Reema,
I again suggest the rent while buying scenario, for you. It will allow you to recapitalize your investment and will offer you the tenant who will be motivated to keep the property, in their best interests, in the same condition as you are, based solely on their belief that they will one day own the home. If this type of senario is of interest to you; format all of your questions that will allow me to demonstrate the efficacy of this endeavor.

Thanks Tman and Don for your perspectives. I do believe that these owners must take responsibility for their hasty choices. I like the analogy of the three legged stool-so true! So many of the choices made in the past few years were driven by greed.

My belief in Real Estate Investing is... you watch what everyone else is doing...and you do the opposite. That philosophy has served me well.

Regards,

Sandy Shores

I recommended rental to one family, a mother and her teenager son. Here is the situation -

The parents are divorcing, they just sold their $M home, another agent is their neighbor and kind of know them (not their listing agent), the father had cancer which ate up their money and ruined the credit for both, the mother has a very nice stable job, and yes, her credit is bad because of the problems due to her soon-to-be-ex husband.

They sold their $M+ house, the listing agent (who they trusted and used for years) would not represent renters, so I represented them (By the way, I have a pet peeve with agents who list for sale but will not help their sellers find a suitable rental because it's just too much trouble and too little pay for them).

Although I did not know them but I checked out her situation and fought for her to get the house. They did and were great renters.

Sylvia

As Tman suggests, you have to look at the reason for the financial difficulty.

At one extreme is the person who had a long history of good credit. Decent job or jobs. Stable work history and rental or ownership history. Then something happened, probably out of his/her control. His employer shut down. He had severe medical problems, and was unable to work. She became divorced and with that most of her income. A child had expensive medical bills. You get the idea. Things that generally were not their fault, but that significantly affected their income. So long as the problem that caused the financial distress is solved, or at least under control, that person may be an ideal tenant.

At the other extreme are the type of people Tman describes. Just not responsible with their money. And, even worse, someone with a history of evictions. A pattern of problems. A demonstrated unwillingness to meet their obligations. And a failure to take responsibility for that. It's always someone else's fault. ("Well, my last landlord was terrible, so I didn't feel he was justified in asking for rent. And the one before that would never repair anything, so I paid someone to fix it and then deducted that from my rent. And right now I'm paying off a big screen TV, so I'm a bit short of cash for the security deposit.")

That's the type of tenant you absolutely do not want.

And somewhere in the middle are the well-meaning but clueless types. The ones who bought at the peak of the market with 100% financing, stated income, with a nasty option ARM. They're not bad people, but they demonstrated some not-so-great judgment.

And recognize that most people "revert to type." The ones with the good credit and employment history will generally get back in the groove. The ones with a history of evictions are going to continue that pattern. And the people with the questionable judgment will probably continue to make some bad decisions.

Hope that helps.

Rp,



Absolutely not .. I don't feel you're trying to classify or judge people at all - actually, just the opposite ... your trying to be a smart businessman with little or no brain damage.

Some good points have been brought up ... but here's some food for thought.

Things are different nowadays, and I'll tell you why ... some feel *entitled*.

I've been buying and selling property for 29 years come May (I've even bought and sold property in Melbourne Beach) ...

Yes, we can blame subprime, we can blame tricky lenders, insurance companies, the tax man, the barometric pressure and even a bad meal at McDonalds ... but it's a 3 legged stool and consumers are responsible for 1 of those legs.

I probably look at a few of hundred credit reports a month - and there's "seems" to be an attitude change since 2006 ...

You're seeing folks that have 2, maybe even 3 homes ... and they bought these homes (like you) as an investment - but they were also looking for an instantaneous return in 2 years or less ... and for most, that won't happen - just the opposite played out ..

It's never happened before .. why would they think it now.? .. an exploding 40 month market doesn't make up for 40 years of real estate history.

Nonetheless, you find out a whole lot about folks when you read their credit history, "especially" when they're telling you a sad story at the same time ... I certainly understand sickness, injury, job loss, family issues, because those are real deal reasons.

