#70 – 7 Tips for Screening Tenants
Attorney & Best-Selling author William Bronchick (www.Legalwiz.com) discusses seven tips for screening tenants.
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Read MoreLease term: 2 yearsMonthly rent: $550Purchase Option: $55,000
At face value, this would seem like a good deal, since I got the property tied up for two years, with less than market rent, with the right to buy it below market. However, I had two problems: (1) I inherited uncooperative tenants; and (2) The property needed repairs. First, I dealt with the tenants. Most people think this is a nightmare, but it's easier than you think, if you know the rule, that is, the "golden rule." The easiest way to evict a tenant is with a bribe. Your problem tenants suddenly become a docile as a lamb when there's $$CASH$$ on the table. In my case, I simply knocked on the door and asked them to leave. Would you know it, they did! Second, I had to deal with the repairs. I had no money. I mean literally, I gave the last $100 I had in my checking account to the owner of the property to bind our agreement. A friend of mine, a very experienced real estate investor, suggested that I sublease the property to someone with handyman skills. She suggested that in exchange for the work performed on the property, I would give the tenant an option to buy the property from me (of course, after I purchase it from the owner). I thought it was a great idea, so I went with it. I ran an ad in the FSBO and rental sections:RENT-TO-OWNLow down. U-fixLarge HouseMy Number
I got almost 100 calls! I picked a real nice couple. They offered to do the work. I was looking for $1500 option (earnest) money and $750/month rent. I offered them a $200/month rent credit towards their down payment (plus the $1500 earnest money). I gave them the option to purchase the property for $75,000. They asked me if it was ok to pay me $3,500 now and pay $575/month rent. It took me about 3.3 seconds to make up my mind... Door #1: cash later, or Door #2: cash NOW. Which one do you think I took? I had them in the house before I even made my first payment to the owner. They cleaned up the property and steam-cleaned the carpets. They actually liked the wallpaper (barf!) and they re-painted a few rooms, at their own expense. So, far I was doing pretty good. I had paid $100 to the owner. I had $3500 in cash. I had the place rented for a $25/month cash flow. Life was good. What about the option to purchase? Oh yes, back to that. The tenants had lousy credit, a bankruptcy and a few collections. I called up my local mortgage broker and asked about their chances of getting of loan. I really didn't care, since their $3500 was NON-REFUNDABLE. It was Win/Win: I win if they buy and I win if they don't. He reviewed their financial situation and said, "no problem." You see, if you know the rules of the game, you can learn how to play around them. I didn't even know that someone could get a loan with a bankruptcy on their record! I worked hand-in-hand with the lender and the tenants for the next 6 months. It was painful. I made dozens of phone calls, bitching and screaming at everyone, from the lender to the title company to the tenants. I slammed my phone down and ripped it out of the wall. Guess what? They got approved for the loan! I called the owner and told him to show up for closing. He did. He signed over the deed. The title company gave him a check for $55,000. Five minutes later, the tenants came to the closing table. I gave them a deed. The bank gave the title company a check for $71,500 ($75,000 purchase price less the $3500 the tenants already gave me). The title company handed me a check for $16,500 ($71,500-$55,000 money paid to the former owner of the property). I walked away from the deal with $20,000 net cash profit (yes, the $100 I put up was credited to me at closing). Let me share with you the three lessons to be learned from this deal:Share this article
Attorney & Best-Selling author William Bronchick (www.Legalwiz.com) discusses seven tips for screening tenants.
Podcast: Play in new window | Download
Subscribe: RSS
Read MorePodcast: Play in new window | Download
Subscribe: RSS
Read MoreThere are many benefits for both the buyer and seller when doing an owner-carry installment sale as opposed to the buyer obtaining conventional mortgage financing on an apartment building. Sometimes the advantages inure to the benefit of one or the other, but in most cases, the transaction can be a “Win/Win” for both parties. Let’s examine
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