8 Tips for Hiring the Best Property Manager

1.  The first thing I always want to know is how many properties (units is a better measure) are they managing.  This is followed up with how many employees are managing these units.  Here is what I have found based on our experience building our property management capability internally and then handing the entire portfolio over to property managers: a trained employee with the right tools and proven processes can manage between 30 and 40 units – assuming the accounting function is not included.  So, if you are qualifying a property manager and they have no employees and are currently managing 37 units and you want to hand them 7 more, how good do you think their service to your portfolio will be?

2.  Do they own any rental properties themselves?  For me this can be a deal breaker!  Here is what I have experienced: while it may seem like a benefit for a manager to own properties because they can better relate to what an investor experiences, I see it differently.  The way I see it is my properties and my tenants are in constant competition with the managers and their properties.  If the manager has a vacancy at the same time you do, how can you know that your property will be filled first?  You don’t!

3.  A critical component in managing both properties and tenants is getting into those properties on a routine basis.  As part of your discussions with prospective managers, you want to get a commitment from them how often they will conduct formal inspections of your properties.  In some cases, managers will be very accommodating. In most, however, they will balk at this requirement or use it as a way to increase the fee they will be charging.  I am not too impressed with property managers who believe that conducting routine property inspections is an extra – not part of their normal package of services.  I would be very leery of this type of property manager.

4.  During the discussions if you find that the property manager is constantly cutting you off, or trying to finish your sentences for you, you will be in trouble if you hire them.  Any time you have an issue or question about your investment you will get the same treatment.  The best managers are those who know who their clients are and are constantly looking for way to make sure those clients are happy.

5.  The number of automated tenant management systems on the market can be overwhelming.  The good news it that there are just a handful that really matter.  You want to make sure that the property manager you select is using a quality property/tenant management tool and that they can provide samples of output reports from this system during the interview.  If they don’t use software to improve efficiency or hesitate to share reports with you, your experience may be less then profitable.

6.  Most property managers charge between 7% and 10% of the rents for managing your properties.  Be sure that you know what that percentage is based on.  Some managers will require that you pay them the agreed percentage on the total rents that COULD be collected whether they are collected or not.  That is a non-starter for me.  It would be a darned cold day in you know where, before I ever paid someone for rents they didn’t collect.  It should be for you also.

7.  Be sure that you know how a property manager will address maintenance issues.  There are a variety of ways you as a property owner will pay for getting maintenance issues resolved.  You can expect that the property manage will want to make maintenance decisions (spend your cash-flow) up to a certain dollar value amount before they have to obtain your permission.  I never let that amount exceed $250.  You shouldn’t either.  Also, many property managers will add a 10% fee on top of the invoice, and while it is often times hard to find a manager who doesn’t make this a non-negotiable requirement, I would still negotiate to get that item waived.

8.  Regarding that software I mentioned in item #5 above, make sure that the property manager commits to providing reports to you no later then the 6th day of each month and that your portion of the rents are paid to you at that time as well.  And if you don’t receive those rents from the manager by the 6th, go camp out on their doorstep!  I’m not kidding!

Are You Financially Ready to Buy an Investment Property?

By John Morell, 

Here's what you need to consider in this real estate market before shelling out for an investment property.

It’s hard not to look through real estate listings in the newspaper or on the Internet and dream -- and not just when you’d like to find a perfect home for yourself. With prices down significantly and the stock market in disarray, many are wondering if buying an investment property would be a wise choice.
“There hasn’t been a buyer’s market like this in years, but it’s a big step,” says Dean Wegner, a Phoenix, Ariz., investor and mortgage broker. “You need to take stock of where you are financially and your goals before signing your name on a contract.”
Here’s a checklist of items to think about before becoming a landlord:

Cash on Hand
The money you have available is the most critical part of buying real property. Since the days of 100 percent financing are gone, you’ll need cash upfront for the down payment, but how much? “The rule of thumb today is 25 percent down and two points, which could be paid by the seller,” says Wegner. “You can also do 20 percent but you end up paying three points.”
Some investors are also becoming creative at coming up with the cash they need for a purchase. Moving retirement funds to a self-directed IRA that in effect “buys” the property can be a profitable enterprise if you have the funds and some time to allow the investment to appreciate. If your retirement balances have dropped significantly over the past year or if you don’t have enough in the account to purchase property outright, IRS regulations allow you to pool with friends, family or like-minded strangers to buy investment homes with your combined IRA assets and share in the profits and expenses.

