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Property Ownership Costs

March 24, 2010

When you buy a new property to live in yourself or buying an investment property, there are a number of costs you need to consider to make sure that you can afford the overall expense of owning a new property. These costs go beyond the mortgage payment costs that you incur each month. Property ownership involves two main categories of costs:

Non-recurring costs

Some of the costs you can expect to bear during the purchase of your home:

  • Closing costs and other additional costs associated with the home. The closing costs that you pay depends partly on the size of your mortgage, the value of your property and the province where you purchase. For example you will need to consider solicitors fees, mortgage broker fees, any stamp duty that may be applicable to the purchase of your property, survey costs when applying for a mortgage, your deposit payment, property insurance and so on.
  • Moving Expenses Whether you hire property movers to pack, move and unpack your belongings or you do it yourself, it will cost you something.
    • Costs related to new home Think about what you need and everything you want to feel at home in your new home, especially if it’s your first. Then, think about what you need just to move, e.g. cleaning products. These short term costs are additive, so try to take into account the initial costs.

Recurring costs

What are the costs you can expect to pay monthly, quarterly, or sometimes every season:

  • The mortgage payment will probably be your biggest regular outgoing towards the cost of your property, whether you have a normal residential mortgage or an investment buy to let mortgage. Several factors affect the amount of mortgage that you make, including: the amount financed, term, rate, type of mortgage product and payment schedule. If you want to pay off your mortgage more quickly and reduce interest costs, you can make payments more frequently, for example bi-weekly (at the same time as your pay). Adding a little to your monthly payments or making an extra payment each year can be extremely useful.
  • Property Taxes Depending on where you are, you will receive a council tax bill that is normally paid annually. Nowadays, it is possible to pay property taxes in several ways: by writing a check to the council, by online Banking or if your council allows, automatic debit from your checking account every month.
  • Property Insurance Your lender will require that your property is insured at closing, and it is an expense that you can not avoid when you buy the property. The property insurance protects the replacement cost of the structure in case an unfortunate event occurs. Your property insurance should also cover your personal valuables: jewelry, art, furniture and computers, among others. Your property insurance should also cover liability insurance, in case someone gets hurt on your property or you damage property accidentally by a neighbor. (From time to time, make sure your coverage fits with the value of your property.)
  • Service Charges If you buy a flat or an apartment, you will undoubtedly be asked to pay a service charge for maintenance of the property inside and outside, including common shared areas used by the public. Ask before you buy all the details on these expenses, among others, from the management company..
  • Utilities Each month you will need to pay the heating bill, gas, electricity, water, telephone and cable (or satellite television).

Regular Maintenance. A well maintained property retains a higher market value and contributes to the enhancement of the neighborhood. Proper maintenance can even increase the value of your property. Sometimes these expenses are a little too easy to postpone. But if you neglect certain maintenance tasks, you will find perhaps that repair costs are much higher. A regular maintenance schedule covers a multitude of tasks from mowing to snow removal, through the roof repairs and periodic maintenance of heating system.

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Finding the right property manager

January 2, 2010

Many property investors will choose to manage their own properties, particularly if they live a short distance from the property. However, for many investors it may not be feasible to take over the management of their properties if the properties are located across different parts of the country. In this case a property investor may want to appoint a property manager to take care of things on the leasing and property management in exchange for a monthly fee.

The benefits of appointing a property manager for our property investment can easily outweigh the reasons for not to have a manager in place. A good property manager will always communicate effectively with the owner in all circumstances and perform well.

Duties and functions of a manager of property are extensive and will vary depending on the conditions and demands of the property owner. Here is a list of some of the responsibilities a property letting agent may assume:

  • Advertise for and interview (credit checks, referees contact) potential tenants
  • Gather initial payment of deposits
  • Collect monthly rents
  • Arrange any necessary repairs
  • Periodic inspections and inventory checks of property
  • Paying workers, gardeners, council tax and other bills out of incoming rent
  • Make the regular lease payments to the owner
  • Contact the owner of tenants giving notice to vacate property
  • Contact the owner to arrange for repairs above a certain value
  • Notifications and appropriate to issue letters to tenants
  • Provide reports of rent and expenses to the owner

The above is just a sample of functions performed by a property manager. A good property letting agent/ manager is not necessarily someone who charges lower fees. Most managers around where your property is located charge similar fees, however their ability to control the property according to your requirements differ and so it is necessary to follow a strict screening process to choose the right letting agent for your needs.

The best way to select the right property manager is to interview a number of property managers and ask them a series of predefined questions. Some owners prefer to do this in an interview, while others are content with perhaps a call and email to phone.

So what type of questions should you ask? There are several different aspects of property management that must be looked at and so I have listed some possible questions accordingly.

Fees and services offered
What monthly fees do you charge?
How many properties do you control?
Do you charge a fee to leave?
How often do you conduct inspections?

Reporting
How often are payments made to the homeowners?
Under what circumstances do you contact an owner?

Tenants
How do you find and interview prospective tenants?
How often do you collect rent?
What is the typical period of notice?
How do you treat non-payment of rent?

