In this new economical era, people are beginning to question, “Should I buy a house or rent a house”. Prices are falling, but they don’t appear to be stopping. Many people are scared after seeing very responsible friends and family face foreclosure as a result of being unable to sell or owing more than they can get for their home.

But while buying a home can be dangerous and has its own set of things to watch for, renting can be just as bad, if not worse. When you own a home and face foreclosure, you have ample time to figure out your next steps. The process can takes months or years depending on your location and the financial details.

However, eviction has a much shorter notice. But if you pay your rent on time, you don’t have to worry about eviction… right?

Well, that’s the first, and perhaps the most important mistake many people make.

Rental Mistake #1: Not Checking County Records On The Property You’re Renting

In the post-bubble years, we’ll see this grow more and more. Many people are paying rent on time, following their contract to a T, only to face the Sheriff or a process server at the door letting them know they need to vacate in days or weeks. It turns out, many landlords rent a property, collect the monthly rental payments, and never pay their mortgage. They know they’re going through foreclosure, but you probably have no idea at all. For those that miss the official notices, you may even find yourself homeless just days before the auction.

In Arizona, you can visit the Maricopa County Recorder’s site and do some official searching for your property address and things to check on (is this house going through foreclosure, are property taxes paid, etc.). For those in other states, a simple google search for your county’s Recorder Office should yield quick results.

In one of the next mistakes, you’ll see that while I suggest working with individuals, you should also pay attention to see if there are any of the big trouble signs:

Bugging you for rent earlier than normal or appearing anxious or nervous about payment

Allowing agreed-upon services like landscaping or pest control stop without notice

Having someone stop by the house asking for the owner, who isn’t just selling magazines or Omaha Steaks

One thing you can also do very easily from the comfort of your own chair, is to surf the web and see if the house you’re renting is for sale. A quick google search for “(insert state) mls search” like this great public MLS tool for Arizonans, will help give details that you might find shocking. Many houses you see on the craigslist rental page or elsewhere, are more than likely for sale. Renting is usually a secondary option for when a property isn’t selling. This is why this is the primary mistake most poeple make that can lead to yourself finding you and your belongings evicted and out on the street with little, if any, notice.

Rental Mistake #2: Using A Rental Agency Or Realtor

Take Mistake #1 in deeply. Really let it settle in your mind. Now think, what if I had no contact with the owner. What if, I didn’t even know where to go if I needed to discuss something that important with him or her?

This is why you should NEVER use a Realtor. At least when you’re renting.

Having been a licensed Realtor in the past, I know first hand that rentals not only bring in extremely little money for Realtors – they also provide more problems than they’re worth. This is not always the case, but it is safe to say it is the rule and not the exception.

The same goes for a group or company that manages rentals. While it is nice to pay anonymously to a property management company and have an office number to call, in this post-bubble market, I personally believe it’s one more level of separation you simply can’t afford to have between yourself and the owner.

The primary reason this is so dangerous in this new market we’re in as a result of the housing bubble popping, is that many Realtors who were unsuccessful, joined late, or need money, will revert to acting as ad-hoc property managers in order to bring in a little regular income without going completely broke.

Property Management companies offer a bit more confidence, but you have to realize that this work isn’t free. Having one more person between you and the owner of the home you’re renting means that a portion of your rent, deposit, or upfront fees are going to the middle-man. In this new age of the internet, you can completely cut this segment out of the process with little work at all on your end. Having a good phone number and email for your landlord is often better than waiting for the next day when the rental agent comes into their office. Many landlords want to know if something is wrong and if they check their email that night, may even get someone out to fix something sooner rather than have the problem get worse.

This also leads into my next two mistakes regarding getting the best price in this market. A rental agency has little to no say in the price of the rent. Nor would they, as a cheaper price can cut into their profit margin on the rental.

Rental Mistake #3: Not Starting Early Enough

This leads into the next mistake, but is important enough to deserve its own place on the list. Just as many homeowners try to sell their home first before renting it, they will also likely face several months when the house is vacant or on the real estate or rental market.

If you get looking early enough, even if you can’t end your lease any sooner or make an offer any sooner (as most folks want someone to move in within 30 days or so), information is priceless. Not only would you know from a few early rental searches on craigslist, the local paper, or other medium which houses are available at that time, you’ll also learn which neighborhoods seem to be having the most rentals, what the prices tend to be for a certain floorplan in that neighborhood, and most importantly, which houses seem to be un-rentable.

Many people will re-list their craigslist ads over and over again until they rent. Eventually when you get your search down (4 bedroom, 2 bath, with picture, in your city of choice, between these prices), you’ll notice the same listings, descriptions, or pictures popping up quite often.

When you find a few homes you like with prices that seem decent, do an MLS search and see if they’re for sale. Check craigslist as well as some folks double list a property in both the “for sale” and “for rent” sections. Notes, descriptions, and pictures, will help tell if you’re dealing with a property that’s vacant and in desperate need of a renter, or properties that just need a ton of work, or perhaps homes being rented by completely unrealistic folks. All are signs that can help you gain more leverage at the negotiation phase.

Rental Mistake #4: Not Negotiating – Everything Is Negotiable

Some folks may not be “hagglers” or may try and avoid uncomfortable or unreasonable requests. That’s completely fine. As a matter of fact, you don’t want your landlord feeling like he was pressured to offer you more than they expected. This is a long term relationship and an amicable one will benefit you both greatly.