Is This the Right Property?
If you’re stretching your budget to try to afford an investment property, it’s probably time to think about other options. Instead of buying a single-family home or condo, what about a duplex or a small three- or four-unit rental? And what about moving into one of the units?
A multi-unit property will be more expensive at the outset, but if you’re calling one of the units home the cost can be offset by the sale of your current house. It also helps you build a cushion. Say the mortgage on your four-unit is $3,500 per month and you’re charging rent of $1,200. If the other units are occupied you’ve covered your mortgage and you’re hopefully banking at least $1,200 to build up an expense fund.

The Cost of Ownership
No matter how many flying colors the inspector gave the property, figure that something’s going to go wrong. “Air conditioners go out in summer, furnaces die in winter, plumbing gets clogged year round,” says George Hadad, who owns several rental properties in the Midwest. “Figure about 10 percent of your rent going to maintenance and repairs.”
It’s not a bad idea to talk to and/or get involved in the local apartment owners association to get some idea about rental conditions, local cost savings and the state landlord-tenant law that you’ll have to follow.

Forget About Flipping
Real estate today is a buy-and-hold investment. “Don’t buy anything quickly, it’s a buyer’s market after all,” says Wegner. “Take your time since you’re going to be married to this property for five or 10 years or more for the investment to pay off.”

Mortgage Loan Modification Programs

By: Kirk Haverkamp

Are you overwhelmed by your mortgage payments? Has a major hardship or life event changed your ability to pay you mortgage? This can be a depressing and helpless feeling, but hope is not as far away as you may think.

What is a Home Loan Modification?

A home loan modification is much like a mortgage refinance in that the objective is to find you a more affordable mortgage payment for your financial situation. In fact, it is often called a modified refinance. The primary difference is that instead of looking for a "new" loan you will just simply "modify" the terms of you existing mortgage.

Why a Loan Modification Versus Refinancing My Mortgage?

Refinancing your existing mortgage to obtain a more affordable mortgage payment could still be an option. Unfortunately, for an increasing percentage of homeowners it is not. That is precisely what loan modifications are for, the homeowner that has incurred a financial hardship that prevents other mortgage financing or payment options.
In most cases, a loan modification is recommended to homeowners that have a financial hardship that is preventing them from making their monthly mortgage payments. Most how are eligible for these types of mortgage modification programs have already missed one or more payments.

Am I Eligible for a Loan Modification?

This will vary depending on who services (i.e., who you send your mortgage payment to each month) your mortgage. However, most follow very similar qualification criteria. These are the most common loan modification qualification standards:

• Experienced a documented hardship or change in financial circumstances
• Missed three payment (90 days delinquent) or more
• Owns and occupies the property as a primary residence
• Not filed bankruptcy

Other important factors that can effect your eligibility:

• Do not purposely default to get a loan modification
• Make sure you are responsive in working with your lender

Since many of the programs do vary in how they work, you should contact your lender and advise them of your hardship and get more information.

Where Do I Get a Loan Modification?

Ultimately, the only place where you can get a loan modification is with the lender or servicer that current holds your mortgage. Confused as to who this might be? In this mortgage market, where mortgages are bought, sold, and packaged up into securities for Wall Street, this part can be the hardest step in the loan modification process.
The best place to start is your mortgage coupon book or statement--who do you send your mortgage payment to each month?
Each mortgage lender or servicer will have different loan modification programs and processes. In addition, often the staff at these companies have little training to handle a loan modification inquiry.
This is where getting a loan modification can become very challenging. Seeking expertise in streamlining your loan modification process can often save you a lot of frustration and money.

