Buying & Selling Homes - 3/11 - Bob Vila

Category: Buying & Selling Homes


Don’t Let Emotions Cloud Your Real Estate Judgment

Even recognizing that emotions are an unavoidable factor in real estate can help you get what you want out of any house negotiation.

Real Estate Emotions

Photo: shutterstock.com

Real estate agents like to say that house hunters make offers based not on price, but emotions. Recently, Duke University published scientific research that supports the reality of such a phenomenon.

Whether you’re buying or selling a home, even a rudimentary understanding of how the brain synthesizes emotions can help you develop (and stick to) a logic-based valuation of the property in question.

Related: What’s My House Worth?

Let’s say that after 25 happy years, you’re putting the family home on the market. When you look at the place from the curb, you see holiday memories and the hard-won result of your maintenance and remodeling efforts.

Indeed, fond associations may lead you to view the property in more favorable economic terms than it warrants. But you can’t put a price on memories. For a fair assessment of the home’s market value, seek out a third-party appraisal.

Remember also that emotions figure largely in the real estate negotiation process, no matter which side of the table you are sitting on. And in the heat of the transaction, small incentives can deliver outsize impact.

If you are selling, hold back on a small concession, such as a $500 allowance for new carpeting. Once you are close to reaching an agreement, toss that incentive into the mix, as it might help your buyer feel more comfortable accepting the terms.

Conversely, if you are negotiating to buy, carefully monitor your own emotional response to the tactic described above. Don’t let your emotions attach an outsize value to the incentive. Ask yourself whether it’s truly enough to make you agree to the sale price.

Duke researchers found that for human beings, emotions inevitably factor into valuations. The best you can do is to be aware of your own tendency toward irrationality, working around it by focusing on facts.


Clean Credit Wins Home Loans

A first-rate credit history improves the likelihood that your application for a home equity loan will be successful.

Home Loan Credit Score

Photo: shutterstock.com

Mortgage interest rates continue at record lows, but if you’re hoping to snag a home equity loan for a planned renovation, you’ll soon discover that banks consider a different number to be more important: your credit score.

Related: HELOC? HEL, Yes!

Recently, a Federal Reserve official said that most housing-related loans are going to borrowers with a credit score of at least 620. If you’ve ever applied for a Federal Housing Authority (FHA) loan, this probably comes as no surprise, since the FHA requires a sterling credit history even of loan applicants who can offer a substantial down payment.

Home equity line hopefuls are wise to avoid a pointless hassle (not to mention the shock of disappointment) by reviewing their credit in advance of applying.

By law, you are entitled to one free credit report per year. While a credit report includes your aggregate score, it also includes your recent payment history. Here, you may detect black marks that are worth going out of your way to dispute.

Paid credit monitoring services abound. Bypass the shady outfits and instead, opt to deal directly with the major credit reporting agencies: ExperianTransUnion, and Equifax. The higher the score the better.

What if you’ve had credit problems in the recent past? Before using up your one free annual credit score request, gain insight into what you might find with Bankrate’s score estimator. Flag any likely glitches, then assemble the paperwork necessary to either correct or provide context for the issue.

Solving credit headaches can take months. Start now to win the lowest home equity rate for a late summer or fall project.


5 Smart Home Improvements? Think Again!

Before you find yourself saying, "What was I thinking?" see what five home upgrades topped last year's list of loss leaders.

SHARES
Home Improvements to Avoid - Aquarium

Photo: Landmark Custom Homes

Built-in aquariums: the amenity that quickly becomes an eyesore.

Of all the misfired home improvements that Daniel Fries has observed in his 30 years as a home appraiser, aquariums top his list of 2012 loss leaders—home improvements that offered little to no return on investment.

“It’s not a prudent investment,” deadpans Fries, who is based in Atlanta, GA. The tank’s glass fogs, while grimy filters emit an odor of rotting seaweed. Even worse—yes, it gets worse—some owners repurpose fish aquariums as reptile dwellings. And few things send a potential home buyer fleeing faster than the sight of a bull snake in the dining room.

Aquariums top our list of “improvements” with poor return on investment, but every project on that list has at least one thing in common: a profound mismatch between a homeowner’s intent and a neighborhood’s standards.

Local culture, preferences, and market conditions dictate return on improvements. Sink your money into amenities that don’t reflect the norm for your immediate area and you won’t even gain a 5% premium over neighboring homes, regardless of what you spent, says Kevin Cross, owner of the Anchorage, AK-based real estate agency Cross & Associates.

Case in point: Granite countertops actually undermine market value in Alaska. Extreme temperature changes force constant settling and resettling of home foundations, which results in warping and cracking of solid stone surfaces. Laminate gives just enough to make it the counter material of choice.

“Understand that anyone looking for a house is going to stand in front of yours with their cell phone looking at all the estimated values of the houses all around yours,” he continues. “When a buyer looks at a house, they’re not looking for reasons to buy a house. They’re looking for reasons to not buy yours. Your job is to remove as many of those reasons ‘not to buy’. If it’s priced right, clean, staged and looks inviting, an older house will sell faster than a new house even with superior amenities.”

Buyers pick up on price discrepancies immediately and aren’t willing to pay for misguided improvements… like the rest of the items on our list of top don’ts.

Home Improvements to Avoid - Theater

Loss leader #2: Built-in electronics
Bragging rights last only a few months when it comes to the latest televisions and sound systems. Once the next gizmo lands on the market, today’s shiny toy quickly tarnishes. The value added by splurging for top-of-the-line freestanding electronics may be debatable, but at least you can easily take the gear with you. Built-ins often dominate the entire room and their reverberations can erode the usability of adjoining rooms, too.

The owner of a $3 million house bragged to Fries that his built-in sound system cost $650,000. That was overkill even for a mansion. “He could have spent $50,000 on the media room and gotten just as much value from it,” says Fries. “You have to consider electronics as personal property, even if they are built in.”

Loss leader #3: Eliminating a third or fourth bedroom.
Sure, a walk-in closet and expanded master bath would be a selling point—but only if that space isn’t hijacked from a third or fourth bedroom. If the neighborhood norm is three bedrooms, a two-bedroom house is at a severe disadvantage. The number of bedrooms should be in balance with the common living space. A house with too many or too few bedrooms has a lopsided layout that won’t be useful to many buyers. Still want that master closet? You might be able to justify it if you apply the second cardinal rule of return (keep reading).

Loss leader #4: Overimproving the basement.
Below-grade improvements never pay back as much as space renovated or added above grade. Carefully compare the cost of renovating the attic, adding a dormer or even raising the roof, to a high-end basement remodel. This is especially true for mid-priced houses. High-end houses may well be able to retain the value of a finished basement, but only if all the above-grade space is livable.

Home Improvements to Avoid - Outdoor Kitchen

Loss leader #5: Expansive outdoor living space out of synch with the climate.
Outdoor kitchens with manly grills and wood counters can be used ten months a year in the South, so those projects retain value, says Fries. Not so much in the North, where a fireplace is a cozier investment. Cross reports that water features don’t sell Alaskan houses, considering that they are under four feet of snow for half the year. Especially if you are relocating, settle in to the local lifestyle before creating a sunroom, screened porch, elaborate deck or outdoor kitchen.

Each of these horrors is grounded in the grand misconception of home improvement: if you build it, they will pay. Fries explains that appraisers’ guidelines will force a challenge from the lender if improvements boost the market value of the house more than 10% from its value without the improvement. As you scope out the budget for your project, keep the total tab to no more than 10% of the current value of your house. Spend more only if you count the payback in terms of personal enjoyment.

