In addition, Fannie Mae is putting in place policies to monitor and then pursue borrows who are in default. This was stated in the announcement – “Fannie Mae will also take legal action to recoup the outstanding mortgage debt from borrowers who strategically default on their loans in jurisdictions that allow for deficiency judgments. In an announcement next month, the company will be instructing its servicers to monitor delinquent loans facing foreclosure and put forth recommendations for cases that warrant the pursuit of deficiency judgments.” 

So what option does an owner who needs to sell but can’t have? They are going to think long and hard about the ramifications of their decisions. If they can work with their mortgage holders through a loan modification, a short sale, or even deed-in-lieu, they may be able to reduce the time down to three years instead of seven.   

The question then becomes how does Fannie Mae determine who has the capacity to pay? It will be interesting to see how this plays out in the marketplace over the next couple of years. I would be interested to know your thoughts on this new development and how you think it will impact the current housing crises, so add a comment and I will publish them. 

To read the full announcement, you can go to Fannie Mae’s site.

It has gotten to the point that we have to spend so much time policing our ads rather than finding people actually interested in renting our homes. It is such a shame that people take a good thing and use it destructively to the point that it ruins it for others. 

If you are not aware of how the scam works, we have explained it below. In addition, we are going to share tips for tenants who are looking for quality rentals and how to avoid the scams. 

THE SCAM: 

We post a legitimate advertisement on Craigslist. We make it nice with pictures, showing instructions, our brokerage information, and information about how to apply. 

The scammer takes our ad and copies the whole thing. They change the price and place their contact information in place of ours. Sometimes they add in additional incentives like all utilities included, second month free rent, etc. Typically there is only an e-mail address and no phone number. 

A prospective tenant finds the ad and is amazed at the great price that it is listed for and also the nice owners have decided to include all the utilities. How awesome is that? 

Since the tenant can’t call to find out more details, they e-mail the “owner” and the “owner responds. Great love to have you rent it, send me $XX.00 to apply for the property. Believe it or not there are people who because it is a great deal, will send the money. Of course they never hear from them again and the money is now gone. 

VARIATIONS: 

We have seen where scammers are also taking vacant homes/ bank foreclosures and doing a similar scam. 

RED FLAGS: 

Don’t Proceed if – 

• There is not a number to speak with someone.
• The number that they give you is out of the country.
• You can’t find out information about the person or company.
• They ask for money before you even view the property. 

MYTHS: 

There are a lot of people who share with you to never send money before you meet someone. At SSPM, we don’t meet our tenants at the property. We don’t meet tenants to collect applications/ application fees. We require money to be in the form of a money order or cashier’s check. We are a legitimate property management company. We have established these policies in order to maximize our time and resources. 

So, what can you do to make sure that you are dealing with a reputable firm? 

TIPS:

In today’s information age, there are plenty of ways to verify information: 

Search Craigslist for the address of the property to see if there are multiple ads. If there is one with a higher rent amount – it is a scam. 

Google the address of the property. Are there other ads for the same address for more money? Is there another contact listed? If so, you may want to contact those people and ask about the rental. 

Google the contact phone number of the advertiser. What comes up? If it is a legitimate business, you will see other ads or information about the company. 

In Georgia, there are real estate license laws that need to be followed. If a company manages more than 1 owner’s rentals, they need to be licensed by the real estate commission. Go to the site for the real estate commission and look for the firm – http://www.grec.state.ga.us/clsweb/company.aspx 

If a company, is there are professional website with information about the company and the company executives? 

Most experienced landlords have written applications process and guidelines. Ask for a copy of them before your apply. 

First and foremost, trust your instincts. If something sounds too good to be true, it probably is.

In the movie there is a scene where Leigh Ann Tuohy (Michaels’ adoptive mother) is watching Michael learn to play football. You see even though Michael was over 6 feet and more than 300 pounds, no one had really taught him how to play football and he was against any type of violence since he saw that all his life. 

Michael has afraid to block and really didn’t understand how to play the game and do what the coach wanted him to do. Seeing that the coach wasn’t able to get through to Michael, Leigh Ann goes onto the field takes Michael aside and tells him – “protect him”, dragging the quarterback in front of Michael, “as if he were me. Don’t let anyone get near him or hurt him.” She then pulled another player in front of Michael and said, “this is Collins (Leigh Ann’s daughter) protect him as you would Collins.” 

The point Leigh Ann was making was to do well in the game, you had to protect those in your family, your team.  You protect the quaterback’s blind side which is where the name of the movie came from. 

