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When Do Mortgage Points Make Sense?


Right now, mortgage rates are rising fast following several years of record lows. This leaves potential homebuyers wondering how they can beat the rates, and one option is buying mortgage points. With mortgage points, you can save money, but they don’t always make sense in every situation.

Mortgage points are a fee you, as a borrower, would pay a lender to reduce your interest rate on a home loan. You’ll hear it referred to as buying down the rate.

Each point you’re buying will cost 1% of your mortgage amount. If you’re getting a $400,000 mortgage, a point would cost $4,000.

Each point will usually lower your rate by 0.25%. One point would reduce your mortgage rate from, let’s say, 6% to 5.75% for the life of your loan.

However, there’s variation in how much every point will lower the rate. How much mortgage points can reduce your interest rate depends on the loan type and the general environment for interest rates.

You can buy more than a point, or you can buy a fraction of a point.

Your points are paid when you close, and you’ll see them listed on your loan estimate document. You receive the loan estimate document after applying for a mortgage, and you’ll also see them on your closing disclosure, which you get right before you close on your loan.

There are also mortgage origination points and fees you pay to a lender for originating, reviewing, and processing your loan. These usually cost 1% of the total mortgage.

These don’t directly reduce your interest rate. Lenders might let a borrower get a loan with no origination points, but usually, that’s in exchange for other fees or a higher interest rate.

To determine when mortgage points make sense, you have to calculate what’s known as your breakeven point. This is when borrowers can recover what they spent on prepaid interest. To calculate this, you start with what you paid for the points and divide that amount by how much money you’re saving each month with the reduced rate.

Let’s say the figure you get when calculating your breakeven point is 60 months. That means you would need to stay in your home for 60 months to recover what you spent on discount points.

If you’re buying a home you plan to stay in for a long time, then the additional costs of mortgage points to lower your interest rate can make financial sense.

If you doubt you’ll stay in your home for the long term, it’s probably not right for you.

If you don’t stay in the home for long enough, you will ultimately lose money.

At the same time, as you consider whether or not mortgage points are right for you, you should consider your down payment. You could be better off putting money towards a more significant down payment than points. If you make a larger down payment, you might be able to secure a lower interest rate. Plus, if you make a down payment of at least 20%, you can avoid the added cost of PMI.

Bigger down payments mean you’re lowering your loan-to-value ratio or the size of your mortgage in comparison to the value of your home.

The takeaway is not to assume that buying mortgage points is always the right option. You need to consider how long you will stay in the home and your breakeven point.

Seller Concessions:
In today’s market, sellers are offer large concessions to get their properties sold and as your realtor, we can help you lower your interest rate by having the seller pay for all or a portion of the rate buy-down. Give us a call today to find out how you can save thousands over the life of your loan.

Position Realty
Office: 480-213-5251

Four Things That Will Hurt Your Credit Scores


Credit scores are simply a numerical reflection of your current credit and payment patterns. Typically, the higher the score the better the credit. Building solid credit, especially at a young age, is relatively easy to do. Open up a credit account and pay it back on time. Conversely there are things that will lower your credit scores. Here are four of them.

The first and foremost is your payment patterns. Scores will drop precipitously when payments are late. Not late if your payment is due on the 15th and you pay on the 17th, but more than 30 days past the due date. That’s when scores will drop the most and the quickest. Avoiding these late pays will help scores but making payments more than 30 days past the due dates certainly will. They’ll fall even further if a payment is made more than 60 and 90 days late.

The next way your scores can falter looks at the outstanding balances compared to credit lines. If for example a credit card has a $5,000 limit and the balance is say $4,500, scores will fall and your overall credit profile will be damaged. Going over the credit line will cause scores to fall even more.  Scores will improve when the balances are kept near one-third of credit lines. For a $10,000 limit then the scores will rise if the balances are approximately $3,000-$4,000. Interestingly, keeping balances at zero won’t actually help scores. The scoring system looks at payment history and if there are no balances there won’t be any payments to observe.

A bankruptcy filing, be it Chapte 13 or 11, will of course hurt scores. Lenders can work around a bankruptcy if it can be shown the bankruptcy was out of the borrower’s control. A situation where there is a divorce and there are disputed credit accounts is perhaps one example. Another would be a death or extended illness in the family.

Finally, credit inquiries can negatively impact scores. There are two types of inquiries, a hard and a soft inquiry. A soft inquiry is when a credit card company takes a peek at your credit profile to see if they want to extend a credit offer. These have no impact as they’re not initiated by you. A hard inquiry however is a different story. A hard inquiry is a direct request by you for a new account. An isolated hard inquiry won’t hurt credit but several such inquiries within a shortened period of time will.