However, you must realize that the monthly rent isn’t like that of an apartment. It likely isn’t based on some profit formula, but rather based on the current competition or a certain number they need to bring in so that they can keep the mortgage current.

Beat this into your head: “People SELL first, RENT second”. Renting can be a nightmare, or at least a source of one, for many owners. What if their renters knock holes in the walls, run a meth lab, or do something otherwise as scary? Even a decent security deposit may not cover those types of damages. People would much rather sell the home, but may rent if they simply can’t sell it, or realize that the loss on a sale in this market would be more than losing a hundred or two a month and renting it out. Many people lose money on a rental, especially if they bought recently, but may end up even come tax time.

If you start early, you may find a great home, that the owner simply can’t rent. Maybe he’s charging $50-$100 more than other homes like that one are going for. Maybe they’re just unlucky. It’s never a bad idea to approach them early and offer a more competitive price and see what their response is. Do they respond back saying that they’re going to keep looking? Do they completely ignore you? Do they get hostile with you for insulting their intelligence? If it’s the latter, that’s a big “KEEP OUT” sign for you.

If you establish that benchmark, you may find that when it’s 3-4 weeks before your lease ends, that the house you liked is still for rent and hasn’t been picked up. Mention you’re closer to your move-out date and still interested for the price you mentioned. They may find themselves more willing to deal with you now knowing that they may not get another offer for several months. Losing 100 bucks to you every month may actually be CHEAPER than getting full price but paying another mortgage payment.

It’s also great to see if you can get landscaping, or at least pest control, taken care of by the seller. Ultimately, the seller is the one that will get dinged by the HOA. They’ll make you pay for those charges if you were responsible for them, but they may also not want the hassle if you turn out to be one of “those tenants”. They may figure the monthly trimming/mowing to be cheaper than the constant headaches of reminding you to do it. Also, having them establish a routine pest control schedule can help assure them that nasty rodents or insects won’t nest in the house and cause long-term damage to the structure or occupants.

It never hurts to ask or at least figure the costs of those services into the price of the home. If one home is slightly more than another, but has free landscaping and spraying, the end cost may be lower for you. But still ask the homeowner if they would handle that just in case.

Appliances are another HUGE money saver. Some homes don’t come with a fridge, washer, and dryer. Even on a budget those appliances can easily run $1,500 to $2,000. Instead, ask the landlord if they would like to buy acceptable budget appliances in exchange for a slight increase in rent. In one home I rented, the landlord went to Sears, bought a lower end fridge, washer, and dryer, got points and rewards for himself, and I paid an extra $50 to him every month. When I moved out the next year, he didn’t break even, but would actually end up with a PROFIT the next year with the next tenant. Mention this selling point to them and they may appreciate your business sense.

Rental Mistake #5: Not Knowing Who’s Responsible For What

As mentioned above, understand who is responsible for landscaping, for lawn maintenance, for handling the automatic drip and sprinkler system, and for pest control. Who pays the Home Owner Association fees? Those costs can run you hundreds of dollars every month and turn a GREAT deal into a TERRIBLE deal.

Be aware of this in case the owner plans to do it themselves to save money. If they say they’ll come by and spray, are they going to do it with a can of RAID, or with acceptable chemicals that will truly help the problem? It’s no use to you if you have to pay extra to cover for a bad job done by them.

Also, get EVERYTHING in writing. This shouldn’t need to be said, but it does. If the owner is offering something like a “Rent-To-Own” plan where a percentage of your rent goes towards the down payment, or if they offer any future incentive terms to convert the rental into a purchase, get it on the rental contract.

As a renter, if you don’t have a legally binding rental contract, you may find yourself completely powerless later on when you need to bring in legal help to deal with a nasty situation.

It’s also a great idea to make sure a “current condition” form is filled out where you take a walkthrough and detail the condition of the carpet, tile, showers, bathrooms, windows, doors, cabinets, etc. You may notice that in a couple weeks a cabinet door’s hinge starts breaking. If you documented this and reported it early, they may have it under warranty or be able to help you. If not, you can detail it and if it gets worse at move-out time, can help make sure that you don’t lose your deposit on something simple like a cabinet door replacement.

If you have another family member with you, have them run a video camera of everything. Sounds of doors and such opening and closing so that if the owner tries to say there’s a funny sound or problem closing the back door, you can point to video where you already documented that as a pre-existing condition.

Don’t let anything slide here, if it looks remotely questionable, mark it down just in case. Just like the rental contract, make sure the owner and you both have your own copies. Rental payments should also be documented. Keep carbon copies of checks if possible, or receipts from bank deposits handy.

Renting A House Can Be A Great Thing

Renting can be great if you find yourself in a good relationship with the owner. For first-time renters, it offers a preview at home ownership so you become aware of things you’re going to face later on. Did they provide fans and window coverings that you found yourself desperately desiring and having to pay for later on? Was the house too big or did it cost too much to heat or cool?

Later on, as prices settle, and the banks are less afraid of collapse, you may find that the owner trusts you and that trust can save tens of thousands of dollars at the table if you choose to buy it. They may not want to leave it vacant on the market again and accept a lower price for a quick and easy sale. Just make sure to cover yourself. Even a $50 break will turn into $600 at the end of the year. Ever dollar counts.

Wednesday, September 10th, 2008  |  Visited 9,476 times  | 

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