investing...scaredycatguide - investing in rental properties! 3 contents introduction..... 8 what is...

Investing in Rental Properties

Mitchell JaworskiReal Estate Investor and Founder of ScaredyCatGuide.com

ScaredyCatGuide - Investing in Rental Properties!

2

Copyright © 2017 ScaredyCatGuide, LLC. All Right Reserved.

This publication is protected under the U.S. Copyright Act of 1976 and all other applicable international, federal, state and local laws. All rights are reserved, including resale rights: you are not allowed to reproduce, transmit or sell this book in part or in full without the written permission of the publisher.

Limit of Liability: Please note that much of this book is based on personal experience and anecdotal evidence. Although the author has made every reasonable attempt to achieve complete accuracy of the content in this book, they make no representations or warranties with respect to the accuracy of the contents in this book and specifically disclaim any implied warranties of fitness for a particular purpose. Nothing in this book constitutes legal, accounting or professional advice. It is only meant to inform. You should use the information in this book at your own risk.

Any product names, named features or websites are assumed to be the property of their respective owners and are used only for reference. There is no implied endorsement if one of these terms is used.

First Edition.


3

Contents

Introduction ............................................................................................................................................................... 8

What Is A Scaredy Cat Investor? ............................................................................................................................................ 8

Scaredy Cat Success .................................................................................................................................................................... 9

Scaredy Cat Beginnings ........................................................................................................................................................... 10

What Defines A Risk Taker?.................................................................................................................................................... 10

How Did I Learn To Pull The Trigger On Real Estate Deals?.................................................................................... 10

Section I ..................................................................................................................................................................... 11

Chapter 1 – Buying Right ....................................................................................................................................... 12

Buying Right Is The Key To Taking Action. ..................................................................................................................... 12

How Does One Go About Buying Right? ........................................................................................................................... 12

Total Rent – Operating Expenses = Net Operating Income ..................................................................................... 13

Net Operating Income – Debt Service = Cash Flow ..................................................................................................... 13

Now For The Most Important Number—Cash-On-Cash Return ............................................................................ 13

Cash-On-Cash Return = Cash Flow/Total Investment .............................................................................................. 13

Example ................................................................................................................................................................................. 13

And That Is How To Run The Financials On A Rental Property! ............................................................................ 14

Chapter 2 – Cash Flow Is King .............................................................................................................................. 15

Operating Expenses .................................................................................................................................................................... 15

Vacancy ........................................................................................................................................................................................... 15

Real Estate Taxes ........................................................................................................................................................................ 16

Insurance .......................................................................................................................................................................................... 16

Maintenance .................................................................................................................................................................................. 16

Reserves............................................................................................................................................................................................ 16

Other Expenses ............................................................................................................................................................................. 17

Up Front Costs ............................................................................................................................................................................... 17

Chapter 3 – Property Types .................................................................................................................................. 19

Multi-Family ................................................................................................................................................................................... 19

Single-Family ................................................................................................................................................................................ 20

Single-Family Loan Caveats ................................................................................................................................................. 20

Homeowners’ Associations ..................................................................................................................................................... 20


4

Chapter 4 – Pros And Cons Of An HOA .............................................................................................................. 21

HOA Payment ............................................................................................................................................................................... 21

PROS (What Do We Get For Our Money?) ........................................................................................................................ 21

CONS (Rules And Regulations) ............................................................................................................................................. 22

Special Assessments ................................................................................................................................................................. 22

Reserve Funds ............................................................................................................................................................................... 23

Weighing The Pros And Cons ................................................................................................................................................ 23

Cost Of HOA ................................................................................................................................................................................. 24

Example ........................................................................................................................................................................................... 24

Bottom Line ................................................................................................................................................................................... 24

Chapter 5 – Prequalified Vs. Preapproved ....................................................................................................... 25

Getting Prequalified .................................................................................................................................................................. 25

There Is Something Else You Should Know… ................................................................................................................. 26

Preapproval ................................................................................................................................................................................... 26

Getting Preapproved ................................................................................................................................................................. 26

Some Additional Notes ............................................................................................................................................................ 27

Chapter 6 – Finding A Good Real Estate Agent .............................................................................................. 28

How Do We Find A Good Real Estate Agent? ................................................................................................................ 28

Find An Agent With A Track Record Of Happy Customers On Regular Home Purchases. ...................... 29

Let Them Know You Are An Investor. ................................................................................................................................ 29

Give Them Your Search Criteria. .......................................................................................................................................... 29

Find Someone Teachable, Willing To Learn. .................................................................................................................. 29

On The Flipside ............................................................................................................................................................................ 30

Chapter 7 – The Sales Contract ........................................................................................................................... 31

Items To Know On A Sales Contract .................................................................................................................................. 31

Price And Deposit Obligations .............................................................................................................................................. 32

When The Deposit(S) Are Due And The Amount Upon Offer Acceptance: ..................................................... 32

Time For Acceptance: ............................................................................................................................................................... 33

Closing Date: ................................................................................................................................................................................. 33

Financing Contingency ............................................................................................................................................................ 33

Inspection Period ......................................................................................................................................................................... 34

Ready To Submit That Offer! ................................................................................................................................................ 34

Chapter 8 – The Inspection .................................................................................................................................. 35


5

Inspection ....................................................................................................................................................................................... 35

Timing Of Inspection ................................................................................................................................................................. 35

Example ........................................................................................................................................................................................... 35

Cost Of Inspection ...................................................................................................................................................................... 36

Chapter 9 – The Appraisal ................................................................................................................................... 38

Cost Of The Appraisal .............................................................................................................................................................. 38

Additional Services: .................................................................................................................................................................... 39

Survey ............................................................................................................................................................................................... 39

Example ........................................................................................................................................................................................... 39

Elevation Certificate .................................................................................................................................................................. 39

Factors Used In The Appraisal .............................................................................................................................................. 40

Property Condition ..................................................................................................................................................................... 40

Comparable Sales ....................................................................................................................................................................... 40

A Low Appraisal Price ............................................................................................................................................................... 40

Another Appraiser Can Be Hired To Give A Second Opinion. ................................................................................. 41

We Can Bring More Cash To The Table. ........................................................................................................................... 41

We Can Negotiate A Price Reduction Or Walk Away From The Deal. ................................................................ 41

The Appraisal Safety Net ......................................................................................................................................................... 41

Chapter 10 – Title Search & Estoppel Letter .................................................................................................... 42

Title Search .................................................................................................................................................................................... 42

Title Insurance .............................................................................................................................................................................. 42

Title Commitment ...................................................................................................................................................................... 43

Assessments (Liens) ................................................................................................................................................................... 43

Estoppel Letter ............................................................................................................................................................................. 44

Timeline And Useful Life .......................................................................................................................................................... 44

Example ........................................................................................................................................................................................... 44

Additional Info .............................................................................................................................................................................. 45

Who Pays For The Letter? ....................................................................................................................................................... 45

Example ........................................................................................................................................................................................... 46

Chapter 11 – The Final Walkthrough .................................................................................................................. 47

Final Walkthrough ...................................................................................................................................................................... 47

Visual Inspection ......................................................................................................................................................................... 47

Items That Convey ..................................................................................................................................................................... 47

Repairs ............................................................................................................................................................................................. 48


6

Final Thoughts ............................................................................................................................................................................. 48

Home Stretch ................................................................................................................................................................................ 49

Chapter 12 – What To Expect At Closing .......................................................................................................... 50

What To Expect At Closing .................................................................................................................................................... 50

Items To Know For Closing ..................................................................................................................................................... 50

Items To Bring To Closing ....................................................................................................................................................... 50

Who Should Be There ................................................................................................................................................................. 51

Key Items To Review .................................................................................................................................................................. 51

Reviewing The Closing Disclosure ....................................................................................................................................... 52

Loan Estimate .............................................................................................................................................................................. 52

Example ........................................................................................................................................................................................... 52

Closing Disclosure ....................................................................................................................................................................... 53

Finally – Don’t Forget To Check The Obvious ............................................................................................................... 54

Conclusion Of Close ................................................................................................................................................................... 54

Section II ................................................................................................................................................................... 55

Chapter 13 – Tenant Proofing Your Property .................................................................................................. 56

Tenant Proofing Your Property ............................................................................................................................................ 56

Flooring ............................................................................................................................................................................................ 56

Example ........................................................................................................................................................................................... 57

Replacing Valves ......................................................................................................................................................................... 57

Paint .................................................................................................................................................................................................. 57

Doorstops ....................................................................................................................................................................................... 57

Addition By Subtracting .......................................................................................................................................................... 58

Chapter 14 – The Five Key Points Of Tenant Screening................................................................................ 59

#1 – Past Eviction ........................................................................................................................................................................ 59

#2 – Criminal Record ................................................................................................................................................................. 59

# 3 – Debt/Credit History ........................................................................................................................................................ 59

#4 – Employment ....................................................................................................................................................................... 60

#5 – Cleanliness/Lifestyle....................................................................................................................................................... 60

Chapter 15 – The Dos And Don’ts Of Collecting Rent .................................................................................... 62

The Don’ts ...................................................................................................................................................................................... 62

The Dos ............................................................................................................................................................................................ 62

Mailing Rent .................................................................................................................................................................................. 63


7

Conclusion ...................................................................................................................................................................................... 63

Chapter 16 – Residential Leases ......................................................................................................................... 64

Lease Term Types ....................................................................................................................................................................... 64

Drawing Up A Lease ................................................................................................................................................................... 65

Items Of Discretion .................................................................................................................................................................... 65

Reviewing The Lease With Your Tenant .......................................................................................................................... 66

Example ........................................................................................................................................................................................... 66

Conclusion ...................................................................................................................................................................................... 66

Chapter 17 – Hiring Property Management ..................................................................................................... 67

Finding Good Property Management ................................................................................................................................ 67

Questions To Ask While Vetting Property Managers ................................................................................................ 67

Be Clear On What The Monthly Fee Gets You .............................................................................................................. 68

Discuss The Cost Threshold For Repairs .......................................................................................................................... 68

How Do They Contact You And/Or The Tenant? ....................................................................................................... 68

How Do They Go About Advertising Your Property To Fill The Vacancy? ...................................................... 68

Conclusion ...................................................................................................................................................................................... 69

Your Next Steps ...................................................................................................................................................... 70


8

Introduction

Let’s be real—buying a home or investment property is quite the process. There is so much to be aware of it’s easy to get lost. Relying on brokers, agents, and lawyers to guide you the entire way takes a big leap of faith, especially if you are risk averse.