What Do I Need to Show the Bank?

The bank ultimately is in the business to return a profit to their shareholders, just like any other business. Consequently, your objective in presenting your loan modification request is to show that it is in the best interest of the bank to modify your loan.
What might support your modification request? Here are the points that you should be able to show your bank:

• You have had a material change in your financial circumstances
• You have made every effort to make your mortgage payments
• You have been cooperative and responsive in working with them
• You are not in any way purposefully defaulting to get a loan modification
• You are willing to be open, honest, and provide all necessary documentation

Remember your bank is essentially making a new loan to you after taking a loss on the first one. You need to demonstrate to the bank that you are able to pay on the new modified loan terms.

What Documents Will I Need?

Your loan modification package is going to be the most important part of your mortgage modification efforts. Again, the contents and process for packaging the information for your lender's consideration will vary, but the critical elements are typically the same. Here is an example of the documents you will probably require:

• A letter documenting and explaining your hardship
• Proof of current income and capability to make modified loan payment
• Detailed monthly expense report or budget

The principal purpose of the loan modification package is to provide your lender with sufficient documentation to evaluate the risk in modifying your mortgage. The main question your lender is trying to answer is can you pay the new modified mortgage payment, and will you.

Why Would a Bank Modify My Mortgage Loan?

Simply because it is in the best interest of the bank. As you attempt to inquire about a loan modification do not confuse this transaction with an altruistic act of kindness. It is fundamentally a transaction that makes more business sense than the alternative--you defaulting on the entire mortgage and costly foreclosure proceedings.
It is also a product of the current economic conditions. There are so many homeowners that have been pinched by the simultaneous collapse of the housing market and the economy. This creates a unique circumstance--modifying your mortgage, to keep you in your home, benefits the bigger economic picture.

Loan Modification Programs

As mentioned before, loan modification programs are just becoming mainstream and therefore there is little standardization. The details of loan modification programs that you qualify for will start at your lender or a loan modification counselor that can guide you.
Here are a few of the most prevalent loan modification programs and resources:

White House/Treasury Loan Modification Program

The Obama administration, under the guidance of the US Treasury has created one of the most inclusive loan modification programs to date. This mortgage modification program not only helps borrowers in current financial difficulties, but also good paying homeowners that think they may have challenges in the future or have lost significant equity in their homes due to the housing market crisis.
You can learn more about this program at: FinancialStability.gov - Making Home Affordable

IndyMac Federal Bank Loan Modification Program

IndyMac Bank was one of the first financial institutions to broadly offer loan modifications to their mortgage customers. When the FDIC took over IndyMac it became the first test bed for an extensive loan modification policy. You are eligible for this loan modification program if IndyMac Federal Bank holds or services your mortgage.
You can learn more about this program at: FDIC.

Federal Housing Finance Agency Loan Modification Program

The most recent of the loan modification programs was the one offered by the Federal Housing Finance Agency (FHFA), the supervisory regulator of Fannie Mae and Freddie Mac. This loan modification program applies to any mortgage held or serviced by Fannie Mae or Freddie Mac.
You can learn more about Fannie Mae and Freddie Mac loan modifications in FHFA Director Lockhart's Statement on Loan Modification Program [PDF]

Major Lender's Loan Modification Programs

The largest banks in the US are all offering aggressive loan modification programs and in some cases issuing foreclosure mortatoria. These programs are expected to proactively modify hundreds of thousands of mortgage loans.
You can learn more about Citigroup's loan modification programs at:

• Citigroup's statement on Preemptive Initiatives to Help Homeowners
• Citigroup's dedicated website for the Office of Homeownership Protection

You can learn more about JP Morgan Chase's loan modification program at:

• JP Morgan Chase's statement on enhancements to their loan modification initiatives

April Market Update

New Listing!