Use as a reference Remodeling magazine’s annual Cost vs. Value Report. The regional breakouts chart the cost of remodeling, the return, and the difference. The averages are useful for benchmarking estimates and can help you set expectations from the start.

It can be a balancing act to polish to the point of perfect return, especially if you expect to sell the house soon. Consider putting in one moderately priced focal point improvement that can make the room memorable. For example, one—just one—built-in specialty appliance in the kitchen can be a selling point. That appliance might be a warming drawer, or a wine cooler, or a five-burner stove with a griddle instead of the standard four-burner stove. Even then, calculate your payback in terms of a shorter selling time, not in terms of dollar return.

There is an antidote to misfired improvements. Appraisers call it the ‘cost to cure,’ and it’s the second cardinal rule of return. How much will it cost to rip out the offending amenity and make that part of the house look, well, normal?

The cost to cure a derelict aquarium is only about $1,000. The cost to revert a walk-in closet to a bedroom could be as little as $500. But the cost to rip out an algae-clogged, crumbling swimming pool could run ten times that. When in doubt, get two estimates: one to put in the improvement, the other to take it out.

If you must have it, budget time and money for the ‘cure’, and make sure you squeeze every moment of happiness from that feature in the meanwhile.


What to Consider Before You Buy a Foreclosed Home

A foreclosed home may be a great way to get a sweet deal on a house—but buyer beware!

Buying a Foreclosed Home

Photo: Flickr

With almost a third of the home sales in this country consisting of properties in some stage of foreclosure last quarter, purchasing a foreclosed home is a great way to pick up a terrific deal on a house. But foreclosed homes that have been abandoned or neglected for months—or even years—often come with hidden costs that can turn that bargain into a money pit. Here, a group of experts offer their top tips on steps to take if you’re in the market for a foreclosed home.

1. Invest in a home inspection. “For about $300-$400 dollars, a home inspector can provide a complete report on the structure, mechanical and major components of the home and property,” says Greg Herb, a licensed realtor and owner of Herb Real Estate in Boyertown, Pennsylvania. Charles Gifford, a licensed home inspector and owner of Amerispec in Jacksonville, Florida, agrees, adding that a home inspection by a properly credentialed home inspector will give you “a better picture of what you are buying and provide you with the framework to prioritize your repairs—or to walk away if it’s too much to handle.”

2. Seek out information on the house’s history. Many states require sellers of real property to complete a Seller’s Property Disclosure Statement (SPDS) as a part of any transaction. “The SPDS typically reveals any known material defects related to the property and provides the buyer with a historical perspective of the home, its maintenance, as well as any repairs or additions performed under the previous ownership,” says Herb. Often, however, these statements have certain exclusions, such as when a home is transferred between a husband and wife or between siblings. Another common exclusion is when a third-party seller, such as a bank or lending institution, owns the property as a result of a foreclosure. “When you purchase a foreclosure property from a bank that’s never been in the home, you lose the historical perspective as a buyer,” says Herb, who adds that a home inspection can help you learn about changes that may have occurred over the life of the property.

3. De-winterize the home. According to Gifford, who is also a member of the American Society of Home Inspectors (ASHI), if you plan to purchase a home that’s been unoccupied for several months, “the first thing you should ask is, ‘Are the utilities turned on?’” In foreclosed homes in many parts of the country, “the water is off, traps are filled with environmentally friendly anti-freeze, and water lines may be pressurized with air or blown out and fully drained,” to keep pipes from freezing and breaking, explains Gifford. Prior to a home inspection, the lines will need to be pressure-checked and energized. And, according to Gifford, you may need a licensed electrician to conduct a safety check on the property’s electricity before power is restored. “Each municipality has its own rules,” he says, “and out-of-town buyers may be required to pay a fee to turn on power and things can get complicated if there are three or four utilities to call before you can get everything operating. A good real estate agent should be able to provide you with referrals.”

4. Check for plumbing problems. The most catastrophic problems in abandoned or foreclosed homes are often caused by broken plumbing pipes or leaks. “Sometimes when you dig beneath the surface of a leaky toilet bowl that’s been shoddily repaired you’ll find that you not only have to replace the lead bend, but also whole floors, floor joists, and drywall that’s rotted or contains mold,” says Matthew Barnett, a licensed home inspector and owner of Brooklyn, New York-based Accurate Building Inspectors. An ASHI member, Barnett says controlling a mold problem can cost anywhere from a couple of hundred dollars to $20,000-$30,000 or more to repair and replace whole floors and walls made of plaster or drywall.

5. Investigate mechanical, water-heating, and electrical systems. “In abandoned houses with forced-air systems, dirt and debris and even small animals accumulate in the duct work,” says Barnett, “and if humidity has been around boilers or furnaces for long periods of time, the heat exchangers can corrode and you’ll need to replace them altogether.” This can cost between $3,000-$5,000, he says, depending on the type of system you’ll need. “Some utilities won’t light the pilot light of gas systems if the filters are dirty for fire safety,” adds Andrea Johnson, a Portland, Oregon-based licensed real estate broker and founding member and partner of U.S. REO Partners. This means you’ll need to assume the cleaning expense to test whether they’re operable.

Buying a Foreclosed Home - Signage

Photo: Flickr

6. Look for signs of deferred maintenance. “When owners simply give up and stop taking care of their home, there will be lots of maintenance issues, like the need to clean the gutters, clear debris off the roof, cut back overgrown vegetation, and caulk/seal tile in showers and tubs,” says Gifford, who adds that in certain distressed areas it isn’t uncommon to find that appliances, condensing units, and ceiling fixtures have been removed altogether. According to Barnett, “cheap repairs, like using duct tape or plumber’s putty over a leaking pipe or unprofessional wiring of a fan” can also lead to deeper problems, like mold or fire hazards, which may require costly fixes down the line.

7. Check for foundation cracks, roof, leaks and other exterior damage. “We tend to see it all—bad roofs, structural issues, water damage, and other big-ticket repair items,” says Gifford. “In arid climates, like Texas, the foundations of houses need to be watered or they can crack and ruin the house,” adds Johnson. For a home with a pool, Barnett recommends contacting a pool service to be sure the underground piping and equipment isn’t cracked or clogged. “A normal house inspection will cover the general condition of the pumping and filtering, the patio area, coping stones, and skimmers, but a pool service can try to get the system up and running to see if there’s any significant equipment damage,” he says. If there’s a problem, the owner may give you credit to get it running properly again.

8. Conduct a sewer scope. Especially for homes more than 20 years old, Johnson suggests investing in a sewer inspection. “Lines can be broken by tree roots,” she says, “or they may not be properly connected to public systems.” The lines may also be rotted, clogged, or damaged. A plumbing company can snake a video camera through the line to determine its condition.

9. Resolve any liens. “Many municipalities have regulations regarding the maintenance of properties,” says Herb. “If a bank owns a property, it will generally keep a lawn cutting schedule, but if it fails to do so, the municipality can place a lien on the property if it has to come in and maintain the lawn itself,” he says. “Any number of other liens may have been placed on the property by unpaid contractors, utilities, homeowners associations, and the like,” says Johnson. Prior to closing on a property, you’ll need to make sure all liens are thoroughly investigated by you and a title officer and remedied before title can be conveyed from the previous owner to you.