This book is titled ScaredyCatGuide because that’s exactly what it is: A step-by-step guide through the process of buying a home in the order items occur.

Whether buying your first investment property or a home you plan to occupy, this information will empower you to make informed decisions and avoid feeling lost or powerless in the process.

That was me on my very first purchase. The agent and other professionals I relied on dropped the ball, and the deal nearly fell apart. At the time I felt powerless to right the ship because I did not have the knowledge I possess now.

The experience taught me a valuable lesson. While you should let professionals do their job, you should also have a basic understanding of key points of the process. This ensures items are being completed on time and that you are not being sold an unrealistic bill of goods. More details of my experience will emerge in the coming chapters.

However, the point is that you shouldn’t feel powerless on what is supposed to be one of the proudest days of your life. It’s a feeling I don’t want anyone else to have!

This book is built from my years of experience buying properties with traditional financing off the MLS and third-party auction sites while using a real estate agent.

Yes, there are more advance strategies for finding and financing a property. However, you must learn to walk before you can run.

Is that playing it safe?

Possibly—and that’s exactly why this book is for scaredy cat investors.

What is a Scaredy Cat Investor?

◉ Do you overanalyze and hesitate to pull the trigger?

◉ Do you crunch numbers for every possible scenario you can imagine, no matter how obscure?

http://scaredycatguide.com/


9

◉ Are so you worried you will make the wrong decision that you procrastinate to the point opportunities pass you by?

If you answered yes to any of these questions:

You are a Scaredy Cat Investor.

I know this because I am one too!

Thus, I wrote this book for the both of us!

Scaredy Cat Success I’ve owned up to my risk-averse nature and over the years developed a process that enables me to take action and have success while that inner scaredy cat still hisses at me. I’m going to share my process in this book.

However, before we take steps to neutralize this attribute, we must first recognize it. Because it’s important to know where you have been to understand exactly where you want to go.

Where did our risk aversion come from?

Why do we play it so safe and hesitate to pull the trigger if something feels remotely like a gamble?

Seriously, STOP and ask yourself that question.

Whatever you believe led you to be a scaredy cat investor, please know:

You do not need to solve it.

Just recognize it and understand you can still excel despite it. This is done by using a process to ease your worry so you pull the trigger on deals!


10

Scaredy Cat Beginnings I learned that my scaredy cat mindset was developed throughout my adolescent and teen years. The word of the day in my household was scarcity. Having “enough” was always a worry. I basically grew up with a Great Depression mindset despite being born nearly fifty years after the fact!

The point is, I learned that if you have something you better make it last. Ration it, save it, PROTECT IT! That is where my mindset on money was developed.

The problem with that mindset is in order to invest and build wealth through real estate (or any investment for that matter) you must put your money to work, thus take RISKS!

What Defines a Risk Taker? Someone who steps into the game without already knowing the answer.

By that definition I was the furthest thing from a risk taker.

However, I have accepted there are certain variables you must accept in order to invest in real estate. That doesn’t mean I’m not still running every possible scenario to gauge the potential outcome though!

The difference now is I take ACTION.

So take what I’ve learned and by the end of this book you will take action too!

Remember, you cannot know everything. If you try to wait for all the answers or until everything is crystal clear then you will be waiting your whole life!

Trust in your ability and knowledge and make a decision. That’s not risk taking, that’s decision making.

How did I learn to pull the trigger on real estate deals? For me to shed my inner scaredy cat I needed to develop an ability that gave me faith I’m making the right decision. That ability was attained when I became able to correctly analyze a real estate deal, most importantly, the financials of a deal.

It’s the ability to “Buy Right.”


11

Section I


12

Chapter 1 – Buying Right

Buying right is the key to taking action. For all my fears and risk “averseyness” (did I just make up a word?), buying right always helps me pull the trigger and feel comfortable with my decision.

We want to buy right because it gives us confidence we are making a good decision, thus offsetting the scaredy cat habit of indecision that can paralyze us.

You also want to buy right because it will prevent you from buying a money pit!

How does one go about buying right? First and foremost—you run the financials (An example is shown at the end of this chapter).

The first thing I do when I see a property for sale is run the numbers. If the property is not going to cash flow after I take all the anticipated expenses and subtract them from the going rental rate then I move on. No point in viewing the property.

I have an Excel calculator that I use to plug all these numbers in for my result.

(Success Note: You should have a property calculator to analyze the financials of every deal you consider. You can download the property calculator for free at http://scaredycatguide.com/ )

When it comes to running the numbers on a real estate deal, here is the formula you need to understand:

(Taxes + Insurance + Vacancy + Maintenance + Reserves) = Operating Expenses

Operating Expenses equal your total cost per year to hold that property.

(There can be additional expenses, such as property management, providing utilities, or a homeowners’ association (HOA) fee if there is one.)

There is a general rule of thumb that operating expenses will cost you roughly fifty percent of your total rental income. It’s good for a quick calculation to get an idea off the top of your head but nothing more. After that, be smart and use the calculator for a more specific figure.

Once we know what our operating expenses are we can find our net operating income (NOI).



13

Total Rent – Operating Expenses = Net Operating Income When we have established our NOI, we can then see how much cash flow a rental property will make each year.

This is done by subtracting the debt service (mortgage payment) from the NOI.

Net Operating Income – Debt Service = Cash Flow (Debt service assumes you took a mortgage to buy the property, if not then your NOI is your yearly cash flow.)

Now for the most important number—cash-on-cash return Cash-on-cash return is the main number I use to decide whether a property is worth pursuing.

This will tell me what return I am getting on my money. I generally look for at least eight percent because otherwise I might as well gamble my money in the stock market! I want a return that rivals the historic average of the S&P 500, but with real estate I have a HARD ASSET that I am the CEO of.

Not to mention someone else is paying down the mortgage, and you get tax write offs. We will get into that in a later chapter.

Cash-on-Cash Return = Cash Flow/Total Investment That’s the key number. I want to see eight percent or better. That is my preference; I know investors that won’t accept less than twelve percent. It all depends on your goals, desires, and the current market.

Example Here is an example of the ScaredyCatGuide property calculator showing the revenue and operating expenses needed to formulate the numbers we just discussed.


14

Looking at the example, you see all our operating expenses (red cells) summed up to get the net operating income (row 14) less the annual debt service (row 15) to get

cash flow (row 16).

Next we divide cash flow by the total initial investment to get our cash-on-cash return. Total investment (row 6) is made up of your down payment, closing costs, and initial repairs.

If I’m not rolling the closing costs into the loan then I just add that amount to my repairs number (in row 5).

Based on the financials in the example above, we get a cash-on-cash return (CCR %) of 9.45% (row 17). That return exceeds my minimum desired cash flow, thus moving forward with a purchase of this property makes sense.

And that is how to run the financials on a rental property! (Success note: In the intro of the book we discussed using a process that gives confidence to make decisions. Defining your minimum cash-on-cash return is part of that process. It’s a clear non-emotional factor that provides us either a green or red light for pursuing a property further.)

We will discuss cash flow further in the next chapter along with breaking down each operating expense and the tools and tricks to estimate those costs.


15

Chapter 2 – Cash Flow is King

When it comes to owning rental properties, cash flow is the end goal. If a property won’t create cash flow then I am not buying it. No way, not happening!

If you do, then you have made the decision to do two things:

First – You now own a property that is costing you money each month as opposed to making you money, which is certainly not the goal when investing in rental properties.

Second – You are banking on appreciation of the property’s value as the only way to make a positive return on your investment.

I’m going to bank on cash flow! Call it risk averse or being a scaredy cat; I call it being smart.

When an investor chases appreciation, they are speculating. When you speculate, you are putting yourself at high risk. Just ask anyone who bought a property back in 2008!

If you want to speculate, then go invest in the stock market. At least the transaction costs will be cheaper there.

A cash-flowing property will produce for you whether you have appreciation, depreciation, or prices stay flat. That is why we buy right.

Operating Expenses Let’s now dig into the ins and outs of the operating expenses involved with owning a rental property.

Vacancy We must account for vacancy because you will have tenant turnover and experience an empty property from time to time. The consensus standard is to assume one month of vacancy per year. It works out to roughly 8.3% of your annual rents. So that’s the number you will use in your calculations.


16

Real Estate Taxes This one is pretty simple. Your county assessor sends you an estimate and then a tax bill. However, before you own a property, the best way to get a tax estimate is going to the county appraiser website and looking up the property in question.

