Posts Tagged ‘Principle’
One of the most efficient ways to invest in residential real estate is to do a lease/purchase. The reason a lease/purchase is so effective, is because it provides a win-win situation for both the seller/landlord and the buyer/tenant. For the owner, it provides a potential buyer and a tenant that will be willing to take care of the home. For the buyer, it provides the right to purchase the home for a fixed price, and time to save money and improve their credit. Here is how it works.
The owner and the buyer enter into a contract whereby the potential buyer agrees to lease the home for a set amount of time. At the end of the lease, the buyer then has the option of buying the home for the price agreed upon in the contract. In order to secure that price, the buyer pays an option fee up front. If the buyer chooses to buy the home at the end of the lease, he can apply the option fee and any other money saved toward the down payment. If they choose not to purchase the home, the owner keeps the option fee.
For the owner, the lease/purchase offers several different ways to make money from the home:
- The goal is to buy the home for 10-20% below market value.
- The monthly rent you collect will exceed your mortgage payment.
- You can right off mortgage interest and other expenses on your taxes.
- You pay down the principle on your mortgage and build equity in the house.
- The price of the home will appreciate.
- If the potential buyer decides not to buy, you keep the option fee.
This is just a basic outline of how a lease/purchase works and the opportunities it presents. It is still a real estate investment strategy that is unknown by many and discussed by too few. For more detailed information, a recommended read is “Buy Low, Rent Smart, Sell High” by Scott Frank and Andy Heller.
To apply this investment strategy in a growing real estate market, visit http://www.buyandsellnorthtexas.com.
By: Michael Stazko
What is an inventory?
The inventory is a catalogue of the property and its’ contents. A schedule of condition is a record of condition. Most commonly the two are combined into one report and are called either the inventory or schedule of condition.
The inventory/schedule of condition has several functions:
* it is a catalogue of the property being let
* it records the condition of the property and any items that are included in the tenancy
* it forms part of the legally binding contract that is set out in the tenancy agreement between the tenant and the landlord.
Why it’s important to prepare one?
For years when it comes to inventories, landlords have got away with scribbling a few notes on a bit of paper about the condition of their property. The general principle being that accurate records were not needed. This was because as a landlord you were both ‘judge and jury’ and if and what part of the deposit was withheld to cover the costs of repair and cleaning. This is not to say that tenants had no remedies if they felt aggrieved with the decision. Under the pre April 6 2007 system they were able to take the landlord to court if they thought that they were unreasonably withholding their deposit. The judge would then decide on the merits of their claim. However, the ‘hassle’ and inconvenience to the tenant of carrying this through meant that in most cases tenants do not take matters any further, especially where the sums involved were small.
Things will never be the same again
The Tenancy Deposit Scheme (TDS) will change this cosy amateur approach in several important ways:
1. No longer will the landlord have the benefit of controlling the monies from the outset
2. Because of point 1 many tenants are likely to feel emboldened to take on the landlord if they think they even have a chance of winning the argument. There is likely to be a large jump in the number of cases where the tenant disputes the withholding of all or part of their deposit
3. The inventory will become far more important for many landlords as it is the key document in proving the condition of the property before a tenant moved in
4. The way of assessing disputes will now change. Rather than matters being resolved through the courts, most will be decided by independent arbitrators. Arbitration is generally seen as less adversarial and fixed by legal procedure than the courts and this is likely to result in outcomes that differ from those that occur currently.
Message to landlords
The message to landlords is clear. No longer will they be ‘judge and jury’. The result is that the number of contested deposits is likely to increase dramatically. Therefore it is more important than ever to have a carefully prepared inventory at ‘check in’ and that at ‘check out’ an accurate record of the properties condition is made. Otherwise they could end up significantly out of pocket. Landlords should look out for the TDS compliant inventory coming soon to the registered users of http://www.propertyhawk.co.uk
Landlords however do have an option not to prepare the inventory themselves.
There are two ways of avoiding the preparation process.
Firstly, if the property is fully managed by an agent then inventory taking and the subsequent ‘check out’ should be carried out by them as one of their management duties. This obviously will save you time. It will also mean that if there are problems with the condition or cleanliness of the property; the agent should rectify these and use the deposit monies to cover this expense before handing the balance back to the tenant.
The second way to get around having to prepare an inventory is to employ a specialist Inventory Clerk. These individuals carry out the whole process for you; they can also do the mid tenancy inspection as well as the final ‘check out’. The downside to this service is that it is not cheap. The costs of a check in and check out run to about
Comedians have their minds full of lawyer jokes, such as “What’s the difference between a lawyer getting run over and a snake? A snake has skid marks in front of it!
One step down from lawyers on the ladder of shame are estate agents. They are the people who sell property. This article talks about how they privately push deals to cash buyers, and how developers get property with “no money down.” Property is a hard business, and there are millions to be made and lost!
The free market rests on the common principle that the best price is found for a product or service. Attempts to interfere with that are seen as illegal in many countries.
I have for years seen properties sold under market value by estate agents. Those sales are done via social and business contact to cash buyers that the estate agent has obtained over years.
Recently, I attempted to buy a house and the estate agent refused to provide any sales details, as I was not a cash buyer. I was so stunned by this, that I complained. Following my letter, I was banned from visiting the estate agents (a national chain) and told they would call the police and charge me with trespassing if I breached their ban. This example shows how far people will go to make money and motivated me to write this article.
I will briefly outline how financing is arranged for a property purchase.
A cash buyer is someone who does not need a mortgage. That means someone who has assets that can be sold for a cash amount, or he has a house being sold and the proceeds will be available before the new purchase.
There are plenty of mortgage products available in the current market. The principal types of mortgages are buy-to-let, let-to-buy, and a normal homebuyer’s mortgage.
A common practice by property developers is to attempt to buy under value by 15% (the mortgage deposit) or to obtain a 125% mortgage based on the first valuation. The concept is that after the developer bought 15% below market value, the developer can quickly re-mortgage or obtain a further advance and recover the deposit sum. This has meant the developer obtained the property without any deposit after the re-mortgage by using the equity. A 125% mortgage makes the assumption the property is undervalued.
A common way of finding properties undervalued is to find properties recently inherited following death (probate), properties being re-possessed, and when the owners are overseas (and hence out of touch with current pricing).
The Land Registry often provides the sale prices of houses by postcode, so you can check what is a market price within a local area. There are several commercial services offering a similar service, e.g. Nethouseprices.
Once armed with the financing and market details, you are in a strong position to find a good deal.
The estate agency business has been rife with misrepresentation. In an attempt to stop that, the Ombudsman of Estate Agents has been created and also there is a professional membership scheme of the National Association of Estate Agents.
The 1979 Estate Agents Act also offers protection. There have been several prosecutions on the basis of discrimination against purchasers. The 1979 Act states that an estate agent cannot discriminate based on additional services (e.g. mortgages) if could offer.
Finally, you cannot trust the estate agent.
By: Trevor Oakley