10. Re-key all the locks. “A lot of houses are on a master key system,” says Johson. “That means countless brokers, contractors, appraisers, and other people could have that key.” If you purchase a foreclosed home, she advises protecting yourself and your property by immediately installing new locks with new keys throughout before you move in.

About the author: Jean Nayar is a licensed real estate agent with Bond New York and the author of several books on decorating and design, including The Happy Home Project (Filipacchi Publishing), which was released this June.


What’s My House Worth?

Read expert tips to calculate a home’s value in a volatile market.

What's My House Worth?

Photo: activerain.com

Housing used to be a fairly safe investment — you put your money in and, in a few years when it was time to sell, your house would be worth more than you paid for it. Unfortunately, many sellers are discovering that those gains in home equity they thought they had gained during the boom years are nothing more than wistful memories.

That’s not entirely true for everyone, however: Even in this brutal real estate market, there are still areas where housing prices are holding steady or even increasing.

How can you know where you (and your home) fit in? It’s not an easy answer. Here are six tips for pricing your home correctly in a volatile housing market.

Prepare for a Reality Check
 If you bought your home at the height of the market (or if you cashed out home equity when times were flush), you may be in for the seller’s version of sticker shock. Real estate experts say that even when homeowners recognize that the value of houses all around them has fallen, they often still hold on to outdated ideas about what their own property is worth. If you’re getting ready to sell, it’s time for a serious reality check, says Cincinnati, OH-based real estate appraiser Lou Freeman.

Talk to More than One Realtor
When prices are going down and the volume of sales has slowed to a trickle, it may be time to talk to real estate professionals who work with buyers, at least for the purpose of determining the right price for your home. Working with a Realtor® who has a great record as a seller is usually the best first step.

“It’s so important to hear what buyers are thinking in today’s market,” says Katie Wethman, a certified public accountant and Realtor based in McLean, VA. “Too many agents — especially the ones with the most experience in the business — work primarily with sellers, and they never hear the most common objections of buyers.” Wethman says in this market, sellers might even consider working with someone who is primarily a “buyer’s agent,” or someone who specializes in helping buyers find homes. She says having them help you stage your home and market it may actually help you sell more quickly since they know precisely what feedback they’re getting from people currently looking.

Another reason to shop around is to make sure that you’re working with someone who not only knows the area and the market but is realistic about the current state of sales.

Use Your Comps Correctly
Any real estate expert will tell you one of the most powerful pricing tools anyone has are what’s called “comps,” or comparative listings. These are statistics for recently sold homes similar to yours, usually in location, size and/or amenities. But while any licensed Realtor or appraiser will have access to comps, it’s not always easy to choose the right ones or to read them properly.

First, make sure you’re looking at what has actually sold rather than what people with comparable properties are listing them for. “Too many owners focus on what other people are asking for their homes rather than what they’re actually getting for them,” Wethman says. And when you’re looking selling prices of comparative properties, pay close attention to the date the deal closed. “Even if a comp is just a few months old, you must apply regional trend data: If the market has dropped five percent in the last three months, you need to take that comp from three months ago and apply a greater than five percent drop to that price. Too many people price at the last sale without that extrapolation and they end up chasing the market down.”

“There is a saying in real estate that you can’t be objective about your own home,” Freeman says. “It’s true. When a Realtor tells you that the home you bought six years ago for $303,500 will now only fetch $285,000, you may find it hard to believe.”

Sometimes sellers ignore expert advice because they have a number in mind that they can’t get away from, says Todd Huettner, commercial and residential real estate financing broker. If you can’t get past that number and you don’t have to sell, it’s probably time to just sit on your investment and wait out the current storm. But sellers who have to divest themselves of their property are going to have to face some harsh realities.

“What you paid for your house has nothing to do with its current value,” he says. “What you ‘need to get out of the house’ has no bearing on current value, either.” This fact can be a harsh reality check when you consider you need to receive a certain dollar amount on the sale of your home in order to pay off your current mortgage.

To add to the complication of reading comps correctly, your Realtor needs to know and understand your unique situation. “Not every market is declining,” Wethman says. “Even in declining markets, there are neighborhoods that are doing just fine.”

Consider an Appraisal
If you’re still not feeling confident in your analysis of your home’s value, it’s worthwhile getting an appraisal, say the experts.

“Most homeowners depend on their Realtor to help price their properties, and Realtors usually have a great deal of knowledge about what is and what isn’t selling in any particular neighborhood or at a particular price point,” Freeman says. “But the cost of an estimate by a state licensed or certified appraiser who is familiar with your neighborhood could save you months of extended marketing time and thousands of dollars in carrying costs by helping you price your home correctly from the start.”

Make sure you choose someone who understands not only your area but your purpose in getting the appraisal. You want to choose someone who is willing to talk to you and explain things, says Huettner. “Call three appraisers and tell them what you are doing, and choose the one who is most willing to explain things to you and help you,” he says. “If you are selling your home, $300 to $500 is worth it to have your own independent expert opinion of what your home is worth, and it’s invaluable for educating yourself.”

Be a Nosy Neighbor
Finally, don’t be afraid to be what Realtors like to call “the nosy neighbor.” ”Start going to every open house in your neighborhood to get a feel for pricing vis-à-vis square footage, level of updating and so on,” Freeman says. “Realtors expect nosy neighbors. Don’t disappoint them.” An added benefit of being nosy: If/when the home sells, you will know more about it when you look at the comps.

While it’s important to realize the only number that really matters is the closing price, comparing the list to closing prices of the homes in your area will give you a good barometer for what direction prices are heading and how long you can expect to wait to find a buyer. “Drive around your neighborhood or go online to Zillow.com or other similar sites and view recently sold homes and listed homes,” Huettner says. “Just remember: Only closed sale prices matter.”

It can be tough to come to accept your home’s value in a declining or volatile market, Huettner says, but it’s better to deal with it when putting your house on the market than letting it languish for months if the price is too high. “You will eventually find out the market value of your home,” he says. “Don’t wait for the market to show you when you finally sell. It costs so much more that way.”

Online Home Price Evaluation Tools
Real estate pricing experts say one easy first step for people considering selling, or just wondering about their equity, is visiting online home price tools. While you shouldn’t put too much emphasis on these prices, they may be good starting points. Here are some online tools that can help you figure the value of your home:

  • Zillow allows you to plug in your home’s address to find recently sold properties on a map of your area. You can also check the prices of recent listings in your neighborhood, as well.
  • Trulia shows listings, price reductions, and even a “real estate heat map” of average list prices of homes in your area. The downside: It shows listing prices, not selling prices.
  • Domania, a website from Lending Tree, offers a “Home Price Check” section where you can type in an address and find out the selling price of a house sold within the past five years.
  • Local Real Estate Web Sites: Some large Real Estate groups may compile a listing of the recently sold properties in their area. One example is Crye-Leike in Tennessee; its website allows you to plug in the address for a specific property to find out what it sold for.

How To: Hold a Successful Yard Sale

A well-planned yard sale will leave your wallet fatter and your home de-cluttered. Proper planning, skillful organization, and a sense of humor will save the day —and your sanity. Here are tips to ensure success.

Even if you’ve had numerous yard sales in the past, here are a few pointers to make yours more successful.

Start Early
Even if your next yard sale is months away, start sorting through your belongings to get ready. Put each item in one of four storage containers: Keep, Toss, Yard Sale, and Undecided. “If you’re not using it in the next year, don’t keep it,” says Dave Valliere, senior product manager for home storage at Yardsalequeen.com . Except for maternity clothing and plus sizes, adult clothing doesn’t sell well either.