So what does this have to do with real estate and property management? Glad you asked. As a property manager, we are your Michael Oher. We are there to protect you against things you don’t even know are coming. When I speak with an owner about what a property manager does, I share with the owner that we do all kinds of tasks – over 100 of them to take care of the day to day, but I also talk about protection. 

Protection comes into play in the form of insurance, HOA disclosures, legal documents, how to interact with the tenant, forms, etc. 

Sometimes that means protecting the owner from themselves. You see we know more about the possibilities and pitfalls of owning rental properties than most owners.  When we advise an owner about something, it is usually from the experience of a decade of experience. In addition to having managed hundreds of homes over a long period of time. 

So when you are considering a property management firm, ask them – Do you personally own rental properties & how many? Have you ever used a property management firm for any of your rentals? Are you a member of NARPM to gain insight from other property managers across the country so that you can learn from their experiences? At Solid Source Property Management, we can answer YES to all of these questions.

Here are the things to consider. 

Most tenants are not planners. I can’t tell you how many times we move people days after they apply for a property. They want immediate move in times. Rarely do we have a tenant who looks at a property and is able to wait more than 2 weeks. Most owners don’t want to move that fast. So that actually reduces our chances of being able to place tenants. So we end up wasting our marketing dollars and then the owner isn’t happy because the tenant won’t work on their time schedule. 

Most tenants in Atlanta want to view a property on their own time schedule and have the freedom to visit without an agent. We accommodate them with a lockbox and have a system in place for them to self show. If an owner has personal property in the home, we can only show via an agent. While there are more agents now showing rental property, it is because we are in a down market. Once the market turns, agents won’t want to spend their time showing rentals when they can be working with buyers for commissions that pay 10 times the amount of commission. This significantly reduces the number of people who can see the property and therefore, significantly reduces the chances that it will be rented. 

There isn’t enough time to make repairs in between the owner’s vacating the property and when a tenant needs to move in. While most owners believe that their homes are rent ready, inevitably, there are items that need to be done prior to occupancy. Cleaning and carpet cleaning are among the typical, but it might also require some touch up paint and other minor repairs. A tenant is not going to overlook minor items. They have high expectations especially in a down market. 

So when you add all of those factors together, we have made the decision that it is best for everyone to only market vacant properties. This will allow us to quickly find a suitable tenant, protect the interests of the owner, all the while being able to provide the tenant with a guaranteed date of occupancy.

So, let me explain the tenant’s right to quiet enjoyment. When you receive compensation for someone living in a property, Georgia Law clearly states: 

OCG 44-7-1.
(a) The relationship of landlord and tenant is created when the owner of real estate grants to another person, who accepts such grant, the right simply to possess and enjoy the use of such real estate either for a fixed time or at the will of the grantor. In such a case, no estate passes out of the landlord and the tenant has only a usufruct which may not be conveyed except by the landlord’s consent and which is not subject to levy and sale.
(b) All renting or leasing of real estate for a period of time less than five years shall be held to convey only the right to possess and enjoy such real estate, to pass no estate out of the landlord, and to give only the usufruct unless the contrary is agreed upon by the parties to the contract and is so stated in the contract.  

So what is quiet enjoyment? It is the right of the tenant to possess and enjoy as the tenant deems fit. They have the right to be undisturbed. The Department of Community Affairs (DCA) clearly states in their Georgia Landlord Handbook when discussing right of entry into a property that the law has been interpreted as “If the lease does not state that the landlord can enter the apartment, a tenant could legally refuse the landlord access except in case of an emergency.” Now at Solid Source Property Management as well as most leases does state a provision for entry for reasonable timeframes Monday through Saturday with 24 hour written notice. 

But here is the bigger issue. What happens if we get inside and find that they aren’t maintaining the inside? Maybe they have not cleaned, or maybe they have broken something. What can we legally do? The answer is nothing. They have the right to live in any manner that they seem appropriate. 

What I feel is appropriate and what you feel is appropriate is subjective. As long as at the end of the lease term, they return the home in the same condition that it was when they were given possession – less normal wear and tear, they will receive their security deposit back. If they don’t leave in a clean rent ready condition, then we by law can deduct the amount to repair from their deposit as compensation to the owner for the damage. If damages exceed the security deposit, then we can pursue them in collections. But really until they move out, we can’t do anything.

We have had instances where a tenant lived in a manner that I wouldn’t live in, but when they moved out, the property was returned in immaculate condition and received their full security deposit back. This is why it is so important to establish the proper condition of the property at move in with detailed notes and pictures. Then it is really easy to compare the move in and out check sheets and determine the deductions. 

So in reality, unless we have cause to believe that there is an unlawful activity or a known lease violation (unauthorized pet for example) in the property, we allow the tenant to have full use of the property without intrusion. 