Position Realty
Office: 480-213-5251

Getting Help with a Down Payment


A down payment is something you’re likely going to need to get a mortgage to buy a home unless you’re using a Veterans Affairs (VA) loan. Saving up for a down payment is one of the more significant barriers for many people that prevents them from achieving homeownership.

A down payment is an initial payment you make when you buy a house. Down payments are usually calculated as a percentage of the purchase price. The amount can be as little as 3%, but conventional mortgages are generally around 20%.

The specifics of a down payment requirement depend on the type of mortgage you’re applying for, the kind of property you’re buying, and your financial situation.

If you can make a larger down payment, you might be able to get a lower interest rate or buy a more expensive house. Large down payments can also mean you’re responsible for smaller monthly mortgage payments.

Lenders require down payments because it helps reduce their risk exposure. You’re investing in the home, so if you were to stop making your mortgage payments, you’d be walking away from a lot of money. Down payments also reduce how much a lender has to give you to make the purchase.

Not everyone has a large chunk of cash sitting aside to use to buy a house, however. There are down payment assistance programs available, some of which are detailed below.

The Basics of Down Payment Assistance Programs

Down payment assistance programs usually come from state housing finance agencies. Sometimes these programs are also managed and offered by cities and counties and nonprofit organizations.

Types of assistance might include:

• Grants, which are a gift of money that doesn’t need to be repaid.

• Forgivable, zero-interest loans, which don’t have to be repaid as long as the borrower still owns the home and lives in it after whatever the period is—usually somewhere around five years.

• Deferred payment, zero-interest loans, often require no payments until the home is sold, the mortgage reaches the end of its term or the mortgage is refinanced.

• Low-interest loans are available and have to be repaid over a certain period of time. These help homeowners spread their down payment and closing costs over a more extended period rather than having to come up with the money all at once.

Who Can Access Down Payment Assistance?

Most programs offering down payment assistance are geared toward first-time buyers, but not all.

Even if you’ve already owned a home and a program says it’s for first-time buyers, often the program will define a first-time buyer as someone who hasn’t owned a home in the past three years.

There are also programs for specific demographics, like teachers or first responders.

Most down payment assistance programs will require that you complete specific steps, which vary depending on the program itself. For example, you might have to meet income limits or take a homebuyer education course. You could be required to buy in a particular location or stay below a certain maximum purchase price. Sometimes you’ll have to contribute your own money to your down payment too.

How Can You Find a Program?

If you’re interested in learning more about down payment assistance programs, you can contact the housing finance authority in your state or your local city or county government. The U.S. Department of Housing and Urban Development (HUD) also has state-specific information.

The Consumer Financial Protection Bureau has a tool that will link you to housing counselors where you live.

If you are going to apply for a mortgage and use down payment assistance, you’ll have to find a list of mortgage lenders who are approved to work with that particular program. Often, the local agencies and programs assisting can connect you with experienced loan officers.

Position Realty
Office: 480-213-5251

How Does a Pocket Listing Work?


If you watch real estate shows, you might occasionally hear a reference to a pocket listing. A pocket listing is a way for real estate agents to intentionally keep a home off the Multiple Listing Service (MLS) as they look for the right buyer.

A pocket listing isn’t publicly listed, even though it’s for sale. The real estate agent does private showings with potential buyers instead of putting it on the MLS, which is public-facing.

Pocket listings aren’t the same as having a coming soon listing. Coming soon is a way for an agent to designate that a home isn’t listed yet, but shortly will be on the market.

Pocket listings aren’t illegal, but they are frowned upon. The National Association of Realtors, the largest real estate agent professional organization in the country, essentially banned pocket listings for members in 2019. The NAR handbook says that within one business day of marketing a property to the public, the listing broker has to submit it to the MLS.

The NAR wants to ensure cooperation among real estate agents, which was one reason it cracked down on pocket listings. The organization also wants to ensure competition, meaning all buyers have a chance for a listing, and sellers get the chance for the best price.

Some agents can bend the rules to ensure they’re compliant with NAR guidelines while still keeping a listing to themselves.

The policy of the NAR is that listings must be added to the MLS within one business day of the seller signing the listing contract. If a seller signs with a listing agent on a Friday, for example, the agent can use the weekend to do private property marketing.

Why Do Sellers Like Pocket Listings?