‘Ad It’ In
Advertise online and in your local paper. If you have baby items or antique furniture, say so. People will scan the ads looking for items they need, and if you have what they’re looking for they’ll come to your yard sale. “If your ad says ‘antique furniture’ or ‘60s modern,’ those kinds of identifiers will definitely be lures to people,” says Bruce Littlefield, author of Garage Sale America. “If I see ‘baby clothes’ and ‘Fisher-Price,’ I’m not running over to that sale,” Littlefield says. “But people who have a newborn will go.”

Sign Me Up
Check local ordinances on sign placement. Make your signs easy to read from the road and similar in design so people can follow them. “We get more business at our sale because our signs are professionally done,” says Nikki Fish of South Bend, IN, who hosts a major yard sale every year but enjoys shopping yard sales even more than selling. Paint or draw the arrows after you plant the signs to make sure the arrow point in the right direction. “Wild goose chases are very frustrating,” Littlefield says. With that in mind, take signs down when your sale is over.

Price Pointers
Visit other yard sales and thrift stores to get ideas on pricing. “My thrift store sells hardcover books for $1,” Heiska says. “If I were to try to sell my books for $3, people wouldn’t buy them.” You’re in business for the day to get rid of things you don’t want. Price accordingly.

To make it easier for shoppers, you can group items at the same price on one table, mark prices with colored stickers — all green stickers are 50 cents, for example — or put price tags on each item. Be sure you have lots of small bills and coins to make change.

And remember, everyone negotiates. If you keep your sense of humor and a smile on your face, your prospective buyers won’t be offended whether you accept their offer, make a counteroffer or turn them down, says John Lundgren, author of the ebook How to Turn Your Garage Sale into a Money Machine.

Finally, make sure price tags don’t damage the item. “If you put a price tag that’s going to pull off the cardboard of an old board game and ruin the aesthetic, people may not want it,” says Littlefield.

Timing
The most popular start time is 8 a.m. Saturday. But there are regional differences. Yard sales begin later in upstate New York and earlier in the South. Check ads in your local paper to determine local custom. If you have lots of stuff, host a two-day sale for Friday and Saturday, Saturday and Sunday, or two Saturdays. “If something doesn’t sell the first day, drastically reduce it the next day,” Heiska says.

Caging Early Birds
If you don’t want people at your home the day before, don’t advertise in the paper and don’t add arrows to your signs until sale day. “The moment you put your signs out, your yard is fair game,” Littlefield says. The night before, block your driveway so the doorbell doesn’t wake you. But be realistic: Mentally subtract at least 30 minutes from your advertised start time so you’re ready for early birds. “If they show up while I’m setting up, I’m happy,” Heiska says. “My goal is to sell the stuff. I don’t want to risk them not coming back just because they’re here before my official start time.” But don’t dicker with early birds. Stick to your prices. “If they discover this great pitcher that’s highly valued and collectible and you want $20, don’t let an early bird walk away with it for $10,” Littlefield says.

Lure Them In
Put the good stuff, the big stuff, and the manly stuff in easy view. “If a man is driving and he happens to see a lawn mower, a fertilizer spreader, a circular saw, or a weight bench, he’s more likely to stop,” says Heiska.

Don’t Sell It If It Isn’t Yours
Don’t sell your toddler’s toys, your husband’s baseball card collection, or Grandma’s heirloom dishes if the owner isn’t ready to let them go. “I remember buying some toys for my son and the little kid [who lived there] still wanted them,” Heiska says. “It was heartbreaking for me.” That makes other prospective buyers uncomfortable, too. If an item is not for sale, cover it up and/or add a sign that says “Not for Sale.”

Mind Your Money
A forgotten cash box is an easy target for thieves. Use a fanny pack, apron, or pocket to keep money with you at all times. If you’re worried about counterfeit bills, buy a special counterfeit detector pen at an office supply store. Make a mark on the bill, and it turns a different color if it’s counterfeit. Don’t take checks or large bills.

Space Is Important
Give people room to browse. If they feel pressured or watched, they’ll leave. “Every time they put an item back, they’re almost rejecting you and it’s embarrassing to them,” Lundgren says. “You have to back off and let people look at your items. Say ‘Good morning,’ then have a cup of coffee or chat with a friend.”

When your yard sale is over, store the leftover items in your bins for the next sale or donate them to charity and deposit your earnings in the bank. Your home will be less cluttered and, in a week or two, you might just be ready to go yard saling for your own new treasures.


House-Choosing Checklist

Ready to buy a home? There’s a lot to consider before selecting the right one. This home-buying checklist will help you decide.

Photo: Flickr

Buying a new home can be exciting, and it’s tempting to grab the first house you fall in love with. But exercising a little patience will go a long way toward turning your purchase into a haven instead of a headache. 

Renovation Potential
Don’t overestimate your abilities. Determine if the house you like needs work. Then assess whether you’re really capable of doing it, advises Jeff Beneke, veteran home renovator and author of The Fence Bible. Also consider whether the home has an extra room if you’re planning to redo several parts of it. “That way you can close off one room at a time, do what you have to do in that, move somebody into there, then close off another room,” he says.

Don’t overestimate the potential. Figure out whether the renovations are worth the time and expense. “Make sure that if you can’t do the work, you get estimates before you buy the house so you know what you’re getting into,” Beneke says. If the cost of the house plus the renovations will put the home’s value significantly above others in the neighborhood, it’s probably not the best investment — or you may need to scale back the renovations.

Think twice if the kitchen needs renovating. Unlike most other rooms in a house, you won’t have a spare kitchen to use while yours is under construction, says Beneke, who notes that remodeling can put a huge strain on marriages. If the kitchen only needs new countertops, that’s fine. But if you’re planning to move in and tackle a major kitchen renovation while living there, you might want to reconsider. Is your family really going to be okay with closing it off and eating takeout for a couple of months? Can you renovate in stages so the kitchen isn’t entirely out of commission?

Delve beyond the obvious. “Buyers tend to be romanced by pretty and clean, but you’re not buying pretty and clean,” says Alison Rogers, a real estate agent at DG Neary Realty in New York City and the author of Diary of a Real Estate Rookie. If you’ll need more phone and cable jacks or updated wiring for your home office, know that they can add hundreds of dollars to your move-in costs. “If you buy a house that’s very pretty but has entirely old windows,” Rogers says, “you may have to replace 30 windows at $200 a window or more.”

Those little things add up. So, don’t only imagine your sofa in front of the fireplace but also walk the house with an eye toward how you’ll use it. Is there a wall big enough for your large-screen, wall-mounted TV? If the previous owner used the fireplace decoratively, it could be because it needs a new flue or has other problems. If the bathroom or bedroom doors don’t have locks, you may need to budget another $100 or more to satisfy a privacy-oriented teenager (or parents).

Pretend you’re living there. Try out everything in the house: flush the toilets, turn on the lights, climb the attic stairs, check water flow in sinks and showers, imagine the steps you’d take (and counter space you’d use) when cooking a meal, and try to fit your cars in the garage. These little things that buyers tend to skip are the ones that will irk you on a daily basis.

Hire an inspector. “A lot of buyers sort of blow it off,” Beneke says. “It’s just one of those expenses they have to have to satisfy their lender. But in reality, a good inspection can uncover reasons you absolutely should not buy that house,” such as structural problems with the foundation. “Secondarily, a good inspection can tell you what the major problems are behind the walls. Most home buyers look at what they can see. An inspector’s job is to look at what they can’t see — condition of the roof, if there’s insulation, etc.”  Clarify that your contract to buy the house is contingent on a satisfactory inspection, then view the inspector’s report as an opportunity to go back and renegotiate the price.