Taxes, sales prices, and assessed value are all public information, and it is all listed on the website. Look up the property in question to see how much taxes were the prior year.

Even better, most of the county sites have a tax estimator tool. Just plug in the purchase price and it will provide an estimated tax amount for the property

Insurance Call a local agent and get a quote for the property you are looking at. Agents are usually more than happy to do this. After you have some experience you can usually come up with a good idea of cost on your own.

Maintenance Some discretion can be used on this amount, but I’ve found five percent of annual rent to be a good number for maintenance costs that come up throughout the year. This covers lower-cost repairs, such as having a toilet or faucet replaced.

If there are maintenance funds left over after a given year I roll them into my reserves fund.

Reserves Reserves are funds to account for any major costs that would otherwise have to come out of pocket, items like a new roof, HVAC system, windows, etc.

Some investors don’t set aside reserves and just pay out of pocket when these larger costs occur since they are not as frequent. That can be fine, but you must always have a chunk of funds accessible to pay for these things.

My view is, why even have that thought in the back of your head? Account for it up front and let the rental income pay for the major repairs.


17

Let’s say the HVAC system goes. Well, that’s a two to four thousand dollar cost in my neck of the woods. If you don’t have reserves building up then those costs will be coming out of your pocket.

Allocating five percent for reserves has served me well. However, most rentals I deal with rent north of a thousand dollars. If monthly rental income is lower than that you may want to bump up your percentage.

Other Expenses Property Management – At the time of this writing, the going rate to hire management is ten percent. Many times you can negotiate down to eight percent if they are managing more than one property for you.

Be sure to plug that into the calculation if you go that route. I self-manage my properties but do have friends that use management on all theirs.

Utilities and/or HOA – If you are providing any utilities to the tenant those costs need to be factored in. Also, if the property is within a homeowners’ association then there will also be a fee for that. Plug in those costs as well if applicable (We will discuss HOAs in a later chapter).

Up Front Costs These are initial one-time costs or investments made when you purchase a property, such as down payment, closing costs, and initial repairs to get the property rent ready.

Down Payment – When taking a loan to purchase a property, the lender will require you put down money. The traditional amount is twenty percent. For investment loans, many lenders ask for twenty-five percent and then lend you the remaining seventy-five percent of the purchase price.

There are several programs that allow people to put less money down. However, many of them are for owner occupant properties, such as FHA loans with 3.5% down.

More importantly, whenever you put less than twenty percent down you will be paying private mortgage insurance (PMI). PMI is an additional expense that protects the lender and cuts into cash flow, so I would try to avoid it if you can..

In the end, there is not a complete cookie-cutter template for borrowing. It really depends on what your lender is willing to do and what you are willing to pay in costs. Your lender will be knowledgeable in what options are available based on your goals and financial situation, so be sure to leverage them and explore all options


18

(Success Note: Treat buying a property like being the foreman on a jobsite. You need an understanding of the process to ensure the job is done, but should just oversee the workers as they do their specific piece. We pay fees to the lender, inspector, etc. that are serving us. Let them do the work and be sure to check it was completed and done at the cost expected.)

Closing Costs – These are the costs to essentially process the sale of a property and insure the property title. The total cost to close varies by state but generally ranges from three to five percent of a property’s purchase price.

There are a plethora of items that fall under the “closing cost” umbrella, and we will cover many of them in chapter 12.


19

Chapter 3 – Property Types

Now that we know how to correctly run the financials on an investment property using the ScaredyCatGuide process, let’s discuss the types of properties out there!

In this book we are focusing exclusively on residential properties. This is where most real estate investors begin, and it’s the best place to do your first few deals.

Some people eventually step up to commercial deals, but they do it in the residential space (explained in this chapter). Commercial retail and office space is a whole different ball of wax with its own set of risks.

There are two types of residential properties: multi-family and single-family.

Multi-family Multi-family is exactly as it sounds. It’s a building or dwelling that is zoned and designed to house more than one family.

Within the multi-family world you have duplexes, triplexes, and fourplexes. These are all considered residential multi-family housing.

The important type of property to be aware of is multi-family buildings with five or more units. Once a building exceeds four units it is tagged as a commercial property. Even if it’s for residential use, it is commercial property in the eyes of the banks and lenders, thus you will be looking at commercial terms and structuring when it comes to mortgages. Traditional home loans are no longer an option. At that point, looking to portfolio lenders for financing is a logical step.

The commercial slant – This is how a residential real estate investor can eventually find themselves dealing in the commercial world. They purchase a building with five or more units.

Personally, I like to stay in the residential space. I know the ins and outs and have developed a successful process for investing in them. It’s the process I am sharing with you in this book. Like my grandpa used to say, “If it ain’t broke don’t fix it.”


20

Single-Family As for single-family, there is the traditional single-family house. However, you also have townhomes and condos that are single-family dwellings.

Basically as the term says, it includes anything that is zoned for a single family to live in.

Single-Family Loan Caveats It should be pointed out that while you can get a traditional loan from the bank on a house or townhome investment property, the same is not easily said for an investment property zoned as a condo.

Banks will give loans on investment condos, but there is a laundry list of items the property and community must meet. Here in Florida, the vast majority of communities do not meet the requirements.

You can request the list of requirements from just about any lender. Note that when buying a condo as an owner occupant these requirements are non-applicable.

Some of my rental properties are condos, and I have either used equity lines, private lenders, or cash to make the purchases since the communities did not meet the strict lending guidelines.

Homeowners’ Associations Additionally, many single-family properties (especially condos and townhomes) are within communities regulated by an HOA. These organizations have bylaws that govern their community and dictate what is and is not allowed in the community.

As a landlord, you must decide if this is something you want to be a part of. Some investors avoid them like the plague. Some prefer being in HOA communities.

We will breakdown the pros and cons of HOA communities along with the costs in the next chapter.


21

Chapter 4 – Pros and Cons of an HOA

When it comes to properties within homeowners’ associations, townhomes and condos are the most common and nearly always within one. These buildings and developments tend to have a lot of common areas for shared use, so it ties into having an oversight committee to maintain them.

These days more and more single-family homes are within homeowners’ associations, especially newly constructed homes. Granted it’s different depending on your area of the country, but gone are the days of regular suburban housing going up and down the roads of a town or city.

More often you see a chunk of land being sectioned off and built into a separate community with specific entry and exits, often times gated. Those scenarios nearly always have an HOA.

This is not necessarily a bad thing; it’s meant to maintain the integrity of a neighborhood and make it desirable to live there.

There is a maintenance fee involved with HOAs. This pays for the services and amenities that are provided to the homes and residents of the community.

HOA Payment Usually the fee is paid monthly, but some do it quarterly. If the payment is not made within thirty days of the due date then a late fee is accessed. I’ve seen the late fee range from $25 to $50.

PROS (What do we get for our money?) For that fee the HOA will handle the following:

◉ Management (who generally handles the below items)

◉ Landscaping of the grounds

◉ Real estate taxes on all common areas

◉ Maintenance of pool(s) and/or gym

◉ Building insurance (hazard)


22

◉ Roof maintenance

◉ Clubhouse

◉ Gated entry and/or security

Note: The amenities listed above are seen most with townhomes and condos. Single-family homes often don’t have building insurance or roof maintenance and are responsible for the landscaping on their property. Other amenities that are sometimes (but not as commonly) included are cable and water.

CONS (Rules and regulations)

◉ Buyer approval

◉ Tenant approval

◉ Lease restrictions (number of times per year, no lease first year, minimum length of lease)

◉ Pet restrictions (weight limit, breed restrictions, number of pets)

◉ Vehicle restrictions (no commercial, RV, or even motorcycles)

Each HOA community has its own set of amenities and regulations. The items listed above are what you will most commonly see.

There are other community-specific items, such as a golfing community. These developments have their own golf course on site and usually require that homeowners pay for an annual membership.

For a rental property I tend to avoid the golfing and country club communities due to the higher fees and expanded restrictions that tend to come with them.

Special Assessments Special assessments are costs outside of the normal HOA maintenance fee. These fees are used to cover large non-routine costs, such as putting a new roof on the building that your condo or townhome is a part of.

This generally occurs when the reserve fund is not sufficient enough to cover the expense.


23

When that happens a special assessment is imposed. The needed funds are divided between all the condo owners, and they all must pay their share to stay current with their HOA. It’s something to be aware of and why you should know the state of a community’s reserve funds.

Reserve Funds Reserves are exactly as they sound—money set aside to pay for non-routine costs. The HOA will use reserve funds to pay for things like replacing the fence around the community, new equipment for the playground or gym, and roof replacement of the community’s buildings.

As is in my scaredy cat nature, I always check the financials of an HOA, especially the reserve fund. By doing this we get a clear idea whether the finances are in good shape for a potential large expense or if there is a higher probability of an assessment coming, which is money out of our pockets.

Weighing the Pros and Cons There are plenty of benefits for owning in a homeowners’ association.

Many times you don’t have to worry about the lawn and hiring landscapers. You will only need walls in insurance if the HOA provides building insurance. You have access to a pool that you do not need to maintain and in some cases water or basic cable is included, which is always a good draw for tenants.

However, you also have to deal with many of the rules and restrictions that were listed earlier.

Most HOA communities require an interview with management to purchase and/or rent in the community. Any potential tenants will have to go through that application process in addition to the tenant screening we do as landlords. That process can add two weeks or more to filling your property. It’s something to consider, but the additional time really hasn’t caused me to have any extended vacancies with my properties.