But what about the excuses..?

- leasing 2 new BMW 750i's 9 months before the foreclosure is not a reason, they already knew their mortgage payment was going up 2 years ago ...

- charging $17,000 on a Home Depot card to buy granite counter tops is not a reason, they knew their mortgage payment was going up on their vacation home 16 months ago ...

- buying a $11,000 home theater off their Circuit City card 4 months before the bankruptcy is not a reason, they already knew they were 3 months behind on their mortgage ..

And trying to purchase a $250,000 cruiser is certainly not a reason when you started renting yesterday.

Lots of excuses out there Rp, you need to find some reasons ...

- Your mileage may vary -



: ^)

Hi Sandy

I am not trying to classify or judge people, I am trying to classify the risk associated with each type of tenant. Since we posted our listing on Craig's list, about 20 families have visited our homes, those potiental tenants who have wanting to fill out the application are going to file for bankruptcy or are in a bankruptcy. Every person I have met, some have been open and honest and some individuals are not willing to discuss their financial situation. I perfectly understand that, and don't pry or ask them more questions.

The entire rental situation here in Brentwood, is very sad and I feel for these tenants when they talk to me about their foreclosures and how they are managing. But I have to distant my emotions from the rental process as it is a business transcation.

We were lucky that we purchased this home in 2003, when our market was low and have managed to reduce our loan amount. We are in no rush to rent our home, if we are not able to find someone suitable, we plan to stay.

I am learning about the entire rental process myself , there are a lot of things to consider like you said, and one has to do their homework. Will send you a link of the home.

Thanks

Hi RP,

You asked another question, which tenant would you rent to, one with a short sale, bankruptcy or foreclosure? For me, I can't classify people into categories based on those issues. Every person is different. I would have to talk with each individual and find out what their situation was. Those situations do not make a person good or bad, or give a guarantee as to whether they'll pay their rent to you or not. The rules seem to have all changed today in looking at tenants.

I feel for owners today that got caught in the Subprime Mortgage mess. Some were unwilling participants and others were hoping to turn a quick profit. Some were not notified of the negative ramifications of opting for such risky loans. And some were not notified that their taxes and insurance would be going up with the increased values. There are many owners today that are being forced into becoming tenants and there are many that are being forced into being landlords. In my opinion the ones that are reluctant landlords may have a tough road ahead. Many are renting at a deficit, only later to fall into foreclosure themselves. Their good paying tenant is then forced out.

Being a landlord is just not for everyone!

Do be careful. Some things you mentioned in your post are concerning. Unfortunately I am not familiar with your area. You indicated that you have one of the most beautiful homes in the Bay area, perfectly designed, on the golf course.with panoramic views. Ouch! I don't have any rental houses that could be described like that! In my opinion, big, beautiful homes with large price tags do not make good rentals. The higher the price, the fewer the tenants, the longer it sits empty before finding a tenant, and often times the tenants do not stay for an extended period of time. Often they can find something more affordable for less rent (and the ones with good credit buy).

I have met owners that were heartbroken to get their beautiful home back after having rented to certain tenants (with good or bad credit). I have some tenants that take absolute pride in the home they live in. I know of others that are not as conscientious. People are all different.

Be certain to do your homework first and choose your options wisely.

Best wishes,
Sandy Shores.

Which brings me to another question, What are the risk factors for the following situations? Or let me ask to simply, which one of these tentants would you pick?

- Tenant is going thru a short sale and stopped paying credit cards
- Tenant is in foreclosure
- Tenant is filing for Bankruptcy
- Tentant is in Bankruptcy
- Tentant is out of Bankruptcy, but has shaky credit history

Great question and very insightful answers. I think we are going to start seeing a lot more questions like this from landlords. I am a landlord and have clients who are landlords. With the foreclosure crisis and banking industry collapse more and more tenants will have these risk factors on their applications. I can't add much to what has been said except to say I know some landlords have written policy they apply to all tenants in regards to credit scores, foreclosure, and bankruptcy and typically compensate those risk factors with higher deposit amounts.