Look up. “People tend to look at floors and walls, but it doesn’t occur to buyers very often to look up at the ceiling,” Rogers says. The ceiling can tell you whether the home has had water damage, which isn’t necessarily a deal killer but is another thing for the inspector to check.

Ask the current owners for a year’s worth of utility bills. “That’s the easiest way to check the energy use of the house — how much it costs to heat in the winter and cool in the summer,” Rogers says. “There’s a price for each buyer at which a less energy-efficient house may be worth it, especially if you can do things to make it more energy-efficient.”

Think long-term. “Americans move, on average, every six years but look to stay in the house for 15,” Rogers recommends. “The kids are little now, so you may need a playroom. But where will you put them as they grow up so you won’t hear their stereos? If you’re older, think about stairs and the ways the house can be adapted if you get a little less mobile.”

Size and Storage
Is the house big enough for the unexpected? If you’re a couple with one child, you may think all you need is a two-bedroom house. But you may decide to have another child or discover you need one of those bedrooms for a home office. Buy with the anticipation of growth.

Will your furniture fit? “If the house looks really immaculate, make sure all the furniture is there,” Rogers says. The owners may have put a desk or entertainment center in storage, leaving you to discover when you move in that the home doesn’t have as much room as you thought.

Measure your largest pieces of furniture, including height, for items like entertainment armoires, then bring along a tape measure while house hunting so you can verify that everything will fit. If you love the house but the armoire is too tall, weigh forgoing the home against the possibility of finding a new arrangement for your TV and stereo.

Don’t forget your non-furniture needs. “Running out of storage room is one of the principal reasons people buy new houses,” Beneke says. “They wind up needing more closet space, more garage space.” Yet when buyers are house hunting, they tend to forget all the belongings they’ve crammed in their attics, basements, garages, and sheds. Ask yourself: Where will my golf clubs go? Where will I store the suitcases?

“Take a tape measure and estimate the linear feet of closets you have, and think about how much storage space you need,” Rogers suggests. “Then, see how that maps out with how much the new house offers.”

Remember to look for out-in-the-open storage, too. For instance, if your current house has built-in shelving for your books, DVDs, and CDs and the new house doesn’t, will there be room for the shelving you’ll need to buy or build? If you display lots of collectibles or extra vases on shelves between your window and ceiling, will the new home’s ceiling height allow for that?

Count kitchen cabinets. Today builders are putting pantries back in houses because homeowners have found they really need them. Does the new kitchen match your old one in pantry space and a cabinet-by-cabinet count? If you had a pot rack in your old house, you’ll need to determine if one will work in the new house or if there’s enough space for your pots and pans, china and glasses, and the platter you use on Thanksgiving.

Does the laundry room work for you? Do you mind heading downstairs to the basement for every load? Will a laundry room near the home office create a noise problem? Will you have a place to fold and iron?

Don’t forget the garage. “My house was built in 1956,” Beneke says. “Cars were smaller then. You can’t get today’s Texas-size SUVs into my garage.” Ensure that whatever you want to store in the garage will fit.

Bells and Whistles
Don’t get enticed by granite. High-end countertops in kitchens and baths can make a great impression. “Don’t let them draw your eye at the expense of everything else,” Rogers warns. Attractive features like granite make it easy to overlook less appealing qualities. Be discerning: Is the rest of the room just as attractive? Are the cabinets in good shape? The appliances?

Think about how you use the space. After Rogers’s mother-in-law moved, she found she missed the second refrigerator that she had in her old house because it was so handy for entertaining. For families, the kitchen tends to be a gathering place. Does the one you’re considering offer enough room for more than one person to cook, or for the kids to do homework while you make dinner? Does it overlook the backyard so you can keep an eye on them while they’re playing?

Beware of bathrooms. Don’t let a luxurious toilette steal your heart. “A double sink in the master is very useful, especially if you have two working people getting ready at the same time,” Rogers says. “But I really don’t think anybody needs a rain forest showerhead or the over-the-top Jacuzzi. I’m not sure those are the things you actually end up using.”

Don’t fall in love with the decor. The current owners’ antiques may look right at home in the house, but soon they’ll be looking right at home in their new place. Will your more eclectic furniture fit in just as well?

“If you think a room looks very nice because of the draperies with silk linings, you should be aware that those are not necessarily part of the contract for the home,” Rogers warns. The same with the custom-made blinds in the office and the light fixtures that really make the home spectacular. Determine if you can live without details like these. If you must have them, specify in the contract that you want them.

The Neighborhood
Proximity. If you’re used to talking with neighbors over the fence, walking together for exercise, or meeting at the local coffee shop, see if your new neighborhood will offer the same. “Be sure that dream house on an acre or two isn’t like a desert island where you have to drive to see anyone,” says Bert Sperling, founder of Sperling’s Best Places and author of Best Places To Raise Your Family.

On the other hand, if you’re a more solitary person, ensure that the home has enough space between you and your neighbors for your comfort level.

Is the house close to the places that are most important to you? Scout out the nearest grocery store, gas station, school, and place of worship — not to mention learning how far the house is from your workplace. Will it bother you to drive 15 miles to get to your favorite bookstore?

Surroundings. Study other homes in the neighborhood. If you want your property values to go up, it’s better to buy the worst house in a great neighborhood and improve it than to choose the best house on the block. If the neighborhood has plenty of homes for sale, it could be on the decline.

Do you see signs of renovation? That can indicate that people are committed to the area, which gives a better chance for property values to increase. If you have small kids, do you see pools or bikes or swing sets in lots of other yards? That might mean your kids will have new friends nearby. Do you see cars on blocks in several driveways or yards or old appliances and other junk behind fences at nearby houses? That’s often a sign of homeowners who don’t care about curb appeal, and it could be an indication of a neighborhood that’s losing value, Sperling says.

People. A surprising study by Harvard political scientist Robert Putnam found that the more you have in common with your neighbors, the more likely everyone is to feel a connection to the community. That’s important when neighbors want to rally to oppose a new, nearby big-box store.

It’s wise to discover what’s important to most of your neighbors. “In some neighborhoods, for instance, the church is the main gathering place, and you might feel left out if you’re not part of that,” Sperling says.

Spend some time in the neighborhood to determine if it’s a good fit. “One of the things I always do is go hang out at night, listening for parties, listening for dogs, checking out the traffic flows mornings and nights, getting a feel for things,” Beneke says. “It adds a whole lot of comfort.”

Economy. Sperling insists that the condition of a local economy can make or break your move. “A poor or declining economy is like a cancer and can affect everything from social services to infrastructure to schools,” he says. Typically, cities that are in smaller metro areas or that have colleges or are home to a state government have the best economies. “Good times or bad,” Sperling says, “those people are always going to be employed.”


Home Appraisal Basics

Home appraisals are a vital and important step in financing a purchase, refinancing an existing mortgage, or obtaining a home equity line of credit. Here’s an overview of what you can expect and how appraisers come up with their numbers.

Photo: howstuffworks.com

You know what you paid for your home and how much the house next door costs. You know what you’ve put into renovations. But what you may not know is how much a lender is willing to finance if your house is for sale, if you’re in the market to refinance, or if you’re considering adding a home equity line of credit (HELOC). That’s where an appraisal comes in. Appraisals can also be used to divide property during a divorce or estate settlement, determine a home’s value in order to remove mortgage insurance, or set a value for tax purposes.

