Category Archives: Ready to Rent: Tips & Tricks
Short Sale, Buy and Bail, or Rent Your House and Buy Another?
Photo credit: Joshhphoto, Flickr
Since the housing bubble burst, thousands of people have found themselves in the position of owing more on their current house than it would sell for in today’s market. A recent article from Time Magazine indicates that over 11.1 million homeowners are currently upside down in their mortgages, and that this number is growing at an alarming rate. If you’re one of the unfortunate crowd who finds themselves in this situation, and you either need or want to move, you’re likely trying to figure out how to get out of your current house without losing any more of your hard-earned cash in the process. Here are three common strategies that many people in this position consider:
1) Doing a “short sale.”
A “short sale” occurs when a bank agrees to let a borrower sell their house for less than the outstanding mortgage, then forgives the rest of the debt. Banks may be willing to do this in scenarios where, by their calculations, they stand to lose more money by going through a foreclosure process than they would by doing a short sale. However, part of qualifying for a short sale involves submitting a “letter of hardship” that explains why you can’t continue to make your current mortgage payments or pay the difference between your home’s sales price and your outstanding mortgage balance in the event of a sale. Simply wanting to buy another house, or “needing” to move for reasons that are essentially a matter of personal choice/preference, generally won’t cut it.
2) Buying a new house before walking away from the first, a.k.a. “buying and bailing.”
The term “buying and bailing” describes homeowners who walk away from their current house with its upside down mortgage, but purchase a new house at a better price and lower interest rate before their credit tanks. These homeowners typically tell lenders that they will rent out their old house (sometimes producing fake rental agreements), but never actually find a renter, and stop making mortgage payments on the old house as soon as their new house closes. The problem with the “buy and bail” is that lying on your loan application (for example, about having a renter when you actually don’t) and producing false documents is mortgage fraud, which is a federal offense, which, according to a recent FBI warning, is punishable by “up to 30 years in federal prison or $1,000,000 fine, or both.”
3) Renting the current house out, then buying another.
Renting your house and buying another may be easier than you think. While lenders have tightened their guidelines surrounding this practice due to the recent spike in “buy and bail” transactions they’ve seen, if you have a fair amount of equity in your home, this may be a viable solution. Here are typical lender guidelines for renting your current house, then buying another.
- You must qualify for both mortgages, which makes sense, because you’ll be paying two mortgages. A central issue is whether you’ll be able to count your rental income from the current house in your income to debt ratio (see above). If you have at least 30 percent equity (for conventional loans) or 25% equity (for FHA loans) in your current house, you can include rental income on your mortgage application.
- You must produce a signed lease on the current house, typically for a one-year term. The lender may require that the renter has already moved in.
- Some lenders require applicants to show that they have cash reserves to pay for the mortgages for 6 to 12 months.
If you are fortunate enough to have a good savings account and 30% equity in your current home or enough income to support two mortgages, then renting out your current home and getting into a new house at a lower interest rate, might be a viable option – and it also could be a sound investment.
Texting Tenants: Practical and Legal Considerations
Text messaging a tenant or prospective tenant is a convenient way to communicate. It can be done quickly without having wait for someone to answer, leave a message or wait for a callback, and without having to engage in conversation. It can be done without drafting, printing and delivering a letter. In short, you can pass the ball with minimal hassle.
Receiving a text is also convenient. Phone calls interrupt activities, and checking voice mail requires dialing into a voice mail system and listening to the message. A text message can also be saved, forwarded, and easily accessed if it contains useful information.
Clearly texting has some practical applications for property managers, landlords and tenants. However, the key to texting with tenants is to know when sending a text, rather than making a phone call or sending a letter, could get you in trouble.
Establish guidelines for texting with tenants.
When you’re signing a lease, make sure to discuss your preferred communication methods, including texting, with your tenants, so that you’re all on the same page. When it comes to texting, put the following guidelines in place:
- Make sure the tenant is able and willing to receive text messages. Some people don’t have cell phones, or if they do, they don’t use them often. Others have no texting plan. And some people simply don’t want to communicate by texting. If a tenant doesn’t want to receive text messages from you, respect his or her wishes.
- Put it in writing. The lease agreement, or some other document signed by the tenant, should contain a checkbox for the tenant to indicate he or she is willing to receive text messages, and a section for the tenant to write in his or her mobile number.
- Specify what you will be texting to the tenant. Put in writing the information you will be texting to the tenant. Text messages are informal. Limit them to emergency repair situations when you can’t call each tenant or when you have reports of suspicious criminal activity in the area. Also use text messages for simple reminders about upcoming due dates, meetings or scheduled repairs and maintenance for which you have already given written notice. Limit yourself to these situations – don’t send a text soliciting for donations to your favorite worthy cause and don’t overload the tenant with too many texts.
- Specify what the tenant can text to you. Limit what information the tenant may text to you. For example, texts requesting repairs or maintenance and consenting to allowing maintenance staff to enter the unit might be appropriate
Know when to avoid texting a tenant.
There are some situations where texting isn’t the right tool for communication. For example:
- Don’t text formal written notices to a tenant. If you are giving a tenant a notice that is required by statute to be in writing (such as a notice that you need to enter the premises or terminate the lease), do not text it. If a notice doesn’t meet the statutory requirements for proper form and delivery, the tenant can claim that notice was improper and that he or she need not comply.
- Don’t text information if you might need a paper trail. If you suspect that you may need to keep a record that a certain communication was delivered, make sure the communication is on paper and delivered appropriately. Text messages are not legal documents. They are easily (and sometimes accidentally) deleted. Furthermore text messages can’t be printed out and easily presented to a judge, and they may not hold up in court.