It sounds somewhat counterintuitive to do a pocket listing, but there’s a reason some sellers prefer this option. Sellers might like pocket listings because they want to maintain privacy. They control who has access to the property and when, and everyone won’t know they’re selling immediately.

Some sellers like pocket listings to test the market to see what the response will be like to their selling price. With pocket listings, it’s possible to adjust the price without making it look like a price cut that would otherwise show up on the MLS.

The third reason for a pocket listing is that the seller might already have a buyer. A seller might want a listing agent who will sell their property to a specific buyer.

There are ways outside of a pocket listing to achieve the things above, though.

For example, if someone wants the privacy of their listing, they can ask their agent to put the details in the agent’s remarks so they aren’t in the public sections of the listing. They can also ask the agent to verify financing before they agree to showings.

You might miss out on the best possible offer with a pocket listing if you’re a seller. You cannot know whether the buyer you’ve chosen actually has the strongest offer.

There’s also the potential for a listing agent to violate Fair Housing laws if they choose who can see a home. There may be a greater risk of discrimination in these situations, so an agent has to be very careful.

Finally, pocket listings can affect home values negatively. If the sale isn’t in the MLS, it will not show up as a comparable listing if an appraiser or agent tries to determine its worth.

Again, while a pocket listing might have its advantages, they’re something to be cautious of for sellers and their agents because they also have risks.

Position Realty
Office: 480-213-5251

What Happens When Companies Buy Houses?


If you’ve ever seen signs for companies that say they buy houses, or maybe you’ve been approached by one, you might find yourself wondering exactly what it is that they do.

There are a couple of different types of companies that buy houses cash. There are those ones that you see advertising in your community, but there are also tech-driven companies that do it.

How Do Home Buying Companies Work?

If you want to sell your house, you typically will hire a real estate agent, and then they’ll place it on the MLS. If you want to sell it fast without doing work or paying a commission, then you might instead try to sell it as-is.

There are companies that buy houses as they currently are for cash. This can mean local cash buyers, investor networks, or iBuyers.

• A local cash buyer is typically just someone who will buy your house and either flip it or turn it into a rental.
• An investor network is one of those companies that you see advertising most often, and they’re local franchises. They don’t pay much for houses because they usually focus on ones that are in pretty bad shape, and then then they flip them.
• Then, there’s the term iBuyer. The term stands for instant buyer. These are companies that use algorithms and data in the form of what are called automated valuation models to determine what your home’s worth. Then, based on their data, they’ll make an offer.

What Are the Benefits for You?

If you want to sell your home quickly, one of the three above cash buyer options can be good.

The vast majority will buy your house just like it currently is, so you don’t have to make repairs or updates, nor do you have to worry about staging it.

They’ll usually be flexible in helping you find financing solutions, and you’re probably going to get a relatively fast closing. These companies don’t have to go through the traditional financing process from a bank, so they might be able to close in seven to 14 days.

You’re also avoiding real estate commissions and closing costs.

Are There Downsides?

While selling your home quickly and easily to a company can seem great, there are certainly some downsides you have to be aware of.

First, there’s a pretty high likelihood you’re not going to get full market value. You’re trading that for simplicity and lower costs.

There’s also always a risk of predatory tactics or even scams.

If a company is trying to pressure you into selling your home for far less than it’s worth, that’s a problem.

There are a lot of legitimate companies that do buy houses for cash, but not all of them are completely legit. You have to do some research if you’re thinking about having a company buy your house to make sure it’s not a scam.

How Does the Process Work?

If you’re interested in the direct-buying model, which is ultimately what all the examples above are considered, then you might wonder what the process looks like.

Companies might vary slightly in how they do things, but typically, the home buying company might come to you, or you could approach them. The buyer or company will get some general information, and then they’ll schedule a walk-through.

The buyer will determine the market value of the home once any updates or repairs are made. At that point, they’ll present the seller with an offer, which will include the price they’re willing to pay, a closing date, and terms of the sale.

There are negotiations, and then once everyone accepts the offer, a closing date is set.

When it comes to direct buyers you just have to think about what your priorities are and how those weigh against the potential downsides. If your biggest goal is to move quickly and avoid having two mortgages, a home buying company can be a good option if they’re reputable.

If you’re in no rush and you want the highest price for your home, then you might go the traditional route in selling it.

Position Realty
Office: 480-213-5251

Capital Gains Tax When You Sell Property


If you’re selling a home, what you make could be taxable. Depending on your property’s value and other factors, you might be hit with a big tax bill that you weren’t expecting.