24

Cost of HOA HOA dues can range from $30 a month to $600 a month. It all depends on the community.

Again, anything on the higher end tends to be a country club or golf course community.

From my experience, $150 to $400 is the sweet spot with single family, townhomes, and condos in your regular everyday communities.

Generally the more that is being provided by the HOA, the higher the fee. Many times you will see single family home communities with a lower cost HOA than townhome and condos because of the insurance and roof maintenance not being included.

Example I own a townhome that has a $359 monthly HOA due. For that payment, I receive the following benefits:

◉ Community property manager ◉ Entrance gate and maintenance ◉ Community pool and its upkeep ◉ A clubhouse available for use ◉ Building insurance and roof maintenance ◉ Cable ◉ Landscaping ◉ Real estate taxes paid on common areas

To be honest, I am not a fan of higher priced HOAs. It’s a large cost that eats into potential cash flow. However, if I’m getting a decent value for that payment then I’m willing to accept owning a property with one.

Bottom line You will likely have to pay insurance and landscaping costs on a property that is not located within an HOA community. So estimate those costs and compare them to the amenities of an HOA to decide whether a property makes sense for you.


25

Chapter 5 – Prequalified vs. Preapproved

The single most important piece in buying real estate is having the money to do so! I know pretty obvious, right?

Unless you are paying outright cash then you will need to get prequalified for a loan to know how much property you can afford.

Getting Prequalified Step 1 – Call a lender

◉ Traditional mortgage lenders are everywhere from your local bank (credit unions, regional, and community) to national banks (Wells Fargo, Chase, etc.) to lenders like Quicken Loans. Any one of them will be happy to get you prequalified (because they want your business!).

◉ You can also call a mortgage broker, who will shop around to find the best loan for you (for a fee, of course). If you have no idea how to compare rates or points then this may be worth the service.

Step 2 – They will ask you questions about your finances and credit.

◉ How much income do you make?

◉ Do you have credit card debt, car loan, etc.?

◉ What is your credit score?

◉ How much do you have in savings?

◉ What is your estimate of the purchase price for the property?

Be sure to give them the most accurate information you can in order to get the best estimate possible.

Step 3 – Prequalification Letter

The lender will crunch the information you provided and send you a prequalification

letter shortly after.


26

The prequalification letter tells us how much the bank is willing to lend us.

With this information we now have a price point to use in our property search. Many people skip over this step and fall in love with properties they cannot afford.

Find out what your number is first. If it’s for a purchase price of 150K then there is no point wasting time looking at properties selling for 200k.

There is something else you should know… Prequalification does not guarantee you will get a loan for that amount.

A prequalification basically provides a number the bank thinks they will lend you based on the information provided.

This letter is helpful though. It lets us know what price range we can use in our property search.

Preapproval The preapproval is the amount the bank will lend you.

This is a bit more involved as the lender will want to verify the info you provided in addition to receiving copies of financial documents.

Unfortunately, many lenders use the term prequalification and preapproval interchangeably. Do not let this confuse you. If you have not supplied any documents to the lender for an initial underwriting then you are only prequalified, not preapproved.

Getting Preapproved For this the lender will pull credit and ask for related documents:

◉ Tax returns (usually the past two years)

◉ Pay stubs (to verify income)

◉ Bank statements (to verify savings/down payment)

◉ Loan statements (other mortgages, equity lines, etc.)

◉ Copy of your photo ID


27

Once the lender reviews and confirms all of this information then they will issue the actual preapproval. The preliminary underwriting they do for this takes about a day from the time you provide everything.

It’s generally a good idea to ask them to put the highest purchase price they will lend on the preapproval letter. This lets us know what our ceiling is whether we plan to use it or not. Also, if you are purchasing a property below that number, the seller will feel more confident you can close financing since you are not maxing out.

Some additional notes While working with your lender there will be plenty of phone conversations and email correspondence as you get preapproved and lock in your loan and rate.

On my first deal, the mortgage broker and I had several phone conversations discussing different types of loans available to me.

Initially I was looking to do a thirty-year fixed loan, but he piqued my interest with a ten-year adjustable rate mortgage (ARM) due to the better lifetime cost and interest rate. In fact the numbers seemed too good to be true, and after he went back to confirm the details, it turned out they were. He had misinterpreted the loan information.

When he called me with the news I was disappointed but told him it was not a big deal and to just lock in the original loan and we’d go with that rate.

Apparently my words got lost in translation, because though he set me up for the thirty-year loan, he never locked in my interest rate. My interest rate was floating until the day before I closed without my knowledge.

I was livid, but there was nothing much I could do about it since there was nothing in writing to backup our conversation. That issue ended up costing me $670 as rates had risen slightly, and I needed to buy a half point in order to receive the interest rate I had thought was locked.

(Success Note: Be sure any decisions you make on loan type, interest rate, points, etc. is put in an email to your mortgage professional and they reply confirming as much.)


28

Chapter 6 – Finding a Good Real Estate Agent

There is a debate among real estate investors if it’s worth using a real estate agent. There is of course the route of not using an agent, but if you are a first-time buyer this makes zero sense.

It does not cost you anything to use an agent on the buy side. You might as well have one searching for properties and giving you access to view them. Additionally, having someone who can hold your hand through the process of making your first purchase is very helpful.

As I mention in the introduction, the experience on my first deal was a main driving force in writing this book. After going under contract on my first deal, I leaned on my agent to keep me on task with the items needed coming into close and on closing day.

Unfortunately, that agent pulled a Houdini coming into closing, and I had no idea what was going on. The final walkthrough was never scheduled, and I was left scrambling to arrange it with the seller’s agent just hours before the closing.

Needless to say, I did not use that agent again.

This brings us to the question:

How do we find a good real estate agent? Well, the easiest route is locating an agent that is experienced with investors or is an investor themselves. I can tell you from experience, these people aren’t just walking around on the streets, and the good ones are so busy that giving you the time and attention needed is tough.

However, if you know someone that fits this mold and is willing to work with you, then definitely do it.

You can also try and find investor-friendly agents at your local Real Estate Investor Association (REIA) or any other real estate related meetups in your area.

I suggest attending your local REIA either way as its great for networking with other investors and building relationships with people in the industry.

To find the REIA in your area, go to https://nationalreia.org/ and search your city.

You can also use https://www.meetup.com/ and search keywords like “real estate” and “rental property investing” to find groups in your city.

https://nationalreia.org/

https://www.meetup.com/


29

More than likely though, we will need to procure our own agent and mold them into an investor-friendly one. I actually prefer doing this.

This is done by taking the following steps:

Find an agent with a track record of happy customers on regular home purchases. Seeing they can provide good service to John and Jane Doe for owner-occupant home purchases lets us know they are competent in the basics and likely have a network of resources.

Getting direct references is always preferred, but looking at agent reviews on sites like Zillow is a good idea as well.

Let them know you are an investor. By putting that out there the agent knows what they are getting into. As investors, we are going to look at more properties and put out more offers than their typical homebuyer.

Give them your search criteria. We do this to see if they can competently provide listings that meet the parameters given to them. Be very clear that you only want to see properties fitting within your exact criteria. They will absolutely send you listings outside of it if you don’t.

Specify price range, geographical area, number of beds, baths, and square-footage range.

If they send you a bunch of properties that do not meet your criteria then move on to someone else. This is one of the simplest tasks an agent can do for you. If they cannot deliver on this in the manner you ask for then how can you expect them to provide what you want going forward? Trust me, you cannot.

Find someone teachable, willing to learn. In my experience finding agents who have one to two years’ experience under their belt has worked out well.


30

The reason is two-fold. They have been around just long enough to be established and competent, but not so long that they are no longer hungry and willing to hustle.

An agent will need to hustle more for an investor then for owner-occupant buyers; it’s that simple. As investors, we view more properties, put in more offers, and therefore do more deals!

That’s the positive side for the agent. John and Jane Doe are going to buy their home and then possibly upgrade to a bigger home five years later. That’s basically the business an agent will get from them.

Investors buy several properties in that same timeframe and each property equals a commission for the agent.

Last, see if they understand what a good deal looks like on a rental property. If not, give them examples of the returns you look for and the specific math you use to see if a property will meet that goal.

I show the ScaredyCatGuide property calculator to any agent I work with so they know exactly how I derive my numbers. I don’t want to waste their time or mine going to view properties that will not meet my numbers.

On the Flipside You also need to show the agent you are not blowing smoke and are a serious investor—even if it’s going to be your first deal.

To do this, be prepared with the items discussed above and then...

◉ Confidently share your property search criteria with them.

◉ Confidently express what your investor goals are over the short-term and long-term (number of deals, time horizon).

◉ Let them know you’ve already been prequalified for the price range you are looking in (agents seem to care about this most). Preapproval is even better.

◉ Be clear what percentage return you’re looking for and that you’ve done research to know those returns are attainable in your given market.

Now that you have this information, it’s time to go find yourself an agent.

(Success tip: Always trust your gut. If you feel like someone is not working out, do not be afraid to make a change. I hesitated once and it cost me a deal.)


31

Chapter 7 – The Sales Contract

After finding a real estate agent and viewing properties with them, the time has come to make an offer. This is where the sales contract comes in. Your real estate agent writes it up and sends it to you to sign.

Your next thought is likely, “Wait, what the heck am I looking at?”

You’ve done the proper analysis to find a good property to make sure you buy right, so let’s not make any mistakes when it comes to the contract.

Items to know on a sales contract Let me first say the entire contract is important and this chapter does not constitute legal advice. You should contact a legal professional for these matters.

