor that you can trust. Go look at some properties. Take your time and really get a feel for what you should be paying attention too. Do a mock estimate to see how much a property is going to cost to complete all the repairs. Call other people who are renting their properties to see what they are looking for in a tenant. This will give you good ideas on what you should be looking for in rental properties. Now is the time to do this research. If the market was really moving, you wouldn’t have this time. Every day would mean another property off the market and money lost.

So now is the time take advantage of this unique opportunity. While others think this is a bad time to get into this business, now you know better. There is no better time for the new investor. So, what’s the best thing to do right now? Prepare yourself now so you’ll be ready when your time is right. Now you should feel confident about buying rental property in down markets and enjoy success.

However, there are a few things that your form may not have, which you should add if yours is missing them.

First, where did the seller come from? If they came from mailing a postcard, you want to know which postcard. If they came from a real estate agent, put down the agent’s name. If a bird dog or wholesaler sent it, put their name down. You need to keep track of where all your seller inquiries come from and so you need a space on your Property Information Form to track that.

Second, be sure to get the property owner’s complete contact information AND jot down their motivation for selling. While many forms will have a place for owner’s contact information, few have a place for why the seller is selling. Often times, structuring a win-win deal requires you to have great knowledge of your seller and why they are motivated to sell. Without this information, you’re only closing a fraction of the deals that you should.

And finally, you need to record the financing currently on the property. As many investors move toward creative financing, knowing about the existing financing on the property becomes much more important. Some Property Information Forms may have a spot asking how much is owed, but few will go into the details of how much, at what rate, under what terms and so on. In the past, many investors have been tempted to skip asking how much is owed, but it is becoming more and more important as credit markets have tightened and some house prices have dropped, leaving many houses with more debt than they’re worth.

So, if you have not been using a Property Information Form, commit to start using one and if your form does not have the additional fields I recommend, please consider adding them to improve your own real estate investing business.

There are three major taxes that we pay by law: Federal tax, State tax and FICA tax. The percentages someone gets taxed depends on a number of different factors. But the thing you have to keep in mind is that it is a myth if you think that the more money you make the more you will get taxed in a higher bracket. If someone tells you that, then that means they have no clear understanding of how the federal tax system works.

To better understand how federal taxation works, especially the deductions, let us use an example so we can understand this better. Say, for example, our taxpayer is John. He decides to buy a house in January for two hundred fifty thousand dollars. He does not have any money for a down payment so he will have a 100% loan. He takes two loans: an 80% and a 20% loan. The eighty percent loan has 6.5% interest rate and the twenty percent has an 8% interest rate. So if you do the math, on the 80% loan he is going to be paying one thousand eighty three dollars of interest per month and on the twenty percent, he is going to be paying three hundred thirty three dollars per month.

When he bought this home there were fees associated with the transaction. And one of the fees is the origination fee that is one percent and another one percent for the discount fee. That would be a total of five thousand dollars in today’s market that we normally see the seller pay for closing cost. So even though John did not pay for this five thousand dollars directly, he can still use this five thousand as a deduction.

Again, if you do the math of the interest per month, that will be one thousand four hundred sixteen dollars per month. In a year that will be sixteen thousand nine hundred ninety two dollars plus the five thousand origination and discount fees, you will have a total of twenty two thousand nine hundred ninety two dollars he can claim as tax deduction for that year.
In fact, if you work from your home you may even get additional tax deductions as long as you meet the requirements asked from a person working from home. To qualify for tax deductions, you must have an exclusive home business area. It need not be a full room, but part of the room such as where you have your business equipment and supply. But if you are using your dining room as your business area, you do not qualify for the tax deduction since you use it both for business and personal purposes. Surely, you will be more than happy to check out how much deduction you will get out of all the advantages possible from owning a
rental property.