Capital gains on real estate can be taxed, but there are things you can do to reduce or avoid what you owe to the IRS when you sell your house.

A capital gains tax is the fee you’re responsible for paying on profits you make when you sell an asset. Your capital gains taxes can apply to stocks, bonds, and tangible assets such as cars, boats, and real estate. The IRS and many states also assess the capital gains taxes on the difference between what you’re paying for your asset, known as your cost basis, and what you sell it for.

Capital Gains and Real Estate

The capital gains you might owe if you sell your home vary depending on your tax filing status and the sales price of your home. You may also be eligible for an exclusion. The IRS might allow you to exclude up to $250,000 of capital gains on the sale of real estate if you’re single and up to $500,000 on real estate if you’re married and file jointly.

If any of a certain number of factors are true, you then pay tax on the entire gain of the sale of your home.

These factors include:

  • The home wasn’t your main residence
  • You owned the property for fewer than two years in the five years before selling it
  • Not living in the house for at least two years in the five years before you sold it
  • You claimed the available exclusion on another home in the two years before selling this current home
  • Buying the house through a like-kind exchange, which is a 1031 exchange in the past five years
  • You have to pay expatriate tax

If you do owe taxes on what you made from selling your home, different capital gains tax rates can apply.

Capital Gains Tax Rates

If you owned the asset for a period of less than a year, then typically, short-term capital gains tax rates apply. The rate is the same as your tax bracket. Long-term capital gains tax rates will usually apply if you have owned the asset for more than a year. A lot of people qualify for a 0% rate, but depending on your income and filing status, you might pay 15% or 20%.

Avoiding Capital Gains Taxes When Selling a Home

Some of the things you can avoid having a tax bill from selling your home include:

  • The best way to avoid taxes is to live there for at least two years, which don’t have to be consecutive. If you’re a house flipper, you have to be careful here. If you sell a house you didn’t lie in for at least two years, your gains can be taxed. If you sell in less than a year, it’s particularly expensive because you may have to pay the higher short-term tax rate.
  • Determine if you qualify for an exception. You might still be able to exclude some of the taxable gains on the sale of your home because of work, health, or an unforeseeable event.

Finally, if you make any improvements, keep your receipts. The cost basis of your home will include what you paid to buy it and the improvements you made over the years. If your cost basis is higher, you may have a lower amount of capital gains taxes to pay. Remodels, expansions, and other updates can reduce your taxes.

Position Realty
Office: 480-213-5251

Can You Use Home Equity to Buy Another Property?


When you have equity in your home, you can tap into that and, if you’re strategic, use it as a way to build long-term wealth.

There are a lot of ways you can capture equity to build wealth. For example, you can pay off higher-interest debt or make home improvements that ultimately increase the value of your house. You can start a business or you can even invest in the stock market where returns might be significantly more than the interest you pay on your loan.

Another question people commonly have is whether or not they can use their home’s equity to purchase another property, which we discuss below.

Can You Use a Home Equity Loan to Buy a House?

In short, yes. You can use a home equity loan to buy a house, but that doesn’t mean it’s always the right decision in every situation. Using home equity can be a way to buy a second home or an investment property with caveats.

A home equity loan is a second mortgage, giving you a way to access the equity you’ve built in your home. Home equity refers to the difference between what you owe and what your home is worth.

The Upsides

If you’re thinking about using your home’s equity to buy another house, there’s a distinction you need to first make. Are you buying a second home or an investment?

If you’re planning to buy an investment property, using a home equity loan can give you more liquidity and make it less expensive. Benefits of using equity to buy an investment property include:

• You can put more toward your down payment. A home equity loan is something you receive as a lump sum payment so that cash can go directly toward a down payment. You’ll be a more competitive buyer, which is essential in the current market, and you’ll get lower interest rates and monthly payments.

• It can be harder to finance a second property because there are more stringent down payment requirements, so a home equity loan can be a more affordable solution and also one that’s more convenient.

• A home equity loan is secured with collateral, which is your current home. As a result, you get the benefit of lower interest rates.

If you’re buying an investment property, using your home equity can be a good wealth-building strategy. If you’re buying a second home, you have to consider that it’s not going to bring in income like an investment. That means that you’re going to be tying your home up in a loan and then taking on another loan, so you need to be in a solid financial position to make this work.

The Downsides

The downsides of using equity to buy an investment property do exist. These include:

• You’re swapping an asset for a debt. You’re taking the part of your home that you own, and then you’re putting it into a loan. Ultimately, no matter the specifics, you will have higher debt, so is that what you want?