However, there are some specific items on the sales contract that we should understand.

The examples below are from a Florida sales contract. Contracts vary from state to state, but there are common elements to be aware of. Having an understanding of these items assists in negotiations and helps avoid mistakes that could lose you your deposit.


32

Generally a sales contract will start with the name of the seller and the name of the buyer (you) followed by the property description. It’s standard information your real estate agent will fill out, but verify it is all correct.

Price and Deposit Obligations On most contracts, you will see the sales price and deposit terms further down the first page.

When the deposit(s) are due and the amount upon offer acceptance:

◉ In this example the deposit is due in three days.

◉ It can be one or two deposits. In the example, we have one $5k deposit as seen in line 2(a).


33

Time for acceptance:

◉ This is the date the seller has to accept your offer or it expires (see sub-header 3).

◉ This is important because you can’t leave an offer sitting out forever. You want to move on to the next property if this deal isn’t going to happen.

Closing date:

◉ Last you see the closing date (sub-header 4). Make sure this is a date you can physically attend.

Financing Contingency

The financing contingency tells the seller whether you are paying cash or using financing for the purchase. When securing a loan on a property purchase make sure the financing contingency is selected.

Whether it’s your financial situation or the lender’s rules and requirements, things can change. If for some reason you cannot secure a loan for the purchase, this contingency allows you to exit the deal and get back your deposits. Without it, you are at risk of losing your deposit money.


34

Inspection Period

This is the most important item on the contract. The inspection period gives you the right to inspect the property for X number of days after your offer is accepted.

The inspection is basically our other key contingency. After the inspection, we can either renegotiate with the seller if there are items in need of repair, or we can simply walk away if the property’s condition is not satisfactory.

If a buyer decides they want to exit the deal they need to provide written notice to the seller within the allocated inspection period.

In the example above, we did a ten-day inspection period, but you will often see seven days. Seven is the minimum I would do because it takes at least a few days to get an inspector to the property.

Ready to submit that offer! As I stated earlier, everything on the sales contract is important—it is after all a binding document. However, the items covered in this chapter are key to knowing our options when it comes to contingencies and timelines.


35

Chapter 8 – The Inspection

Once we have a signed offer, the question is—what the heck do we do next?

Inspection As discussed in the last chapter, the inspection contingency is an integral part of the sales contract. Once the sales contract has been signed by both parties, the first order of business is to get the property inspection done.

The inspection will help discover any “surprises” that may be lurking within the property. This is important as surprises equal money because they usually come in the form of needed repairs.

Most agents will schedule it for you since they have relationships with inspection companies. However, that doesn’t mean their “guy” is the best company with the best value—don’t be afraid to shop around.

Regardless of who sets up the inspection, we need to make sure of the following items.

Timing of inspection Generally there is a seven-day window for inspection. You will need to have the inspection done before that window expires. Do not wait till day seven. Based on what the inspector finds, you want time to formulate a plan to present to the seller.

Example Let’s say the AC condenser is fifteen years old, which is near the end of its life expectancy. In this scenario, it’s not uncommon for the buyer to request the seller purchase a one-year home warranty on the HVAC system.

By doing this, we are mitigating a potential large cost in the near-term. There is no quicker way to see your financial returns wrecked than by having to replace a big ticket item within the first year of owning a rental property.


36

Here is another example, this one from personal experience. The shutoff valve for the water supply did not work on either toilet in the property. My inspector provided an estimate of the cost for a licensed plumber to replace them. My agent then requested that cost be credited to me at closing.

The estimate was for $300, so basically my inspector just paid for himself.

There are also scenarios where a major issue is discovered. Let’s say the roof has multiple leaks.

In a situation like this you can do one of the following:

◉ Walk away from the deal as per your right with the inspection contingency.

◉ Receive a closing credit for the amount to repair/replace the roof.

◉ Have the seller agree to fix the roof before closing on the property.

Cost of Inspection Price will vary slightly depending on what state you live in and how many services you order. However, a basic inspection will cost $300 to $500.

A basic inspection should cover the interior and exterior of the home and check everything from plumbing and electric to appliances and windows.

My inspector provides a thirty-eight page report detailing every room. If anything from a leak in the ceiling to a broken electrical outlet exists, it will be in the report.

The report I get also provides an examination of the roof, providing a useful life estimate along with its condition. This is the most important item in my opinion since it’s the largest expenditure when it comes to property maintenance.

Inspectors will also offer additional items:

◉ Lead/radon VOCs in well water

◉ Well water quality

◉ Wood-destroying organisms (WDO)/termites

◉ Mold sampling/air or surface mold sampling (where qualified)

◉ Septic inspection

◉ Swimming pool and spa inspection


37

◉ Asbestos and lead detection

You may or may not need these depending on the property type and area. I don’t know of anyone that has gotten radon gas checked.

However, if you are buying a wood-frame house then a termite inspection is certainly in order. The last thing we want to do is buy a house being held together by termites!

Items like mold inspection are situation specific. If on the general inspection your provider notices possible mold then you would want to get mold testing done. Buyer beware when it comes to mold; it can be remedied but at a cost.

(Success note: Be sure the roof, HVAC, and major appliances are not at the end of their life expectancy. If so, factor those costs into your offer or have the seller update or procure warranties when applicable.)


38

Chapter 9 – The Appraisal

When using traditional financing for a property purchase the bank will order an appraisal to get an estimated value of the property.

This is done to ensure the value of the property is in line with the price you are purchasing it for.

It protects you from overpaying as well as protecting the bank from lending more than the property is worth.

The appraisal is something we, the buyer, generally pay for. It is paid at closing and will show up as a line item on your closing statement.

Here’s an example from the closing statement on a property I purchased. You will see the appraisal cost under line 01 of section B. This appraisal cost more than I expected because an elevation certificate was required, which I will delve into in the next section.

Cost of the Appraisal Appraisals will cost anywhere from $350 to $600. The appraisal cost can vary based on your location and any additional services required.


39

Additional Services:

Survey A property or land survey distinguishes the boundaries and corners of a parcel of land. This information is used to recognize ownership of a specific area of land.

When financing a property purchase, the lender will require a land survey to be performed along with the appraisal.

This protects their interest and yours in case any issues arise from the survey that impact the sale or value of the property.

Example You are purchasing a single-family home. However, the neighboring home has a fenced yard that the survey discovers intrudes on the property line of the seller’s home by a foot.

That issue now impacts the sale of the property and needs to be resolved.

Elevation certificate Exactly as it sounds, the elevation certificate documents the elevation of a property. This is needed when a property lies within an area the Federal Emergency Management Agency (FEMA) has designated as a flood zone.

There are different grades of flood zones, and the elevation certificate will list which one FEMA designated for the area. The certificate is needed to secure flood insurance, thus your lender will require it in order to finance the property.

This is a lesson I learned the hard way on a purchase. There was no way I would have assumed it was in a flood zone, as the other properties I owned in the area were not. Boy was I wrong. Just because most of a town isn’t in a flood zone doesn’t mean all of it isn’t.

During underwriting, the lender let me know I had to secure flood insurance. This was a cost I did not factor, thus did not plug into my property calculator when running the numbers.

Luckily, the insurance was only a few hundred dollars per year and did not knock the cash-on-cash return below my acceptable threshold. Watching a chunk of my monthly cash flow go poof wasn’t fun though.


40

Factors Used in the Appraisal The two main factors used in the appraisal are the condition of the property and comparable sales.

Property Condition The appraiser will analyze the condition of the property—this includes, but is not limited to the following:

◉ Exterior (siding, roofing, foundation)

◉ Interior (windows, walls, ceiling, cabinets, etc.)

◉ Fixtures and appliances (light fixtures, refrigerator, washer/dryer, etc.)

They factor in any damage or defects to the above items in the price estimate.

Comparable Sales Comparable sales are derived from the recent sales price of similar properties in the area.

Here are some guidelines to what create a comparable sale:

◉ Proximity (one mile for suburban, five miles for rural areas)

◉ At least three closed sales (within six months but no more than a year)

Also, the comparable homes used will be roughly the same size with square footage varying by a couple hundred feet or so.

A Low Appraisal Price What if we receive an appraisal below the sales price?

In a case like this there are a few options:


41

Another appraiser can be hired to give a second opinion. That appraiser may give a higher value as the estimates can and do vary between appraisers. However, you or the seller (whoever orders it) will have to pay for that second appraisal in addition to the first.

We can bring more cash to the table. Let’s say you are putting twenty percent down on a 200K property. However, the appraisal comes in at 190K. The bank is only going to lend you eighty percent of the 190k so you would need to bring an additional 8k to closing.

We can negotiate a price reduction or walk away from the deal. If the seller is motivated and the appraisal comes in low you should absolutely ask if they will come down on price.

If the seller won’t come down and you feel like you are overpaying then you can execute your financing contingency (discussed in the sales contract chapter) and withdraw from the deal.

The Appraisal Safety Net As you can see, the appraisal can work in our favor to get a better price and prevent us from drastically overpaying for a property.


42

Chapter 10 – Title Search & Estoppel Letter

The next items we must be aware of in the closing process are the title search and the estoppel letter.

Title Search A title search is performed to confirm the party selling the property does in fact own it and has full right to sell it. It also discovers if there are any existing liens on the property.

When using financing to purchase a property, the lender will require a title search and a lender’s title policy to be issued in order to close on the loan.

(Success note: Whether buying with cash, private financing, or a traditional loan, consider a title search a mandatory action.)