Maintenance
What action is taken if a tenant should damage the property?
How do you control the major and minor repairs?
How long have you worked with your preferred trades people?

These are only sample questions and will differ depending on your situation, however they provide an outline of what you may need to ask.

At the end of the day, do not settle for less than what you expect from a property manager. After all, your investment property, bought with your hard earned money, is placed in their hands. Make whatever effort you need to ensure that your property is in the hands of someone you consider capable and trustworthy.

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Finding Good Property Tenants

October 13, 2009

Finding a good tenant is quite a challenging task. There are some tenants that seem OK at first but as time passes by, they might be any landlord’s worst nightmare. You need to have a set of criteria to qualify tenants when you are looking for the right tenant. Most property investors buy investment property on the premise that they can rent it out to good paying tenants. The tenants do not just have to pay on time. They should also take care of your house as if it is their own.

One of the things that you should consider when looking for tenants is their credit history. This is to take care of the financial aspect of the deal. A person who has a superb credit history means that he is able to keep up with his debt. It may also suggest that he or she has a good paying and stable job that enables him or her to pay diligently. In any case, this is a good indicator that your tenant will be able to pay the rent regularly as well. Just to be thorough, make sure you also verify the employment of the potential tenant.

As part of the background checks, obtain at least 2 references from previous landlords to ensure that the potential tenant has a good track record of looking after previous properties they may have rented. If they have not rented before then ask for 2 character references from 2 independent parties that the tenant has dealt with before. In fact the landlord should go one step further and ask the tenant for a Guarantor to sign a Guarantor form on behalf of the tenant.

A tenant Guarantor form is essentially a form that is signed by someone who knows the tenant to take responsibility of any costs that may be owed by the tenant that they fail to pay. It is a binding agreement that may be signed by either friends or family of the tenant and (although it is optional) it must be signed to ensure that you add further security and protection in case the tenant defaults on any rent payment.

If a tenant has arrears and you have a Guarantor sign the Tenant Guarantor form then you can legally chase the Guarantor for the payments that the tenant has not made. It is wise to ensure that the Guarantor also has good financial circumstances so that he/ she is able to pay you any dues on behalf of the tenant. As a guideline, a good Guarantor should at a minimum be employed home owner.

There might be a lot of good tenants in your area but the problem is they are all staying in other apartment or houses for rent. How do you find good tenants for your property? It all boils down to good advertising. To start getting the word out to the public, you can make use of word of mouth advertising. It is fast, easy and it will not cost a penny. Spread the word through your family members, friends, neighbors, and office mates. Put up notices on your work notice boards and any other community boards. You would also of course need to do other forms of advertising to find your tenants including the Internet.

If you find a tenant who is related to someone you know, the good thing is that they would not want to destroy their reputation. This means that they will do the best they can to maintain the house or apartment. You can interview them and do background checks before you admit them into your property.

Once you have found good tenants, your next job is to hold on to them for as long as possible. Make sure that you are a good landlord so that the relationship is mutual. Handle all complaints properly and keep your reputation clean. Tenants would love to rent in properties where they would have a good working relationship with the landlord. Discuss restrictions before your tenants move in so they will not be surprised when they actually get to live in the property. Be completely clear about the terms of the tenancy and encourage your tenants to read the tenancy clear from the outset to avoid and arguments and differences later on down the line.

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Writing Property Rental Listings Successfully

May 29, 2009

These days more and more tenants are on the look out for rental houses and the rental listing sites are flooded with rental property. In such a situation, you must make some extra efforts in order to distinguish your rental property from dozens of others; some similar houses on rent may just be in your very own neighborhood. If you go through the current rental listings on websites, you will not find it hard to observe that they all contain a traditional stereotype pattern. In order to ensure that your rental listings successfully pull tenants, make a few changes to make your listings unique and tempting.

Pick a Catchy Listing title

It is essential that you should start attracting the tenants from the very beginning. Rather then going with the conventional listing titles like $850 – 1 bd/1, make your title count and use catchy words. The importance of the title must not be underestimated; unless it appeals to the tenant, he/ she will not bother viewing the rest of the details.

It is beyond doubt that you must keep the title short, but still you have the margin to play with tempting words that impart vital data to tenants. You may desire to mention the number of bed rooms in your house, but mentioning a unique feature of your house will give your rental listing a cutting edge over the rest. Some important features that deserve a place in a good title include on-site washer and drier, car parking facilities, a good location, a nice view, superior décor or any other facilities which you desire to put across to your tenant. You can also enhance the distinctness of your property by mentioning places like gardens, conservatories, bar etc.

Keep Your Listing Specific and Make the Right Use of Adjectives

While writing your buy to let listing you should go all out and give complete information about your house with all its advantages and merits. Use of adjectives in description of your house also counts a lot. Rather than using common adjectives like “nice” or “amazing”, you need to use adjectives like “bright”, “classic” or “modern” which help the reader imagine those features in his/ her mind.

Tenants are more attracted to listings which give a clearer and unique description of the house, and you can achieve this goal by making the right use of adjectives.