• You’re vulnerable to housing market shifts, even more so when you own two properties instead of one. You’re doubling your risk if something happens in the housing market. For example, if the value of either of your properties goes down, you might owe more on your home equity loan and your mortgage, overextending you.

• If you were to default on your loan, you could lose both properties.

• You might end up having three mortgages but only two homes. Most home equity loans are second mortgages, so you have to combine this with the loan you’ll need for your second home, meaning three mortgages.

• Another downside you’ll have to weigh is the fact that interest payments on your home equity loan will probably not be tax-deductible because of 2018 changes in tax codes.

The big takeaway here is that, yes, using home equity to buy a second home is an option and sometimes a very good one. At the same time, there are risks and it’s not always the right decision, so you need to go over the details in your specific situation carefully.

Position Realty
Office: 480-213-5251

ADA, HUD, The Fair Housing Act – Which One Applies to Housing and Support Animals?


With many different laws governing service animals, it can be confusing as to which ones apply to housing providers and what they are allowed to ask. This article will review the different laws that come into play, highlight which ones directly affect housing providers, and share tips to help you navigate this sometimes confusing process.

Does the ADA Law Apply to Housing?

Even though the ADA is very important, it doesn’t apply to housing except for maybe the leasing office as it is a public place. Generally, ADA laws apply to operators of public places like Target. The ADA also limits the types of animals providing support to dogs or, in rare cases, miniature horses, which we are not allowed to do as housing providers.

This is where some confusion can take place. The ADA limits what business owners can ask regarding the animal to: “Is that a trained service dog?” and “What work is the animal trained to do?” They are not allowed to ask for written verification.

So when housing providers ask for verification of need, often they are met with the resident referencing this law and stating that they do not need to provide proof of need. This leaves us with the task of informing them that this applies under the American Disabilities Act, but the ADA does not pertain to housing and that the Fair Housing Act permits verification when the disability and the need for the animal are not observable.

For example, if you can see that the animal is a guide dog, then you shouldn’t be asking for verification. But if it’s a dog that is a service animal for disabilities such as hearing problems or alert someone that they’re about to have a seizure, you can’t see that when you talk to the resident. In that case, you can ask for verification. And if they say to you that’s not permitted, then you have to clarify: “I’m asking you this not under the Americans with Disabilities Act, but under the Fair Housing Act.”

HUD and Support Animals

HUD defines support animals that do work, perform tasks, provide assistance, or provide therapeutic emotional support for individuals with disabilities.

HUD also clarifies the difference between domesticated animals kept in the home (traditional) and non-traditional unique animals such as goats, pigs, chickens, snakes, etc. HUD states that the resident has a substantial burden to be able to show that they need a unique animal as an assistance animal. Now, it is not impossible to justify a unique animal. Still, they’re going to have to explain in more detail than with a usual animal why they need their snake as an emotional support animal.

HUD also addresses multiple animal requests, again placing the burden of proof on the verifier as to why one animal isn’t enough. HUD has also made it very clear that going online and getting your pet registered or certified on some website by paying money is irrelevant to the question of whether this is an assistance animal that should be approved to live in housing as a reasonable accommodation. If someone hands you one of those registrations or online certifications, you can hand it back to the resident and let them know that it is not adequate to verify their need for an assistance animal.

HUD has made it very clear it considers those websites as taking advantage of people— wasting their money—because those registrations are irrelevant to the question of whether you approve their reasonable accommodation or not.

The Fair Housing Act and Reasonable Accommodations

We have discussed how the ADA—while important—does not apply to housing, reviewed HUD guidelines that create the framework for how housing providers should view assistance animals and what they are allowed to ask. But how does that come together with the Fair Housing Act?

When we look at the Fair Housing Act and Section 504, we don’t care whether an animal is a service animal or an emotional support animal. It doesn’t matter; we don’t need to ask different questions. We only want to know if the resident is disabled, meets the definition of disability, and if that animal is necessary to assist them because of their disability. That’s all we need to be concerned with when you’re verifying a request for a reasonable accommodation.

When your property is looking at a request for an assistance animal, you need to have a very detailed procedure that all staff follows. First of all, the process should be done in writing, complete with a section for the verifier. To be a reliable verifier, the verifier has to have personal knowledge about the resident and should be providing the resident with medical or mental health services, and not merely providing a verification letter or filling out a form.

Suppose you find yourself in the situation of turning someone down because you don’t think their verification is reliable. In that case, you need to conduct a meeting explaining why you are not going to accept or grant their request and attempt to resolve their request; of course, documenting everything along the way.