A title search does the following:

◉ Provides the chain of title for a property

◉ Identifies the owners of a property

◉ Identifies liens against a property and/or its owners

Title Insurance A title search is done in order to obtain title insurance. Title insurance covers us as owners (with exception to any documented exclusions) in case something comes up challenging the title and/or our ownership down the line.

There are two types of policies:

◉ Owner’s policy – protects the buyer from ownership problems that arose before purchase but were not known at the time.

◉ Lender’s policy – protects the lender’s interest in the property until the borrower pays off the mortgage

When buying, we want to make sure our behinds are covered with title insurance, and a good way to ensure this is to have the requirement of a title commitment in your sales contract.


43

Title Commitment A title commitment is when a title company is willing to issue title insurance under certain conditions and if the seller fixes certain problems. The title commitment also lists any potential exclusions or exceptions.

This lets the buyer know what issues, if any, exist with the title and any items the title insurance may not cover.

Subsection (c) of the example states that a title company must issue a title commitment at least five days prior to the closing date. If a title is bad or has issues beyond repair then a title commitment will likely not be granted, thus giving you the option to exit the deal.

Looking at the example again, there are two checkboxes to designate who chooses the title company (closing agent) and thus who will pay for the owner’s policy.

Generally the seller pays for the owner’s policy and selects the closing agent, but this is not mandatory. As a buyer you can select the title company if the seller agrees, but then you will be paying for the owner’s policy.

Assessments (Liens)


44

You should also have verbiage in your sales contract as seen in the example above

This basically states that the seller will pay off any liens or outstanding items that will result in a lien, prior to closing.

Note – This does not cover liens from homeowners’ associations. That information is found in the estoppel, which we will cover next.

When buying a property that’s in a homeowners’ association we will need an estoppel letter in order to close on the deal. This is separate from the title search

Estoppel Letter An estoppels letter provides information about the seller’s property in regard to the HOA:

◉ The cost and payment frequency of maintenance fees

◉ If there are any back dues on the property

◉ Any community assessments planned or in the works

◉ Any liens the HOA may have placed on the property

The seller or the title company will request the estoppel letter from the homeowner’s association. Often it’s the management company of the HOA community that produces this document.

Timeline and Useful Life The estoppel letter must be produced within fifteen days of the request.

It will provide a figure of monies owed or due through a certain time period. Usually that period is up to your closing date.

Example The monthly dues on a property in XYZ community is $250. The owner is one month behind, and the next payment is due November 1st. The closing date on the sale is November 1st.


45

The estoppel letter would read that $500 is due on November 1st. This consists of the $250 outstanding balance and the $250 that will be due in November.

That’s a rather clean example. However, if the property is a short sale or foreclosure, there will likely be an outstanding balance and penalty fees that have accumulated.

Let’s say HOA dues have not been paid for a year and late fees have also been tacked on, bringing the total to $3,500.

If that’s the case, the estoppel letter could read something as such:

“A total of $3,750 is owed through November 1st. If that amount is paid, there will no longer be any monies due.”

The $3,750 is derived by taking the $3,500 balance then adding in the $250 due on November 1st for that month’s dues.

Additional Info Along with stating the balance due, nearly all estoppel letters will provide the following information:

◉ Name of the association

◉ Name of the home owner

◉ Signature by an officer of the HOA or its agent

◉ Instructions on where to send payment

Who Pays for the Letter? The seller pays for the estoppel letter itself. The cost usually ranges from $100 to $300 but can be upward of $500.

The monies due dictated by the estoppel letter are paid by the seller in order to close with a clean title.

However, this is not a hundred percent set in stone.

A buyer can choose to pay off an HOA balance in order to close on a property.

But as the buyer, why would we want to pay for this?

Well, this could occur with foreclosures, short sales, or auction properties.


46

Example The bank may not be willing to bring any money to the table on a foreclosure sale or the HOA may not be willing to negotiate a settlement with the bank.

In those instances, you will have a choice of paying those costs so you can close on the property or letting the deal fall apart.

Having a buffer built into your numbers is always prudent, especially when dealing with foreclosures and the like.

That’s why we do our research and use the property calculator to “Buy Right”!

(Success note: When it comes to buying at county auctions, all liens, outstanding balances, and title issues come with the property, and you will be stuck paying for them. I don’t suggest this method of buying until you have done some traditional deals.)


47

Chapter 11 – The Final Walkthrough

One of the last things we will do when purchasing a property is the final walkthrough. This usually occurs a day or two before closing and is done to make sure everything pertaining to the property is as expected per the contract.

To arrive at this point means the inspection, appraisal, title search, and estoppel have all been completed. Any issues arising from those items should have been worked out or negotiated by this point.

Final Walkthrough Either your agent or the seller’s agent will take you for the final walkthrough of a property. There are several items we want to check when doing this to avoid any problems at closing.

Visual Inspection As you walk through the property visually inspect everything to make sure it’s in the condition it should be.

◉ Are there now broken floor tiles that were previously in fine condition?

◉ A broken window or maybe damaged sheet rock in a bedroom?

◉ Damage to the exterior siding?

These are just examples of things that can pop-up. Just because a seller is supposed to keep the property as is when the contract was signed does not guarantee they will. The walkthrough gives us the opportunity to discover any potential surprises before signing the closing documents.

Items that Convey This will be listed in the contract and basically states what items will stay with the property upon sale. It can be anything from furniture to lighting fixtures.

Items you generally see convey are:

◉ Appliances


48

◉ Garage door openers

◉ Smoke detectors

◉ Ceiling fans, blinds, storm shutters

◉ Security gate and other access devices

In chapter 7 we discussed the sales contract. In the first example of that chapter there is a section labeled “property description.” It is there you see many of these items listed.

There should also be a line to add any additional items that may not be pre-populated in the contract. An example would be when furniture is being included in the purchase.

A line for items that will not be included should exist as well. For example, if the seller is taking an upgraded lighting fixture they installed it would be listed there.

Therefore, when doing the walkthrough not only do we need to check the property’s condition but that everything that should be there indeed is.

Repairs If there were any needed repairs discovered during the inspection and we negotiated that the seller was to have them rectified before closing then the walkthrough is a very good time to verify that.

When items are discovered during an inspection there are two things that can happen.

◉ The seller gives the buyer credits at closing for the expense of those repairs.

◉ The seller has those items remedied by closing.

If it is the latter then verify that any expected repairs have in fact been done.

Final Thoughts Along with paying mind to the above items, be sure to spot check anything you can. Flush the toilets, turn on the heat and/or air conditioning, etc.

On regular sales the power and water should still be on. If it’s a foreclosure this may not be the case.


49

However, if possible I turn on the utilities during the inspection period on foreclosed property purchases to get a full account of the condition and functionality. Foreclosures are often vacant so nothing should change from the time of inspection with the exception of vandalism.

Home Stretch You are just about ready to close on your property!


50

Chapter 12 – What to Expect at Closing

We finally made it! It’s the day of the closing.

If you discovered any issues on the final walkthrough a resolution should have already been agreed upon, which in most cases is a credit given at closing.

What to Expect at Closing If you are about to close on your first property you inner scaredy cat may be saying, yikes! What do I need to know? What do I need to bring? Who should be there?

Let’s create a ScaredyCatGuide check list to alleviate these worries.

Items to Know for Closing

◉ Closing date and location

◉ Settlement agent (Either a title company or lawyer depending on your state. Some states require legal representation while others do not.)

◉ Escrow agent

Items to Bring to Closing The best practice is to contact the settlement agent a few days beforehand and ask them exactly what you need to bring to closing.

However, these are items I suggest you always bring:

◉ Closing disclosure (we want to compare this to the final closing statement)

◉ Proof of wire transfer or cashier’s check

◉ Your ID (driver’s license is standard)


51

Who Should Be There This depends on your state laws and if you are buying the property with someone else or not.

If your state requires legal representation then your lawyer should be present.

If you are buying the property with a partner, spouse, family member, etc. whose name will also be on the title then they should be present to sign documents as well.

If you are buying in a state where a lawyer is not required then you can go to closing by yourself, assuming no one else will be on the title. I do suggest having your real estate agent attend, especially on your first deal to make sure nothing slides by.

Most agents will attend, but there are some who do not. Which would you rather do business with?

As I mentioned in chapter 6, my agent flaked out on me coming into closing. He tried to remedy it by arranging for the mortgage broker to attend the close. Yes, the same broker I had the rate lock issue with. He didn’t show either.

Trial by fire is never a fun way to learn and exposes you to mistakes. I don’t recommend the experience. Make sure your agent is there to help you review the closing documents on your first deal

Key Items to Review The entire closing document is important, but there are specific items that we should always confirm before signing.

Please remember that we are the ones purchasing the property. We have every right to take our time and comb through each document.

Many times the settlement agent will want to expedite it quickly because they know what all the documents say.

However, if you are not familiar with the documents you have every right to ask for detailed explanations of anything in the closing packet. Remember, they are being paid for a service; don’t feel bad making them earn their fee.


52

Reviewing the Closing Disclosure You should receive a copy of the closing disclosure roughly three days prior to the actual closing date. Any adjustments after that time will been seen in the final closing document provided to you at the close.

There are two things you should do with the closing disclosure:

◉ Review it against the loan estimate

◉ Review it against your final closing document

Loan Estimate The loan estimate is as it states—an estimate. A few days after you apply for a mortgage the lender will provide this document. It estimates what your closing costs will be.

There can be more than one of these documents provided over the course of closing, as updates will be sent anytime terms change on the loan.

