Tag: rental

Rental Property Quick Tips

You may be interested in rental property as a way to earn extra income, but how should you go about it?

Where to buy?

It’s an old but fitting adage that there are three rules in real estate: location, location, and location. The same is also true for renting out property. You need a good location to attract renters, but there can be pros and cons, depending on where you invest.

For example, if you buy near a university or college campus, chances are you won’t have a problem renting out the place nine months out of the year. The summer months might leave your property vacant while students are no longer in classes.

Other factors, such as how much your competition is charging for their properties, need to be considered. You could find a great deal on a duplex or a quad but find yourself unable to recoup your mortgage and upkeep costs if the area’s average rental rate is too low. You have to think both as a renter and as a prospective tenant to have success.

Crunch the Numbers

Investment properties, like rentals, require a minimum 20% down payment. The money can’t come from large gifts, you’ll need six months of payments reserved in savings, and you have to buy the property as an individual, not an LLC.

Freddie Mac and Fannie Mae also have different rules if your mortgage goes through them. Freddie requires 2 years of documented renting experience on your tax returns in order to list any projected rent as income. Fannie Mae does not.

In addition to all of this, a rental property mortgage also requires that you not have more than a 45% debt-to-income ratio.

All of these factors are reason enough to sit down with a Riverbank Finance consultant to see if you qualify. Contact one of our mortgage officers at (800) 555-2098

Property Management

Another factor that both lenders and owners need to take into account is how the property will be managed. Will it be all DIY? Will you handle finding tenants and hiring a handyman, or will you hire a management firm to do everything but pay the bills? All of these are factors you should consider before you enter a mortgage agreement. It will help you calculate what kind of return your investment will bring back and offer peace of mind to your lender as well.

Plan for bad seasons while hoping for good ones

Let’s face it, your property, at some point, will have vacancies. North Conway, New Hampshire is known for its skiing, mountain trails, and what they call “leaf peeper” season. This means their vacation rentals are full in summer, fall, and winter. Spring can be a vacant season for them for three months if a renter can’t be attracted to come for other activities.

It’s also a good idea to have a rental agreement at least started, if not finalized, to show your lender. That way, on day one of owning the property, you can get to work renting it out with the proper paperwork already done.

Lastly, every renter at some point in their career will experience a delinquent renter who refuses to make a payment. This is why it’s a wise idea to research debt collection agencies to help you recoup the losses.

 

While rental properties do require a great deal of preparation, they can pay off for countless investors who are willing to put in the work.

 

Citi Enters the Rental Business

Citi Enters Rental BusinessThe mega-bank Citi has announced plans to get into the rental business. The bank kicked off a great new program this past Wednesday to rent out 500 homes to homeowners who are having difficulty paying their mortgage. Instead of putting the loans into foreclosure and kicking the owners out, the homeowners may be offered the option to rent their own home.

Homeowner advocacy groups have been working with banks and asking them to offer the option to rent to borrowers that are getting close to foreclosure. With Citi being the second largest bank (behind Bank of America as the first), trying the rental program may be the key to helping the foreclosure problem in America.

Dean Baker, an economist who has been lobbying for rental program options says, “It’s another step in the right direction.”  Well at least the idea may be however, the problem with this rental program is that Citi isn’t actually renting out any homes because they have already sold their interest in the property to Carrington Capital Management.

The sad fact is that Citi’s appearance of hospitality and humanity may simply boil down to a branding and marketing campaign as a, “Home Rental Program.”  Because they no longer have interest in the properties, they also have no control over them so there is no minimum period of time that they previous homeowners would be entitled to lease.

Advocacy groups such as the National community Reinvestment Coalition feel at a minimum Citi should be able to guarantee a minimum lease period for three to five years at a fair price. Without this consideration the benefit appears solely for the mega bank and its investors.

Also, since the mortgages are no longer owned by Citi, those borrowers are no longer eligible to get a mortgage modification under the $25 billion settlement agreement. While Citis investors, such as Carrington, could still decide to modify those loans instead of trying to rent them, it won’t have the incentives that the banks got when signing the AG settlement. So if you are a homeowner that got their loan sold then there may be less of a chance that you will be offered a modification and be able to stay in your home.

Rick Sharga of Carrington, says renting homes is a growing business that it plans on expanding and growing with Citi. “Our objective is to rent out these homes,” says Sharga. “If this works, Citi is inclined to ramp up the program so we would like to get as many people participating as possible.” He goes on to state that in many cases the home owner will be able to rent their home back for significantly less payments than they were required to pay on their mortgage. Ultimately they will come out ahead on the deal.

While renting homes may be an initial benefit for the tenant, the real winner will be the mega banks in the long run as they will be able to get cash flow on the homes now when they are unable to sell them and eventually sell them for a profit once the economy rebounds.  The previous homeowner will be forced to find a new place with the new owner take possession.

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