Fair Housing and Assistance Animals Final Takeaway

As we have discussed, there can be a few pitfalls to understanding the different laws that come into play regarding assistance animals and housing. Regular training is essential to help everyone know which laws apply and how to follow them to ensure fair housing compliance.

Guide to Renting to Military Tenants


Are you looking for new renters and thinking of extending a lease to military tenants? We salute you! However, you need to know what to expect when you enter into a lease with military personnel. Here’s where to start.

How Do I Rent to Military Tenants?

Renting to military tenants can be beneficial for your property management business and offer more reliability. However, it does require a different strategy than renting to traditional tenants. Legally, military personnel are not responsible for the financial burden of breaking a lease due to a deployment or change in orders that involve a relocation.

1. Make Your Lease Military-Friendly

Before you finalize your lease details, make sure it’s military-friendly. Military personnel need accommodations for deployments and flexibility. In some cases, they will have noticed before deployment, though they may only have days or weeks before relocating.

Change the lease length or terms to accommodate deployments and make your apartment as military-friendly as possible.

2. Change Your Rental Price

Landlords who want to attract military renters need to accept Basic Allowance for Housing (BAH) stipends as payment. The BAH depends on the location, local cost of rent, personnel pay grade, and whether or not they have dependents.

If you require renters insurance for your tenants, keep in mind that BAH does not cover it. You may want to include it as part of your lease agreement or adjust the rent slightly to ensure your military renter can pay for it.

3. Provide Military Perks

Military perks are attractive to renters looking for a good deal for off-base housing. Offer a military discount on your listing and consider waiving other costs like security deposits, cleaning fees, and application fees.

Are You Legally Required to Rent to Military Members?

Depending on your rental property’s location, you can legally refuse a military member a lease if you decide it isn’t suitable for your rental business.

The federal government does not consider military status a protected class under the Fair Housing Act. If you are worried about the potential loss of income due to deployments or a change in their orders that could suddenly impose relocation, you can refuse to rent to a military member.

However, some local and state laws may have different stipulations. Connecticut, Illinois, Massachusetts, New Jersey, New York, Ohio, Rhode Island, and Washington currently have fair housing protection based on military or veteran status. Before denying a lease, it’s best to check with your state laws.

Disabled veterans are protected under fair housing laws, and you cannot refuse to rent to them due to their disability.

Things to Consider When Renting to Military Tenants

Renting to military tenants comes with its own set of pros and cons. Here’s what to know before you sign your next renter.

Reliable Income

Military personnel typically enjoy reliable income and job security. Their promotions and incremental raises are usually more predictable than other industries. The addition of a Basic Allowance for Housing (BAH) stipend also makes your rental payments more secure.

You Can Participate in the Military Housing Rental Program

Service members enjoy access to a Rental Partnership Program (RPP) in an agreement with the Housing Service Center (HSC). The program provides military members with affordable off-base housing and aid in reducing some costs associated with relocation.

Have a Large Network to Tap into For Future Renters

Military members have a large built-in network of potential renters. When you need to line up new tenants, ask if their military connections have recommendations or could spread the word about vacant units.

Military Members Undergo a Thorough Background Check

Anyone who wants to join the military goes through an FBI background check at federal, state, and local levels. However, criminal records don’t always disqualify someone from joining the military. A serious felony or five misdemeanor offenses are usually disqualifiers for the military, while some misdemeanor offenses like domestic violence are automatic rejection.

Military background checks also look at potential money problems, including histories of bankruptcies or defaulted loans. The military will even look over social media accounts to ensure the prospective military members are not a threat to national security.

Despite the benefit of an in-depth military background check, landlords should still perform their own. There may be financial issues or areas that are a deal-breaker for you and your rental business.

You Can Develop a Tight-Knit Apartment Complex Community

If you have multiple rental properties and apartments available, you can create a tight-knit community by renting to military members. These tenants are uniquely adaptable to meeting new people, having each other’s backs, and fostering a sense of belonging.

May Move Abruptly

One of the biggest disadvantages to renting to military members is the risk they’ll suddenly need to move or deploy. They often don’t receive much notice and are expected to move quickly. Service members are also protected by the Servicemembers Civil Relief Act (SCRA).

The protection covers active-duty members and prevents landlords from evicting unless the rent is higher than a predetermined amount. In 2021, that amount is $4,089.62, but it changes yearly. One can stop a foreclosure without a court order, and the landlord cannot keep the tenant’s belongings or storage area without a court order.