Example You decide to pay points in order to have a lower interest rate. The lender would then provide an updated estimate showing the number of points and the cost of those points along with the new interest rate.

The loan estimate is the first document we want to review against the closing disclosure.

We want to verify:

◉ Interest rate

◉ Loan discount points

◉ Total closing cost

The interest rate you locked in on the most recent version of your loan estimate is the same rate you should see on the closing disclosure. Also, if you purchased any points to reduce your interest rate, that number should be the same on the two documents. If not, notify the lender and closing agent.


53

The total closing cost will not be the same as what you’ll see on the closing disclosure. I’ve never seen it match, but then again that’s why it’s called a loan estimate.

However, it should be in the ballpark. If you see any unexpected costs or any drastic change in costs then contact your loan officer or the closing agent for an explanation. (Success note: Review the closing disclosure against your loan estimate the day you receive it. This leaves the title company a couple days to make any needed adjustments without risking your closing getting delayed.)

Closing Disclosure Next we want to review the closing disclosure received three days prior to closing against the final copy provided at closing. The two documents should be identical, outside of any last minute changes.

Be sure to compare them for accuracy and to confirm any agreed upon change is listed correctly.

Again, be sure to examine the whole document, but below are specific items to review for accuracy in their proration and amount escrowed:

Prepaid Interest – Lenders will have you prepay the interest accruing between closing and the date your first mortgage payment is due.

Property Tax – Lenders will usually require six months of taxes are escrowed, but this can vary.

Depending on the date of your closing, taxes will be prorated. This includes any city/town and county taxes.

Example

For a closing on February 1st, you would receive a credit from the seller for one month’s taxes. The credit would be calculated using the prior year’s tax amount.

Homeowners’ Association – If there is an HOA, there will be a proration for any dues the seller has already paid in the form of a credit to them.

Example

HOA dues are paid quarterly in the amount of $750. With a February 1st closing the seller is owed two months of dues that have already been paid. You would see a cost of $500 credited to the seller.


54

Homeowners’ Insurance – You will pay a full year’s insurance at closing. Often the lender will also have an additional three months of premiums escrowed.

Loan Discount Points – Be sure the number of points and the cost of those points add up correctly. One point equals one percent of your loan amount.

Finally – Don’t Forget to Check the Obvious When reviewing all these documents we tend to focus on the numbers and financials to ensure we are not paying for something we shouldn’t.

However, be sure to verify items like your name and the address are spelled correctly. Little typos like that can cause a nightmare when trying to sell the property or payoff your mortgage.

Conclusion of Close Closing on a property can be exciting (or nerve racking). After all the documents are signed and you have been handed the keys, be sure to verify you have:

◉ Property deed (this is the recording that you now own the property)

◉ Closing disclosure

◉ Promissory note (documentation that you agree to pay loan)

◉ Mortgage or deed of trust (document that designates the property as security for the loan)

The state you are purchasing the property dictates whether it’s a mortgage or deed of trust document.

Congratulations—you just bought your first property!


55

Section II


56

Chapter 13 – Tenant Proofing Your Property

If you plan to rent out your property then there is one thing you must do—get it rent ready! I know this sounds obvious, but there is more to it than that.

There is a difference between getting a property rent ready as opposed tenant proofing a property.

Getting a property rent ready usually entails items such as a repaint, some drywall patching, replacing carpets, and cleaning, among other things.

Tenant proofing your property does all the same things but also makes it durable for the wear and tear of tenants living in it, thus reducing maintenance and replacement costs.

Tenant Proofing Your Property Let’s discuss actions you can take and the type of items you can use in your property to increase its durability.

Flooring

◉ Tile in kitchen, common areas, and bathrooms.

◉ Laminate or vinyl plank in bedrooms and second floor, if applicable

These are low-maintenance, durable flooring options that you will be able to keep on tenant turnover. Yes, the tile may need to be cleaned or you may need to replace a vinyl plank or two, but that’s usually it.

(Success note: Be sure to teach your tenant about laminate. Laminate is not meant to be cleaned with a soaking wet mop or have standing moisture. Bedrooms and common areas are best for this flooring.)

Still, with all that said about flooring, you must know your market!

Tile floor is common and desired in the southern states of America. In Florida, Georgia, etc. you will see tile as the norm, but in the Pacific Northwest that is not the case. Tile is not desirable in the states of Washington and Oregon, as of the time of this writing. In the Pacific Northwest, carpet or original hardwood floors are considered the norm.


57

So know your market and then find the most durable or cost effective options within that.

Example If you need to put carpet in your property then decide whether it’s better to put down cheap carpeting that you will replace every tenant turnover or if you will pay top dollar for the stain-resistant stuff that you can just have cleaned and keep several years.

Replacing Valves A good practice is to replace all old or plastic water valves and shut offs. The plastic water valves not only break easily if abused but many times don’t do the job of stopping water.

The last thing we need is a leaky toilet turning into a flooded bathroom because the valve failed to perform.

Putting in the metal half-turn valves are worth the cost for the peace of mind.

Paint When it comes to paint, neutral colors are best. For interior walls a beige-type color is a safe play. It gives the property a little life as opposed to a plain white and is universal among tastes. The color I use is called Navajo, which is a BEHR product color.

There are several different paint enamels to choose from, but eggshell works great for the interior walls.

For trim and baseboards, a white semi-gloss enamel creates a nice offset from the walls

For ceilings, an interior latex flat white paint gets the job done.

Doorstops I know this seems like something trivial, but doorstops are important to avoid damaged dry wall (holes in wall, etc.) and doorknobs.


58

If nothing is present to stop the door from hitting the wall, or if the doorstop is hanging on by a thread, then the doorknob is swinging straight for your wall, thus damaging the wall and banging up the knobs.

Make sure all doorstops are present, solid, and installed securely.

Addition by Subtracting Sometimes landlords will remove non-essentials to reduce the number of potential maintenance problems. It may be difficult to do this on higher-end rentals, but I’ve seen it done on lower-priced units where you can remove items like ceiling fans and garbage disposals.

The thought process is if these items are not needed to rent out the property, then why have the potential cost of repair?

A disposal can break from tenants dropping things in it that don’t belong. Next thing you know you are paying for a service call.

Ceiling fans can begin to make noise or have the motor fail all together as opposed to a light fixture that just has a bulb. Again, the thinking is why have a potential cost of replacement if the fan is not required?

Your given market will dictate whether such items are expected or not, but the two examples above are actually considered upgrade features.

These are decisions that each property owner can make for themselves. However, be prudent where applicable to help mitigate your operating costs.


59

Chapter 14 – The Five Key Points of Tenant Screening

In this chapter we are going to cover five points I consider musts for finding good qualified tenants. There can certainly be additional factors, but these five are necessary.

This assumes you are going to do tenant placement yourself as opposed to hiring a property management company. We will cover property management in chapter 17.

#1 – Past Eviction If you are screening a potential tenant and they have past evictions in their history, don’t walk…run away. If it’s more than one eviction then clearly they are not a good candidate.

If there is just one, okay yes, there are cases where good people run into some bad luck and you can use discretion, but you are putting yourself at risk. That is not really the scaredy cat investor way, better to just move onto the next applicant.

#2 – Criminal Record This is more about the type of crime because due to new Housing and Urban Development (HUD) rules it is actually illegal to do a blanket disqualification of anyone whose background check comes back with a criminal record.

Look at what the crime was. Did they get busted scalping a few extra tickets they had to the game? Okay, no problem.

However, if it’s a violent crime then I am in fear of my safety and thus onto the next applicant. If it’s related to destruction of property, well, I am in fear of the safety of my property, next applicant.

# 3 – Debt/Credit History Generally there is a minimum credit score you want to set for approval. This helps weed out applicants that are not financially responsible. A minimum score of 620 is common throughout the landlord community and what I use.


60

Also, what type of debt do they have? If one applicant has 25k in credit card debt and another has 50k in student loans, which do you think is the better candidate?

If we think about the debt types, credit card debt is consumer debt. Now a person may have made purchases due to circumstance, but many times overspending is the culprit. Do you really want someone that is buried in credit card debt owing you rent each month?

As for the student loans, generally that is debt someone used to better themselves to get a career or job. Well, at least hopefully it got them a better job. Either way, someone that is using debt as a constructive instrument as opposed to a consumer instrument makes for a better applicant.

#4 – Employment This one is pretty obvious. We must verify their employment and income to know they are able to pay rent each month.

To go about that you should ask for the most recent year’s W2 or 1099 and the last two months’ pay stubs.

Look for a gross monthly income that equals three times rent. That is what I use and is pretty standard for the industry. Anything less than that and a tenant may struggle to make payments. Think about it—rent will not be a tenant’s only bill and Uncle Sam is still taking a cut of their gross income as well.

Also, get the employer’s contact info to confirm that the person is indeed an employee.

We then can take it another level and ask the employer about their employee. Knowing something like they show up to work late everyday is pertinent information as that could put their job, thus their source of income, at risk.

#5 – Cleanliness/Lifestyle It’s hard to know how an applicant will treat your property without seeing how they live. However, there are ways you can get a glimpse into that.

One little trick I like is after showing the property to a prospective applicant, walk them back to their car and thank them for their time.


61

Why do this? Because you can get a quick glance at their vehicle to see how it’s kept. If you see McDonald’s wrappers and soda cans all over the floor then how do you think your property is going to be treated?

(Success note: Be sure you confirm all federal and state laws on what you can and cannot disqualify a tenant for. A lawsuit is even worse than a bad tenant.)