We do perform a quarterly drive by of the property and will notate anything that is not being handled properly which is the lawn maintenance or any infraction of the HOA rules & regulations. Remember however, that owners are responsible for the exterior structure of the house which includes – gutter cleaning, yearly shrubbery maintenance, pine straw/mulch refreshing, pressure washing, etc. These items are not the tenant’s responsibility. Tenants only have to maintain the mowing of the lawn and keep the beds free from weeds. Weeds in the lawn are also the owner’s responsibility so some owner’s elect to pay a weed treatment company to assist in the weed control. 

Since the tenant is paying rent, they have rights to the property and these rights must be respected. At Solid Source Property Management, we take great care to act in the best interest of our owners while abiding by the law set forth. We do believe strongly that proper screening typically saves us from a lot of problems in the future.

Last week, we received some very disturbing information that translates into even longer time frames for evictions. With all the budget constraints, the county has shared that they are no longer allowing eviction companies to reserve a sheriff for a day per week to handle their clients’ eviction. This was significantly decreasing the already lengthy process as we were able to take advantage of the eviction company planning the most effective route for their clients to get the job done.

With this new development, we will be in line with everyone else meaning that there will be less efficient routes and a first come first serve basis which will result in longer eviction timeframes. We are supporting the eviction company’s stance that this is not a good thing and will only hurt more than help.

In the past year and a half, evictions have increased dramatically. The foreclosure evictions are lumped in with our non-paying tenant evictions. With foreclosures rising to astronomical numbers, this is only crowding an already stretched sheriff service. With Gwinnett County running out of budget, we have been told that there will be no overtime that can be spent. So what does that mean for us as landlords? We are stuck waiting for the process.

At Solid Source Property Management, we are considering a wide variety of options to shorten this process. We are guiding our clients through the eviction process with the best information possible available at the time. While we statistically have very few evictions due to proactive screening, there is little we can do to foresee the loss of a job, a medical issue, or death. We work very hard to maintain a professional working relationship with the tenant throughout the whole process.   

To read some good news – read Mark’s remarks about New Construction sited in Forsyth County.

This month, we are transitioning to new property management software. This transition has allowed us to examine our base of business and to help us better serve our clients and tenants. What I found as part of our analysis was that 30% of our tenant base has at least one pet. Some actually have multiple pets. 

So what does that mean to you? First, if you are an owner of investment property and don’t want to accept pets, you are significantly reducing the number of tenants that will want to rent your place which will result in longer vacancies. 

So what is a landlord to do? We encourage all of our owners to accept pets with conditions. It has been our experience that if you do not allow pets, the responsible pet owners will go elsewhere and you will still end up with unauthorized pets for those tenants who are dishonest. Unauthorized pets create more damage and are a bigger liability. 

There are certain pets that due to insurance requirements, we cannot accept. Those are the vicious breeds – Alaskan Malamutes, Akitas, Chow Chows, Doberman Pinschers, German Shepherds, Pit Bulls, Rottweilers, Staffordshire Bull Terrier, or Siberian Huskies. The interesting thing is that people who have these breeds are appalled that we don’t accept them. While we are sure that there are many dogs in those breeds that are fine, there are a greater number that have caused problems and our insurance would not cover us should a problem arise. 

Responsible pet owners are happy to pay a pet deposit. We recommend charging a non-refundable portion for the privilege of having a pet and returning the rest provided that the lease was honored and there were no damages. 

We have all our residents sign a pet policy even if they don’t have a pet, so that everyone knows exactly what our pet terms are. It also shares with them the consequences of having an unauthorized pet. We find this comes in handy from time to time. 

We charge based on the weight of the animal the heavier the breed, the more the deposit. Also, we take into consideration the type of dog as some dogs are notorious chewers while others are just helping keep their owner’s lap warm. 

We love our pets and understand that others do too. I hope that this has helped take the fear out of accepting pets in your rental property. 

Merry Christmas from SSPM

Often times after being with loved ones, we are reminded of the real meaning of life. Which really isn’t about the money you make, the status you have achieved, or the house or car your own. It is about making a difference in the world. Impacting the world in a positive way leaves a legacy for you that can make life much more meaningful. 

So what does this have to do with landlording and investing? Well, when Mark and I got started in the business, we had a mission to provide affordable quality housing. At that time in the market, the places that were renting in the price point that we wanted to serve were all dilapidated dumps. There was no pride; there was no quality; only poor people living in rundown shacks with neglectful landlords. Mark and I wanted to change the reality of that. Consequently, we had an investing model that provided for small houses that anyone could afford that were the nicest in town. 