In addition to SCRA, local laws may also prevent you from taking action if a military member breaks their lease. However, landlords can ask for proof of deployment or relocation orders before allowing service members to break their lease without financial repercussions.

May Not Be Long Term Tenants

Military tenants aren’t usually long-term. Even without deployments, military members tend to move around for their work. Although their finances are more secure, their location stability is not.

Landlords must factor in the costs associated with cleaning, prepping, and updating their apartments more often when renting to military tenants.

Final Thoughts

Renting to military members has its pros and cons. However, landlords may feel it’s their patriotic duty to welcome service members to their rental properties.

We may be apartment experts, but we’re not the final authority on renting to military members. Look to military.com to thoroughly understand military housing benefits, and consult with a lawyer when drafting your new lease terms.

Source: Apartment List

The Inflation Effect on Rent: When To Increase and Justify Your Tenant’s Rent

Turn on the news or browse the Internet these days, and you’ll immediately hear about interruptions to the supply chain caused by staffing shortages and health restrictions due to the COVID-19 pandemic.

If you go deeper down that rabbit hole, you’ll hear about how interruptions in the supply chain contribute to higher inflation and whether you should be concerned about inflation.

But what is inflation? And, what is the inflation effect on rent? We’ll answer these questions below and tell you when to increase rent on your income property.

1. What is Inflation?

Simply put, inflation is the decline of a currency’s purchasing power over time, and the inflation rate is the rate at which purchasing power declines annually or monthly.

Inflation means your dollar buys less than it used to over time, and, consequently, the price of goods and services goes up over the years.

Inflation is bad for consumers because they have to work harder to earn more to buy the same goods they did in the past.

If you’re a rental property owner, tenant boards allow landlords to raise rent legally to keep pace with inflation.

2. How Does Inflation Affect Rent?

Generally, inflation positively impacts rent for property owners because it means that they can increase rent, and therefore, the income they bring keeps pace with the rising price of goods. Inflation also benefits property owners because construction prices go up, which means fewer new rental properties are available.

Of course, inflation isn’t all positive for landlords because as their rental income goes up, so do their expenses. At the same time, rental rates tend to remain consistently on an upward trajectory during harsh economic times, which is why investing in property is seen as a good hedge against the effects of inflation and the rising cost of goods. Investing in real estate means you’ll always be able to keep pace with these costs.

As a nice bonus for rental property owners, inflation also increases the cost of housing, which means fewer people can afford to buy a home, increasing the demand for rental housing.

With increased demand and little supply, property owners are more likely to get the rental rates they’re asking for even if they’re a little high because even though goods and services may be more expensive. Everyone needs a roof over their head, and renting housing is generally cheaper than buying housing, even with inflation accounted for in both scenarios.


Source: Zillow Observed Rent Index (ZORI) (Seasonally adjusted); U.S. Bureau of Labor Statistics Consumer Price Index for All Urban Consumers (Seasonally adjusted); NAEH analysis. Recession data are from the National Bureau of Economic Research (NBER).

3. How Much Has Rent Increased in 2022?

The pandemic has forced many Americans to tighten their wallets and reconsider living arrangements. National rent prices increased by 11.3% in 2021 compared to the previous year. This upwards trend continued into the first few months of 2022, with larger cities experiencing double-digit growth.

New York, California, Florida, and Indiana have seen big spikes in rent prices. The monthly rent for a one-bedroom in New York City is up by 40%, and major metros in California charge up to 25% for a one-bedroom. Other cities in Florida are seeing increases for single bedroom units ranging between 24% to 30% from the previous year.

Rent price jumps are expected to continue, but some of the most expensive states to live in are slowly starting to level out. Even if the days of dramatic hikes are gone, there is still a projection of a 6% rise in U.S. rents this year— double the seasonal trends in “normal” years before the pandemic.

4. Does Rental Income Increase with Inflation?

As inflation drives up rent prices, landlords stand to make more net cash flow. This puts more money in your pocket, but as the costs of goods and services increases, your higher rents, or a portion of them, will be offset by the rising costs of managing and maintaining the rental properties.

Rental Property expenses that have increased during this high inflation period include:

  • Maintenance expenses (lawn care, painting, etc.)
  • Major renovations (roof replacement, new water heater, etc.)
  • Mortgage rates (driven by Fed interest rate hikes)
  • Property taxes (driven by higher property market values)
  • Marketing costs to find tenants (Broker fees)
  • Interest rates on non-confirming loans (Private and Hard money lenders have also increased interest rates)
  • Landlord insurance premiums

You may be wondering by how much? Here are some indicators of consumer prices between June 2021 and June 2022:

The cost of energy, household furnishing and supplies and services (among other things) have increased 41.6%, 10.2%, and 5.5% (less energy services) respectively.