In real estate transactions, appraisers determine a property’s fair market value, which is the most likely price for which it would sell in a free market. The lender then uses this information to determine how much to lend against the property, whether it’s an outright sale, a refinance, or a home equity. If you aren’t familiar with the appraisal process, it helps to see how professionals arrive at the numbers that help lenders arrive at a figure. Here’s a look at how they work.

The Basics
Since the government controls how appraisals are conducted, they’re awash in regulations. As a general rule in selling a home, the appraiser is hired by the lender and the lender passes the cost along to the buyer, usually in the application fee. In a refinancing or when obtaining a home equity, the homeowner pays for the appraisal.

An appraiser compares the sale price of a home with that of similar homes that have recently sold in the same area. These are called comparables. Although there is no set rule, when a lender agrees to finance a mortgage, he wants to see a minimum of three comparables. Appraisers try to make an apple-to-apple comparison. For example, an appraiser would not contrast a 1,700-square-foot ranch with a two-story Cape Cod that’s twice the size.

The cost of an appraisal varies by region, but a buyer should reasonably expect it to add $300 to $500 to closing costs. A homeowner who refinances or adds a second mortgage may be asked to pay the fee up front.

Appraisals Estimate Value
John Bredemeyer of Realcorp, an Omaha appraisal firm, says the appraisal is not an analysis of the agreed-upon sales price but an opinion of the property’s value. “The price is the part that the buyer and seller agree on, and it can be the same as, higher than, or lower than the market value,” he says. The appraisal, on the other hand, is an estimate of the most likely price the property would fetch under normal market conditions and it is used to determine how much money the owner can borrow with the house as collateral.

A real estate appraiser inspects the property, but this step isn’t the same as a home inspection commissioned by a buyer. An appraiser estimates a home’s value while an inspector looks at its physical condition. Both an appraiser and inspector check out the inside of the home, but an appraiser is there to verify the number and types of rooms, floor plan, square footage, age, general condition, and listed amenities. An appraiser may measure the rooms and lot, noting the location as well as obvious defects. Inspectors report on both large and small problems. For example, while an appraiser would not check electrical outlets to make certain they are working, an inspector would.

The Appraisal’s Too Low—Now What?
What if the property appraises for less than the amount you’re hoping for? Bredemeyer says you can challenge the appraisal by presenting additional information. Consider having your real estate agent put together a package of comparables that weigh in your favor or point out amenities that might have been overlooked. There’s no guarantee you’ll receive an adjustment on the appraisal, but it’s worth trying.

Head Off Potential Problems
Rather than being hit with a low appraisal, avoid the kinds of problems that derail sales. For example, if you failed to obtain proper permits when you remodeled or put an addition on your home, you might have an issue.

In many cases, unpermitted work can stop a home’s sale faster than a hammer drives a nail. How can you tell if an addition is properly permitted if you didn’t add it? Take a look at the sketches on file at your county or city property tax office. Chances are good that if the addition doesn’t show up, the project didn’t have a permit.

Although lack of a permit won’t necessarily stop a home sale from going through, it could affect the evaluation. If permits are found lacking, Bredemeyer suggests talking to local officials and securing one after the fact. It may cost you a penalty, he says, but in most places there won’t be a problem if there’s no conflict with setback lines or zoning.

Another surefire way to lower your future appraisal value is to overbuild for the neighborhood. If the streets of your subdivision are lined with modest three-bedroom homes and you double the investment on your place, you’re going to have a hard, if not impossible,  time finding comparables. Owning the biggest and fanciest house on the block can be a deal killer when the appraisal comes through. Bredemeyer recommends checking with an appraiser before you proceed with big projects. “Engage an appraiser on the front end,” he says. “Don’t wait until you’ve got a dog in that fight.”

Advice from an Appraiser
John Brenan, director of research and technical issues for the Appraisal Foundation in Washington, D.C., says each state has its own licensing requirements. His agency makes sure appraisers stick to the rules. Both the buyer and seller “are caught up in the emotion of the transaction,” Brenan says. “The bank needs to know what it’s worth from an independent, impartial analysis.”

Brenan advises homeowners to make sure improvements match the area and understand that your investment won’t always yield a dollar-for-dollar return on appraisal. “Cost does not necessarily equal value,” Brenan says.

But it’s also worth remembering that those improvements may very well be what sells your home.

If you need a qualified appraiser, check out the organizations listed on the Appraisal Foundation website.


Flipping: Remodeling for Resale

If you’re in the market to buy a house to rehabilitate for profit — also known as “flipping” — you’ll need to play it smart. Here are some common errors as well as the best approach.

Photo: unitedhomeinvestments.com

With a glut of distressed properties on the market now, people are eager to make deals. But there’s little room for error. You have to be smart about the houses you buy and the repairs you make. You also have to be prepared to hold your property for the long-term, or you could wind up with a house you can’t sell and a mortgage payment you can’t afford. But if you’re going to try to flip houses, here are some things you have to know.

Finding the Right House
Real estate investors live and die by the numbers. You have to fall in love with the deal, not the house. And great deals aren’t going to jump out at you. Experienced investors spend time every day looking for distressed property and have a network of people scouting deals for them.

Some investors make a point of taking a different route home from work to look for possible deals. Others, like Sid Davis, a real estate investor and the author of Home Makeovers that Sell: Quick and Easy Ways to Get the Highest Possible Price, recommend picking out a particular neighborhood and driving through it regularly. “Look for the best deal in the best neighborhood,” Davis says. “Even in the best areas, there are always people who need to sell quick. Pick a target area you want and make up flyers that say, ‘I can close in a week’ or ‘Cash up front.’ There are a lot of people in trouble. ”

Look for is a house that’s priced far below market value, experts say. That’s the only way to make money in today’s market.

Finding Financing
Even when mortgage underwriting was loose, bankers were tougher on investors than on owner occupants, requiring more money down and charging higher interest rates and fees. Today lenders are tighter than ever when it comes to lending money for real estate investment.

For rehabbers who own a home, it may be easier to get a home equity line of credit and use that money for the required down payment. But understand what you’re doing: You’re putting your own home at risk if you can’t sell the property and fall behind on the payments.

Thinking Long-Term
Many professional real estate investors view flipping as a shortsighted approach to the business. Virtually the only advantage, Jones-Cox says, is a quick profit, but the capital gains taxes eat a big chunk of that — and the current market conditions aren’t conducive to a speedy sale. Plus, rehab projects are notorious for taking longer and costing more money than anticipated. It’s far better to hold the house and enjoy the long-term benefits.

Davis, who has flipped seven houses in one year, agrees, saying, “I made $10,000 to $12,000 per house and thought I was pretty hot stuff. It was the dumbest thing I ever did. If I’d kept them as rentals, I’d have $1.5 million in equity by now.”

Perhaps the smartest way to approach flipping right now, especially for the new investor, is to buy a house as an owner occupant, live in it for two or three years while fixing it up, and then sell it for a profit. You’ll get a better interest rate on the financing, eliminate the larger down payments required of investors and the hefty capital gains tax that flippers pay on the houses that they buy and sell quickly, and give the house time to appreciate. “That’s a pretty spectacular strategy to make $50,000 or $100,000 and not pay taxes on it,” says Vena Jones-Cox, a Cincinnati -based real estate investor and past president of the National Real Estate Investors Association.