Susan Walker

Thank you for such good advise, I am so glad to have found this website, I have learnt so much by posting a few simple questions, This is exactly what we are doing, screening each renter, being extra careful because this is the first time we are going thru the process of being landlords.

We purchased this house as an investment and did not sell it as planned at the peak of the market. Instead, we decided to stay here for a couple of years. Its a beautiful home on the golf course with panoramic views of Mt Diablo. Reason for the move to San Ramon is to reduce commute to work, and we will be closer to family. We have managed to reduce the loan amount on the home, so the montly payment is not high and very affordable.

We want to make this our investment property, as I have not come across such a beautiful home in the Bay Area, with goregous views and pefectly designed. We may sell it when the market(praying) touches the peak....

I am learning a lot thru this website and via speaking to agents, seems like its all about who you get to rent, and thats all about luck. There is no guarantee on the decisions we make, the best way to handdle the situation is to make minimize the risk factor....so keeping our fingers cross.

I think Sandy is right on target. As a Broker in the business for 23 years I try to put all the variables or risk vs. reward in as concise a manner as I can. My first question is why are you renting your home, is it part of an over all investment plan that is well devised. Understand, as Sandy said, your home will more then likely depreciate in value due only to the tenant not taking care of the home in the same manner you do. Another possibility of this would be to consider a rent while buying scenario. In this scenario, your potential tenant, who has fallen on hard times, knows they are in no position to purchase their own residence, but would like to work a plan where that would be possible in the future. The variables on this scenario requires a committed down payment (security deposit) and a small fraction of their rent to be collected by you and separately deposited along with the security that can be used as earnest money when they straighten out their finanances, usually after a two year period. You may want to speak with a professional Realtor who may be able to advise you on all of the above variables.

Hi Rp,

Every tenant should be looked at on an individual basis. What is the reason for the bankruptcy or the foreclosure? Did they get caught up in the sub prime mortgage mess and their taxes, insurance and
interest rate adjusted up? I know many people that were comfortable and able to pay their mortgage payments until their payments went through the ceiling.

I am a landlord and have been since 1996. I typically rent to tenants that have credit blemishes. The right ones make good long term tenants. What was their previous payment history on their last rental? How long have they been at their job? I know many good hard working people that go to work everyday, but they just don't earn enough money to cover all of their expenses, every month. Or some just have poor spending habits. It makes no difference to me whether they pay their credit card bills or not.. They understand they must pay their rent every month to keep a roof over their head. Many of them make great long term tenants. I have had tenants with me for over 10 years that came to me with credit problems and they still have credit blemishes.

I will not consider an applicant that has been evicted or has a repossession. Once evicted, often times it keeps happening.

In the last 4 months, I have rented to 3 people that are going into foreclosure due to interest rate adjustments.

But be aware, renting your primary residence is different than placing a tenant in a house that you have never lived in. I have never gotten a house back from a tenant in better condition than I gave it to them in.

Do your homework and be very careful. If you pick the wrong tenant, you will be faced with filing an eviction.

Regards,
Sandy Shores

Rp,

I know zero about the Brentwood (OJ.?) area .. but I know a bunch about people and property.

In most area's of the country it's tough to get a timely eviction, 60/90 days can pass very easily ... then you have clean-up, new advertising, interviews, etc ..

My grand Daddy said something years ago which has always rung true ...

"if they don't respect their own money, how do you expect them to respect yours..? "

Bad credit makes for bad renters ....


Good luck and happy hunting.


: ^)

Hi Rp,

I guess the best advise is to rent to tenants with a good credit history only. On the other hand having someone who filed for bk, being on it for a few years or being in foreclosure i would image that the last thing they need to do at this point is to default on their rent....just a thought.
Leonardo

I'm not a landlord, but my gut reaction would be not to rent to someone who has filed for bankruptcy or foreclosure. An blog I read that has very good information about investment properties is:

http://www.minnesotainvestmentrealestate.com/