The cost of Building Material and Supplies Dealers increased from 153.50 in January 2020 to 233.562 in June 2022, an increase of 52%.

So what? Why does this matter for landlords and rental property investors?

Our take is that if you don’t raise rents to keep up with this high inflation period, your rental properties net operating income will likely decrease by 10%+ (assuming rents don’t change). If you do raise the rents by let’s say by approximately 10%-15%, you protect your existing net operating income. If you want to increase your net operating income then you likely have to raise rents a lot more (25-40%), but you should be careful about how and when you do that.

5. Why, When, How to Raise the Rent and Keep Tenants

It’s not just a question of when you can raise the rent by law, but under what circumstances you should raise the rent. This is often a question landlords struggle with because, according to the 2019 Group Consumer Housing Trends Report from Zillow, 78% of renters experienced a rent increase in 2019, where 55% of those people stated that their decision to move was directly tied to that rent increase.

Why raise the rent?

No renters, no income. As a result, you have to approach raising the rent with careful consideration and empathy for your tenants. It’s recommended that you increase the rent under the following circumstances (not comprehensive):

  • Market rates have increased
  • Property maintenance expenses that need to be covered
  • Property taxes have increased
  • Insurance premiums have gotten higher
  • Homeowner’s association or condo fees have gotten higher

You cannot raise the rent as a landlord or owner under the following circumstances:

  • You try to raise the rent during an active lease
  • The lease doesn’t allow for a rent increase
  • Advance notice for a rent increase wasn’t given properly
  • The property is rent-controlled
  • The increase is or can be seen as retaliation against a tenant
  • The increase meets the standard for discrimination against a tenant according to the Fair Housing Act
  • The increase is being done as a way to force a tenant to move out
  • The increase is to a level prohibited by local law

When to raise the rent?

The standard timelines for landlords to raise rent prices include:

  • When an existing lease expires. You can’t increase the rent until the current lease term expires unless the rental agreement you signed with a tenant includes conditions for rent increases during the lease period.
  • When a lease converts from annual to monthly. Some landlords use a holdover clause in a lease agreement that states rent will automatically increase in the case that an annual lease converts to a monthly lease for the applicable unit occupied by the same tenant.
  • When a new tenant signs a new lease agreement. Landlords have fewer restrictions on increasing rent for new tenants. Before setting the new rent price, check the market rate for rent in the area, and raising it too high could drive good tenants away.

How to increase the rent?

Raising rent prices is slightly different for month-to-month tenants versus annual lease renewals. Be sure to review state laws regulating rent increases.

How to increase rent for month-to-month leases:

  1. Determine the rent increase based on market rates and state laws.
  2. Give tenant(s) written notice in accordance with state-mandated notice periods (usually 30 days).
  3. Request tenant confirmation of receiving the written notice.

For annual lease renewals, it’s suggested that you reach out two months before the lease expires to discuss rent increases, and this gives you time to take action if the tenant chooses to argue the increase or vacate the property.

There are a few ways to apply a rent increase at renewal:

  1. Modify the existing lease:. The lease should state that all terms will remain the same except the new end date and the new rent.
  2. Draft a new agreement: Sign a new lease stating the new start and end dates, new rent price, and any other changes to the lease terms.
  3. Serve the tenant’s notice:. You may only have to serve a written notice depending on the lease terms.

Similar to the lease itself, the written notice for annual and monthly lease agreements should state:

  • Landlord and tenant contact information
  • The new rent amount
  • The effective date the rent increase starts
  • Rent payment options
  • Both parties’ signatures

You should also consider adding a brief description of why the rent is increasing and how tenants will benefit. For example, a rent increase will allow you to continue providing high-quality amenities and property maintenance.

Our Final Thoughts on the Inflation Effect

For the most part, inflation is beneficial to landlords because it raises the cost of housing which raises rents in turn and, therefore, their gross income. This is because the demand for rental housing increases as people become more willing to pay high rents than an unmanageable mortgage in that economic environment.

As a landlord, you may have higher expenses due to the cost of goods and services going up. Still, having a rental property means you’ll largely be shielded from the consequences of inflation because the rents on your property will keep pace with the inflation rate. You’ll likely be able to pay your rent increases beyond just covering your expenses for a nice tidy profit.

Source: Baseline

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