Making the Right Renovations
Once you find the house, you need to make a renovation and repair budget. The first step is establishing an approximate sale price. That’s accomplished by running a comparative market analysis of houses similar to the one you’re selling in location, age, square footage, bedroom and bathroom count, age, and features. Look at the prices of the houses that are selling — as well as those that have been sitting for months, recommends Dean Graziosi, a Tempe, AZ-based real estate investor and the author of The Real Estate Millionaire. That will give you a good idea of what to include in your rehab.

Then deduct how much you paid for the house, your other expenses (such as a real estate agent’s commission), and the profit you’d like to make. “That will tell you how much you can spend,” he says. The repair rules for rehabs are quite similar to those recommended to home buyers getting their own house ready to sell: First impressions are critical, so pay close attention to the front yard, the exterior of the house, and the entryway; kitchens and master baths sell the house; don’t impose your decorating style on the buyers; and keep colors in a neutral palette so buyers can make it their own.

The biggest mistake Jones-Cox sees investors make in their rehabs is spending money on upgrades that don’t add value and aren’t appropriate for the neighborhood. “They get into these properties, fall in love with them, and think it would be great to put a hot tub in the bathroom of a $125,000 house,” she says. “They’re not reasonable about what should be done, go way overboard, and never get their investment back.”

Diane Saatchi, a senior vice president of the Corcoran Group who is based in East Hampton, NY, sees the same thing in multimillion-dollar rehabs. “Sometimes people overspend in ways that are not that important,” Saatchi says. “Someone will put in an expensive generator and not have enough closet space or storage space for the size of the house. Or they’ll do something that doesn’t suit a neighborhood. If it’s a neighborhood where all the houses have garages and you turn the garage into an exercise room, that’s stupid.”

If you think like a successful real estate investor and consider flipping or rehabbing as a longer-term investment, you’re more likely to succeed.

There are dozens of ways to botch a remodeling job done for resale. At the top of the list are:

  • Not doing your homework. There are so many houses on the market for sale today, the competition for buyers is fierce. Check out the competition before you start knocking out walls. The easiest way to do that is to visit open houses in the same price range.
  • Going overboard. You want your house to stand out but not like a sore thumb. Make yours a little better than the competition but maintain consistency with the neighborhood.
  • Ignoring the yard. Some rehabbers spend all their time on the interior and forget about the exterior. The lawn needs to be in the best possible shape.
  • Cutting corners. There’s a big difference between doing things as inexpensively as possible and turning a blind eye to major problems to save a buck. Don’t just clean and paint when something should be repaired or replaced.
  • Hiring unlicensed contractors. Problems with the structural integrity of the house or its major systems — heating and cooling, plumbing, and electricity — need to be repaired by licensed, insured professionals.
  • Trying to do it all yourself. If you haven’t done some of the trickier home improvement jobs that you have lined up for your house — such as electrical or plumbing work — now is probably not the time to attempt it. You’ll get frustrated and perhaps even injured. Hire a professional and ensure that you allocate that cost in your repair budget.
  • Underestimating the time frame. You should probably pad the time allotment for completing the job — especially if you can’t pay an extra month or two on the mortgage. If you’re holding two mortgages, establishing a realistic time line is critical.

Can’t Sell It? Rent It Out

Becoming a landlord may be your best option.

Photo: Flickr

It was an unsuccessful attempt to downsize for a smaller house payment that led Joseph Cortez, a realtor in Corpus Christi, TX, to become a landlord.

“My wife and I started building a house because we were pregnant with our first child,” he explains. “In an attempt to downgrade our payment, we built a house 300-square-feet smaller than our current one. But in the process, we had several weather delays, and construction took longer than expected. My wife became more pregnant and she and the house were due around the same time.”

When the Cortezes thought of moving with a newborn, they were overwhelmed, so they put their new house on the market. But it wasn’t as easy to sell as they had hoped. After a good deal of interest but no offers, the couple was asked if they would allow someone to rent for a year, then buy the home. “We took it,” he says. “We make approximately $15 a month in profit.”

The circumstances may be different, but the story is the same for homeowners across the nation. As the market continues to sputter, some who had hoped to sell are now finding themselves turning into reluctant landlords.

Deciding to Rent Out Your Home
The decision to rent your home out can be a tough one, both emotionally and financially.

Decide if the loss you would take by selling the home for less than you owe now is more than any loss you’d sustain while renting it out, says Bret Holmes, president of Advanced Management Group , a property management company based in Las Vegas. “You have to calculate if you were going to sell today, what kind of loss you’d take,” he says. “Then consider how much you’re going to lose in the gap between how much rent you’re bringing in and how long you want to rent it out.” For example, if you have a $100 negative cash flow each month you rent out your house and you think you’ll rent it for two years, you’ll lose $2,400 on the house over that period of time. If that’s more than you’ll lose by selling it at a loss, it’s probably best to just get it over with, Holmes explains. Otherwise, he says, renting it makes sense.

Emotionally, of course, there’s an entirely other set of issues. “It creates emotional ties and makes it hard to see someone not take as great care of the property as the owner once did,” Cortez says. You have to step back and look at it objectively to be a better landlord.

Know Your Local Laws
The first thing you should do if you decide to rent is research your local laws. For some areas, you may have to have a business license if you want to rent your home.

“We had to get a business license from the Washington, D.C., government when we leased our property,” explains Bronagh Hanley, who became a landlord when she moved from D.C. to the West Coast with her husband and the couple decided they didn’t want to sell their home they’d worked on so hard for so long. But Hanley didn’t anticipate the difficulties with getting the document. “It took forever,” she said. “They had random repairs they wanted us to make, there was a substantial fee, and they had to schedule an inspector to come to the house.” The whole process took about a month, and Hanley says this is something potential homeowner/landlords need to keep in mind because not only can it disrupt your timetable, it is also emotionally exhausting.

Potential landlords also need to educate themselves about equal housing opportunity laws says Braun Mincher, president and managing broker of Aggie Real Estate LLC and Aggie Commercial LLC   in Fort Collins, CO. “If you do something like charge a larger deposit because a family has a pet, that’s fairly standard practice and wouldn’t be considered discrimination,” he explains. “But you obviously can’t change your practices based on race, sex, creed, culture, religion, or anything else like that. It has to be based on your actual risk.”

Finding the Right Rent Price
Deciding what to charge on rent can be tricky, Mincher says, because often the amount you could rent a property for isn’t really connected to what you should be able to sell the property for.

“That’s hard for a lot of people to understand because they want to make up that mortgage payment,” Holmes says.

And while how much you’re paying the bank will figure in somewhat to what you charge, it’s key to do your research on what similar houses are renting for, much like you’d look at comparative properties when figuring out an asking price for sales.

“Of course you want to take a realistic look at your PITI [principal, interest, taxes and insurance payment costs] if you have a payment on the home, which most people do,” he says. “But you also have to consider what the market will bear in terms of rent.” Mincher says that if you bought a townhouse at the height of the market, you’re probably not going to make up a $1,200 payment if all the other similar houses are renting for $900 a month.

Another factor to consider is insurance. You will pay more for insurance on a home you’re renting out, despite the fact that you’re not insuring the contents, only the structure. Call your homeowners’ insurance company and talk to them about any rate increases that will result from changing your residence status on the house so you can figure that into the price you’ll charge a renter.