We treated the tenants respectfully and provided flexibility on deposits to assist the tenants in the transition to our properties. We provided them with a little more than they were expecting. We had and still have a significant impact on the community. 

It was the basis of our investing strategy that has provided for our children’s education, a retirement plan for Mark and I, and impacted our community. So, as you think about your investment goals for the next year, I would encourage you to think about not only what you are doing in terms of helping yourself, but how your investing strategy can serve the community as well. What kind of impact do you want to have?

It is no surprise that there are a lot of homes that are upside down with the mortgage being more than the house is worth. Underwater mortgages as they are called are becoming increasingly more common.

Real estate research firm Zillow says that 23% of mortgages are now underwater. This number could easily increase to 30% a year from now. One of the major reasons for the trouble is that home values fell 12.1% Nationally year-over-year in Q2, resulting in a total 22.3% drop in value since the market peaked in mid-2006. Of course regional figures will very quite a bit, but in Atlanta, I would say those numbers are fairly accurate. Twenty-two percent of all transactions in June were foreclosures. This is an indication that people are not willing to fight to save their houses.

So what does this have to do with renting my house via lease option? Well, a lot. The whole premise of the rent to own or lease option strategy was to get top dollar for your home because you were taking advantage of someone with less than perfect credit and providing them a guarantee to purchase the home with set price of the home. This allowed for market appreciation to provide some built in equity for the tenant and worked well for all parties.

Since the market today is not appreciating, but rather depreciating, there is no built in equity for the tenant. Tenants are afraid to get locked into buying a home when in fact the home may be worth less in the future and not more. They are also more concerned about their employment stability as well as paying a fee with no guarantee that the owner won’t go into foreclosure and walk away with their option money and then they can’t recover the loss.

Another issue is credit requirements are changing rapidly. As of January 2010, FHA credit requirements will be raised to a minimum 693 FICO score. This will eliminate a lot of the potential borrower’s ability to qualify. So even if you could find a willing tenant, their odds of qualifying will be significantly reduced.

From the owner’s perspective, unless you have had the house more than 8 years, more than likely, the house value may be less than the mortgage currently on the house. So how can the lease with option strategy work unless the owner wants to take a significant loss? Taking a loss really doesn’t make sense if it can be in rental service which should be covering the payment at least and hopefully providing some cash flow.

To further complicate the matters, currently it is near impossible to determine the future value of a home. The market is way too volatile. If you had a tenant who was willing to proceed and pay for the option to purchase, determining the future price of the home would be a challenge. There would need to be some additional language that stated that the owner would sell for 5% below appraised value in order to provide enough incentive for the tenant to move forward.

So at this time, Solid Source Property Management, is not recommending to proceed with this type of arrangement as it isn’t serving either party. We are sharing with both that once there has been a successful lease term, we believe that the owner would consider an incentive for buying the property, but we would have to evaluate payment history, credit, and the market at that time. We feel that this is the better solution for this volatile market.

People wanted to know about the vacancy rates so we shared with them based on the data collected across the top property management firms in Atlanta for September. There were a total of 4900 units on the market. We saw that the vacancy rate for single family residences (SFR) was averaging 11.62% while condos were 33.63% and townhomes were 23.04% 

We talked about the new competition in the market place and what the tenants are looking for in their new home. The competition – Sellers who can’t sell, but need to relocate are putting their properties up for rental. Banks becoming landlords because they either foreclosed on tenant occupied homes or can’t sell in today’s market. Investors who are having a hard time making ends meet reducing their rents just to compete. Foreign investors that are taking advantage of the great deals here. 

Tenants are looking for larger homes and consolidating families. Kids are moving back home with their children and we are seeing many more multi-generational families applying for homes. People are also downsizing. They are doing more with less.

So what can be done if you own rental property that is vacant? We provided tips to them most of which you can read more about by going to a previous post – http://sspmblog.solidsourcepm.com/2009/06/atlanta-rental-market-update/ 

The good news is that our move-ins have been steady even this time of the year. When I reviewed the numbers for this year compared to last year, we are renting at a rate of 6.8 move ins per month for the year versus 5.6 last year. We are also seeing an increase in renewals almost twice as many as last year. I have heard from other managers that this is holding true for them as well. So what this means is there are less people coming into the rental pool. So with more competition and less viable renters coming into the market the effect is depressed the rental rates. 

Not that all of this is doom and gloom. There are some great deals out there and we will be talking on Saturday as panelists for the Ilyce Glink – Profit from Foreclosures Event to share with investors about how to change with the market and still make money in real estate. 

Happy Investing!