Mention All the Details

It is definitely worth mentioning all the necessary information and distinctive features of your house and the surroundings to tenants. Although only these unique features will not guarantee seemingly trivial facts like a house on a quiet street or close to shopping centre may also tempt tenants. As your listing will play a defining role in convincing the tenant, it is important to take time while finding words for it. It is sometimes possible, that we fail to find the best features of things which we love the most, and you must make sure the same does not happen in case of your rental property.

‘Seeing is believing’

The famous proverb ‘Seeing Is Believing’ is not all that incorrect and giving nice pictures of the interior and exterior of your house will force the tenants to contact you. This is important, especially in case of gumtree as it provides an instant snap shot of your property.

It is advisable that you always keep some nice and presentable pictures of your house so that you can use them in future. The last thing you want is to be taking pictures of an untidy property when an existing tenant leaves and be using those pictures to try to attract tenants. This can be a major set back to your campaign to find a new tenant; therefore, ensure that you have a clean set of pictures handy that you can use to advertise while you clean up any mess behind a leaving tenant

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Importance of tenants for property landlords

May 28, 2009

I have mentioned in another article how easy it is to be successful in property. If we break it all down, it boils down to 2 main factors; 1.  knowledge and 2. having the drive to be able to put the knowledge into practice to achieve the rewards. We are not talking rocket science here, but just the application of the right knowledge correctly with determination and drive. If you can do that, then the system of property investment becomes pretty straight forward.

In the case of buy to let property investment, a straight forward system in a nutshell means buying the right property at the right price and renting it to the right tenant. Here I want to mention the importance of looking after your tenants, as the tenant who occupies your property is the single most important relationship that you will have to develop a successful buy to let property investment system. It is the tenant who forms the cogs of the wheel.

When you go and buy an investment property, you can borrow hundreds of thousands of pounds to acquire a deal and it is our tenant who is actually going to pay that money back, not you, not your mortgage broker, not your solicitor or any one else for that matter. You tenant is the one person who will give you money, no one else will. Your tenants are your clients and they are ones who deserve the most respect out of anyone else you deal with. The rental properties that you buy are their homes. Tenants are great people who give you money month after month so you can keep the bank happy by repaying your buy to let mortgage. Aren’t they good? Yes indeed so give them respect for what they do for you. If they are not there, then your buy to let system isn’t going to work. It is your tenants responsible for your success so respect them as much as you can.

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Should you upgrade investment property?

May 27, 2009

You have done your first ever deal on an investment property, got the keys and ready to either move in it or rent it. This is usually the most exciting part of the purchase and many new investors like to think about the possibility of upgrading the property to their taste so they can cherish the purchase a bit more. But, if the property is in good order and is perfectly habitable, is an upgrade really essential? The quick answer to the question is No! Especially of the property is a pure investment

 

If you purchase a property with the intention of living in without any consideration of ever selling then you can be forgiven to upgrade the house in exactly the way you want it, after all you are going to be living in it for a while so you may as well decorate and design it to your taste. However, if the property that you purchase is an interim step towards your dream house or a property that you are planning to let or planning to flip it for quick profit then the last thing you want to start doing is to start adding your designer touches. Forget about adding the new luxury kitchen, bathroom, a new conservatory or patios, taking such action when not needed simply means losing a large chunk of your profit in the upgrades.

 

You have to treat every property purchase as a business purchase and not to purchase to fall in love with the property. You goal is to fall with the investment DEAL not the actual property itself. Remember that you have a buy to let mortgage to take care of.

 

You should only spend money on aspects of the property that will help you realize a bigger profit. If that doesn’t happen then you are wasting your hard earned profit. And as good as you getting your cash and burning it before your eyes. By all means make the property more presentable by doing some new painting and other tidy ups, but forget the granite work tops and the designer touches, let the new owner who wants the luxuries to add them themselves. Bottom line you are in business to make money, not to take on properties to do up as in the fancy staged TV programs. These programs are “made up” and are not right for investors who have better things to do, which is buy more property and hence more profit! We are not here for fantasy and design, we are here to take on the mundane deal making tasks to constantly generate profit.

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Basic Landlord Tips

May 8, 2009

With the recent declines in the property market, a large portion of speculating investors have turned into reluctant landlords. If this describes you then stick to the basics of property renting to ensure that you can ride out the storm.

 

When renting a property, the first and foremost task on your priority list should be screening the prospective tenants before you hand over the keys to your property. That means doing a background checks on the tenant, reviewing their credit report and checking previous references from their previous landlords.

 

When conducting the checks, make sure that you ask for a picture id such as a driver’s license or a passport to ensure that you are checking out the correct person.

 

If you think you are likely to get a good demand for your property then see if you can arrange an “open house” so that you can show the prospective tenants the property all at once. This will save you considerable amount of time which can be invaluable if you managing a number of properties in a portfolio.

 

Once you have completed the viewings and selected your tenant, make sure that you do not hand over the keys to the property until the deposit checks have cleared.

 

Being a landlord is not as easy as you may think, especially if you have a lot of properties. You will have problems and need to have money in place in case you need to spend money on potential problems. Renting property without the right checks or a contingency fund can lead to painful problems.

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