- Don’t send text messages that convey anger or frustration. Always keep text messages professional and devoid of negative emotion. If you have a difficult situation with a tenant, a phone call or an in-person conversation is probably better than a short text message. As with email, when you send a text message the person on the receiving end doesn’t see your facial expressions or body language, which can give them an incomplete picture of the intent of the communication. Remember that if you might need a paper trail, send the tenant a letter, or follow up the conversation with a letter.
Texting tenants can be an efficient way to communicate, saving property managers time and money. If you know when and when not to use text, it can be a valuable tool.
Have you ever had a problem texting with a tenant? We’d love to hear about the times texting has worked well and when it has made you nervous!
Painting Your Rental: Alternatives to Builder’s Beige
Rental unit owners are frequently caught in a bind when it comes to interior paint color: they are constantly advised that they should choose neutral shades (read “Builder’s Beige”) throughout their rental. But what if they want to enhance the appeal of their rental with more interesting paint colors? Is beige the only safe choice?
Color Psychology: Paint Color Can Foster Positive Emotion
One thing to consider is that the color in our environment can impact how we feel. While a renter’s furniture may have a better chance of fitting in with neutral beiges, greys, and the latest “greige”, non-neutral colors could have positive emotional impacts on a renter. When thinking about paint color, experts say you should consider the purpose of each room. Then choose a color that will encourage the emotions you want that room to foster:
- Pale blues, greens and lavenders can have a calming effect. Consider using these colors in rooms where a renter will rest and relax, such as the bedrooms. These colors have also become more popular in bathrooms, as a way of recreating a spa experience of rest and rejuvenation.
- Green is also a great color for a home office—it is considered the “color of concentration” and if you’re going to be surrounded at work by one color for a while, green should be a top contender!
- Warm tones, such as yellows, oranges, and reds are more friendly and inviting. Consider using these colors in the living room and entryway, or in rooms where family and friends gather, such as the living room, as they’re thought to stimulate conversation. Be careful with bolder shades, especially red, which has been shown to increase heart rate and blood pressure, stimulate activity and also increase appetite!
- There is a reason why neutral colors have such broad appeal in rental units and for new homes: they can be relaxing and tranquil, but can also be warm and inviting. If pale blues and greens are too “cooling” for your tastes, consider taupe or a grey/beige, as they are also considered calming, but at the same time can inject more warmth into a room.
Photo by Iriana Shiyan
Rental property owners should consider room size when choosing paint colors. With the right color choices, small rooms can feel more spacious and airy and large spaces can feel more intimate:
- A small room can appear to be larger if its walls are painted a lighter color and if the ceiling is white. Bold colors on walls tend to emphasize their proximity.
- To make a large room feel more cozy and intimate, choose medium to dark earth tones or warmer neutral colors. Also, consider painting the ceiling a lighter shade of the wall color.
- Create the illusion of a higher ceiling by selecting the same light color for the walls and the ceiling.
Room Square Footage: Size Matters (When Choosing Paint Color)
Rental property owners should consider room size when choosing paint colors. With the right color choices, small rooms can feel more spacious and airy and large spaces can feel more intimate:
- A small room can appear to be larger if its walls are painted a lighter color and if the ceiling is white. Bold colors on walls tend to emphasize their proximity.
- To make a large room feel more cozy and intimate, choose medium to dark earth tones or warmer neutral colors. Also, consider painting the ceiling a lighter shade of the wall color.
- Create the illusion of a higher ceiling by selecting the same light color for the walls and the ceiling.
Photo by Iriana Shiyan
Using Multiple Colors to Create “Flow” (and For Minimizing Frustration!)
Choosing one paint color can be challenging. Choosing multiple colors that work together throughout a home can be so frustrating and time-consuming that you may want to throw your hands up in the air and forget the whole painting project in the first place. Perhaps that’s why so many rentals are “builder’s beige” throughout!
Color Wheel Basics
The color wheel is a helpful tool to see the relationship between colors and hues. The three primary colors are red, blue, and yellow. Primary colors combine with each other to make three secondary colors: orange, green, and purple. Six tertiary colors result when secondary colors are combined: yellow-green, blue-green, blue-violet, red-violet, red-orange, and yellow-orange.
Using the Color Wheel to Select a Color Palette
If you’re having a hard time finding colors and shades that work well together throughout the rental home or apartment, consider these four options:
- Monochromatic colors: use different shades of the same color.
- Complementary colors: are located opposite each other on a color wheel. This selection can tend to give a more formal feel to a living space. One color should be subtle and the other color should be bolder.
- Split complementary colors: are more daring. Choose a main color on the color wheel. Next find the complementary color and select the colors on each side of the complementary color.
- Related colors: are located next to each other on the color wheel. These color combinations tend to be more casual and informal.
Image from Fotolia.com
Tips for Using Multiple Colors Throughout a Home
- Select one color to use on the trim throughout the rental home or unit. This helps create flow from room to room.
- Consider having each room’s colors be a slight variation on those of the adjoining room’s colors, or use one primary wall color throughout the house and use accent colors on fireplaces, mantels, bookshelves and other built-ins.
- Interior designers often suggest picking an item of furniture, or a favorite piece of art as the starting point. As a rental property owner, you can’t do that, but you can choose your color scheme based on the carpet or floor color, as well as the wood trim color.
- Use swatches of the colors you think you want, and then also select a swatch for each of those colors that is one shade darker and one shade lighter. Put them on the walls you’re thinking about painting, and see how they look together and also how they vary throughout the day as the light in the room changes.
- Don’t agonize over these choices too much! If you’re taking too long making these decisions, or if you don’t want to make them in the first place, check out the color palettes on display at the local hardware store. Paint companies hire color experts to put these color combinations together – and if someone else has done it for you, perhaps there’s no reason to reinvent the (color) wheel!