And for homeowners who paid a premium for granite countertops, gorgeous hardwoods, or full-stainless-steel kitchen, there’s more bad news. These extra features don’t necessarily translate into higher rent prices. “You may have less vacancy because of these things, but you’re talking to renters, not buyers,” Mincher explains. “They don’t care as much about your beautiful landscaping. So, figuring out what to charge is a challenge.”

How should the average homeowner who’s thinking about renting confront the challenge? “You really just have to check newspapers and online ads and get a feel for what a home in your price range within about a three-mile radius is going for,” Holmes says. Other good sources of information include a trusted broker or realtor; if you have a good relationship with someone in real estate, he or she may be able to offer you useful advice.

Finding the Right Tenants
Once you’ve priced your house and you have interest from a potential renter, it’s critical to perform due diligence in checking out the person or people you’ll be entrusting your home to.

“On their own, people can verify employment by contacting a current employer,” Holmes says. “Get paycheck stubs to make sure they’re making what they say they’re making. Also do a rental history check. Call previous landlords and see what kind of information you can get.”

Also, consider outsourcing some of the rental screening process. “If a person wants to do a full screening, the process is pretty intensive because you basically become a credit reporting agency,” Holmes says. For that reason, homeowners should consider looking at companies that complete the tenant screening process for you, he says. They’ll do credit checks, eviction checks, criminal background checks, and other similar screenings.

A tenant screening company is how Hanley found her first renters. “We hired a rental management company to find the tenants since they had the skills and resources to do the credit and background checks,” she says. “We paid them a percentage of the first month’s rent for their services. It was well worth the money, since we ended up with an accountant couple from Wisconsin who were the best tenants!”

Are You Ready to Be a Landlord?
Once your tenants are in place, your main duty as landlord is to maintain the property. But if you’re living in a different city, state, or even country, how do you handle it when a pipe breaks or the air conditioning dies mid-August?

“I advise people to get a home warranty program in place,” says Holmes. “Things are going to go wrong — they always do. A home warranty program prevents a huge out-of-pocket expense when it happens.”

Most home warranty programs have a premium you pay once a year. Then, whenever something goes wrong that your homeowner’s insurance won’t cover ­— like a dishwasher that leaks or a refrigerator that won’t cool — you call the home warranty company. You’ll pay a “co-pay,” usually $50 to $60, and the home warranty company picks up the rest of the repair tab.

If you don’t want to pay the initial premium of the home warranty, however, employ a handyman. “Going outside your comfort zone can cost more money than repairmen,” Cortez says. “It’s many times worth it to hire an expert. Find a good all-around handyman that is trustworthy.”

Photo: bizmology.hoovers.com

Money Management
While the process of getting a property rented and managing it can be all-encompassing for novice landlords, dealing with the dollars and cents is a critically important factor.

Insurance: Talk to your insurance company about renting out your property, Mincher says. “You’re going to transfer your coverage from a homeowner’s policy to an investment property policy, which will cover the actual structure but not the contents,” he says, adding that it is critical that landlords make it clear to their renters that their coverage does not protect the renter’s possessions or liability. “Renters’ policies are so cheap,” he says. “We pretty much make our tenants get them. We practically walk them down to the insurance office.”

Taxes: This can be complicated for owner/landlords. If you plan on selling the property in the next few years, you probably just want to deduct your property taxes as you normally would. But if you’re transferring it to a true investment property and don’t plan to sell for a while, there can be other tax benefits. You can depreciate rental property, says Mincher, which is a real tax benefit because home prices actually should appreciate. “If a property is held for investment purposes and you generate rental income, you can depreciate the property,” he explains. While it’s best to consult an accountant, he explains that residential properties are depreciable for 27-1/2 years. “So, if I owned 50 rental properties, I can depreciate an average of $10,000 a year for each one; that’s $500,000 a year in tax deductions I get that I never had to write a check for.”

Collecting deposits and rent: Take your renter’s security deposit and open a separate bank account for it, Mincher says. “Note on the account that it is a ‘trust’ account, which signifies that it’s someone else’s money you’re holding,” he says, explaining that since it’s a deposit and the renter should get all or most of it back if they uphold their agreement, it’s really their money, not yours. Mincher says setting up another account for rent is also a good idea. “I used to have 20 tenants at my door the first of every month waiting to pay their rent,” he says. “But I came up with a system where I send them an invoice and a deposit slip now, and they can just deposit their rent at any branch of my bank each month instead of trying to come to my house to do it.” He also suggests setting up automatic draft so tenants can elect to just have their rent drafted out of their account each month. “Almost any bank can set that up,” he says.

Returning deposits: You can’t just collect a $2,000 deposit and then only decide to return $1,500 of it when the renter moves out, Mincher says. “You have to send them a detailed itemization,” he says. Once your tenant moves out, make sure to call all the utility companies your tenant had service with to see if there are any outstanding bills. If so, deduct that from the deposit, says Mincher, along with a detailed, itemized list of any repairs you’ll have to make.

Legal Matters: Protecting Your Interests
No matter how much you may trust your renter, never do business based on a handshake and a spoken agreement.

“Getting a good lease is very, very important for both novice and experienced landlords,” says Mincher, who recommends making an appointment with a real estate lawyer to go over your documents before you have anyone sign. It may cost a little more, but it’s a price worth paying when you consider the consequences of a lease gone bad. A local real estate lawyer should know the rental laws, which can vary from municipality to municipality. You can also check with property management companies, your area housing department or your local board of realtors for less formal advice.

“This way you can find out if there are any forms or attachments that need to be part of a lease, because if you don’t know about these, there can be some pretty dire consequences,” Mincher says, adding that in the college town of Fort Collins where he lives and rents property, landlords also have to have an occupancy disclosure form. “This came from people cramming multiple college kids into one house,” he says. “Now tenants have to sign a form that acknowledges the city has a rule that no more than three unrelated people can live in one house.” If this form is missing, says Mincher, the landlord can be fined $1,000 a day .

Besides hefty fines, Mincher says there are some forms that are required to actually make a lease valid. “For example, if a house has a building permit from before 1979, you have to have one of the EPA lead-based paint disclosures as part of the lease, or it’s totally void ,” he explains.

And while you hope for the best with your tenants, Holmes says it’s wise to prepare for the worst. “Make sure all state laws are addressed, so that if you do have to evict somebody, you have the law on your side,” he says, adding that a consultation with a real estate lawyer is the best way to handle this. “If you don’t and you go to an eviction proceeding and there’s a loophole you missed in the lease, someone could end up living in your house rent-free.

Property Management
Hiring a property management company can take a lot of the headaches out of renting your home if you choose the right one. Management companies will usually take a portion of each month’s rent in exchange for handling the screening, rent collection, repairs and other day-to-day landlord management aspects.

Property managers will likely either take a percentage of the monthly rent — anywhere from 10 to 15 percent is common — or they’ll take charges upfront, sometimes as much as the first month’s rent. “As your novice owners go, that 10 percent of their monthly rent is probably a big part of that nut,” Mincher says. “Say their payment [PITI] is $950.00 a month and they’re renting [the home] for $1,000.00. If they manage it themselves they can probably make those numbers work, but if they put a property manager in the mix, they are now only getting $900 in rent.”

Management companies will handle tenant screening, credit reports, and other checks before the tenant moves in. But you have to choose the right company or person. “Pick someone who is more geared toward management than sales,” Holmes says. “Especially if you’re just looking to recoup as much money as you can until the market comes back around. If you don’t have someone who has experience getting a house rented, it could sit on the rental market longer than it should.”