There you have it—the five points to cover when screening tenants.


62

Chapter 15 – The Dos and Don’ts of Collecting Rent

The Don’ts Collecting Cash in Person

There are several reasons this is a no-no.

◉ Carrying a large sum of cash on you at a predictable time makes you a target for theft.

◉ It’s an inefficient use of time to go door to door collecting funds.

◉ There is no third-party record of the transaction taking place.

The above points speak for themselves—why waste time, resources, and possibly your safety when you do not have to?

Tenants Dropping Cash off at Your Home

Personally, I do not want my tenants knowing where I live. They may be great people, but you never know what people will do if things go south. The last thing we want is an angry tenant showing up at the front door of our home. Or worse, vandalizing our home out of anger.

The Dos Online Payments

The way technology is today online payments are the easiest and most efficient way to collect rent. There are various online options available:

Cozy.co (https://cozy.co/) – This service accepts online payments for you. Tenants can setup automated payments that get withdrawn from their bank account or use a debit or credit card to make payments.

This service is free for landlords and free for tenants using ACH payment directly from their bank account. Otherwise there is 2.75% fee on payments done with a credit or debit card.

For a nominal fee Cozy also offer other services like background checks, credit reports, etc. to help screen tenants.

https://cozy.co/


63

PayNearMe (http://paynearme.com/en/) – This is a great service for tenants that want to pay in cash while still allowing the payment to be an online transaction for the landlord.

Basically PayNearMe provides unique barcodes to supply your tenants. The tenant takes their cash and the barcode to a 7-11 (or any other approved retailer) to make the payment and receive a receipt.

PayNearMe then sends you an email or text that payment has been received.

The service does not cost the landlord anything to use after an initial setup fee. It does though cost the tenant a small transaction fee to make the payment.

Mailing Rent The old fashioned mailing the rent check still works, but be sure you secure a P.O. Box to have rent checks mailed to. By doing this you don’t have to give out your home address, and you can just go to the post office to pick up all of you rent payments.

The only negative to this method is tenants can always give you the classic “the check is in the mail” excuse when you have not received it in time. Other than that, this is a traditional method that has worked for many landlords in the past.

Conclusion In the end it’s a matter of preference, but we now live in a time where you can automate rent collection as opposed to chasing down your dollars.

http://paynearme.com/en/


64

Chapter 16 – Residential Leases

In the last chapter we discussed different ways to collect rent. That is just one of many items listed in a residential lease agreement. Let’s delve into the different items of a lease and make sure we understand the most important pieces.

A residential lease is a legally binding contract between a tenant and a landlord. The lease gives the tenant the right to use the named residential property in exchange for payment to a landlord.

Lease Term Types Month to Month

This is the most flexible type of lease as it is only binding for a month and renews each month until either the tenant or landlord terminates it.

The minimum number of days to provide a notice of termination can vary depending on state laws but between seven to thirty days is most common.

We can also just set this in the lease at thirty days, which is an industry standard. This gives a reasonable amount of time for either party to act and covers the minimum number of days.

Fixed Term

Fixed-term leases can be fixed for any amount of time. Most commonly these leases are for six, twelve, or even twenty-four months.

Thirty days’ notice of termination is the standard on fixed-terms leases throughout the nation.

On the flipside, when a tenant wants to renew a lease then thirty days’ notice prior to the lease end date is standard as well. I know some landlords though that put forty-five day notice of renewal in their leases.

Some landlords, including myself, will have a month-to-month tenancy clause within the fixed-term lease. Once the fixed-term lease expires, all it entails stays in force if the tenant decides to stay, but now it’s just on a month-to-month basis.


65

I prefer doing this because it provides flexibility. The tenant and landlord can still decide to renew another fixed-term lease, but if one of the parties does not want to commit to another full year, for example, then this easily allows both parties to continue on for a shorter period.

This is also good because your termination notice is likely shorter now since thirty days is the standard minimum for fixed-term leases of six or more months. With a month-to-month your minimum can be as little as seven days, depending on your state.

For example, for my home state of Florida, the minimum is fifteen days on a month-to-month lease.

Drawing up a Lease Unless you are a lawyer, I do not suggest drawing up your own lease. You can grab a standard residential lease agreement from a recognized housing authority for your state or from a number of online vendors.

However, these are usually basic cookie cutter leases. You will want to add to it and have an attorney review it, especially if it’s your first lease! Please, after you have made any adjustments, have an attorney review it.

Trust me, the money you spend for a lawyer to review or write a lease for you is peanuts compared to having missing items that leave you exposed and potentially liable for something.

Items of Discretion There are many things we are allowed to dictate in our leases that are not specifically decided by law and do not violate fair housing laws. For example, will you allow tenants to smoke within your property? How about pets?

These are just a couple examples of the variables you can cover in a lease to dictate how your property may be used.

Again, review these items with a lawyer to make sure you are not violating any fair housing laws. What may seem innocent enough to you may violate some kind of housing rule without you knowing it.

Once you have the lawyer review your lease then use it as your template going forward. Be sure to pay mind to any change to housing laws in your state as the years pass by and update accordingly.


66

Reviewing the Lease with Your Tenant Before the tenant signs your lease, be sure that you or your property manager review it page by page with the tenant. Have the tenant initial each page to acknowledge they have read and understand what is included.

It benefits you in the long run to ensure the tenant understands everything they are agreeing to within the lease. By doing this you are helping eliminate any potential issues or surprises.

Example If your lease states that no more than four people may occupy your two-bedroom property and you find the tenant has five people living in it, then they cannot claim they were not aware of this when notice of violation is delivered to them.

In addition, you don’t have to feel like a bad guy giving them a notice of violation since you know they were aware of the lease terms. For me that’s worth something. Who wants to be the bad guy, right?

Conclusion Leases can vary from a few pages to dozens. It’s just a matter of how detailed you want to be and how many scenarios you want to cover. In the end, make sure you have the basic parts of any standard lease covered and that a real estate lawyer licensed in your state reviews it.


67

Chapter 17 – Hiring Property Management

In the last chapter we discussed residential leases and how to go about creating a solid one. However, if you are going to hire property management, they will often provide the residential leases. With that said, let’s discuss what a property manager should provide and how to go about vetting a management company.

Finding Good Property Management There are several questions you will want to ask any property manager you inquire about. These questions are important so you know what you are getting for the service and how everything is handled from communication to filling vacancies.

First things first—call at least three property management companies in your area.

This is no different than getting multiple estimates from contractors on a job. How can you know if you are getting a good deal or quality service if you don’t know the market for it?

Questions to ask while vetting property managers

◉ What are all their fees?

◉ How much do they charge to place a tenant?

◉ Is there an additional fee when they need to schedule a maintenance repair?

◉ Is there a fee for paying out the rental income to you?

◉ Do they charge a fee for posting late notices to tenants?

◉ What is the cost if they need to evict a tenant?

◉ Is there any kind of annual renewal fee?

Ask the questions above along with anything else you want to know. Basically, you will want to know everything from the percentage of rent they charge for management service to any additional fees for specific actions.


68

Be Clear on What the Monthly Fee Gets You Make sure they clearly tell you the specific services the monthly fee provides. This fluctuates from company to company depending on the additional fees they have broken out.

Discuss the Cost Threshold for Repairs You don’t want the property manager calling you every time there is a minor repair. Ultimately you decide at what dollar threshold the manager should reach out to you, but ask them what amount they generally use to see what they say.

Personally, I recommend a $200 threshold. If a repair will cost less than that amount then I do not want to be bothered with a phone call. I mean, the main point of having property management is so someone else is dealing with the tenant calls and maintenance.

How do they contact you and/or the tenant?

◉ Is it direct phone calls or emails?

◉ Do they have a website where all info, communications, and documents go?

◉ Are tenants able to contact the management company 24/7 with maintenance issues?

That last one is important because if something unfortunate happens during the middle of the night, for instance a busted pipe or water line, you don’t want extensive damage being done because management isn’t available to ensure the tenant shuts off the water and/or knows how to.

How do they go about advertising your property to fill the vacancy?

◉ What outlets are they using to advertise your property?

◉ Do they work with any local real estate agents or have in-house agents?

Last, but not least…


69

How does the relationship end if we no longer want to retain their management services?

Is it tied to the lease of the given property or is it based on when you initially hired them to find a tenant for your property?

Be clear on this because you will want a smooth transition if and when you decided to make a switch or self manage.

Conclusion Remember, the more you know upfront, the less potential surprises you will get down the road. Don’t be afraid to ask as many questions as you like.

Congratulations—you are now ready to rent out your property!


70

Your Next Steps

In this guide we have gone through how to find, buy, and rent a property. In chapter 1 we discussed how to “Buy Right” and why it is the most integral part of investing in real estate. Chapter 2 reviewed how to calculate the cash flow of a rental property using the property calculator. Along with providing us cash flow data, the calculator forces us to clearly breakout the operating expenses of owning and renting a property.

You can download it here: http://scaredycatguide.com/calculator/

We jumped into the different property types in chapter 3 and followed that with a discussion on homeowners’ associations in chapter 4. We looked at which property types are most likely to have an HOA and the pros and cons of owning a property governed by one.

In chapter 5 we began preparing to search for a property and the first step of getting preapproved or at least prequalified for a loan. We followed that in chapter 6 with how to find a good real estate agent to assist in the property search.

Chapter 7 covered the sales contract and the key points you should be aware of when submitting offers. Remember, the contingencies in the contract are there to protect us.

In chapter 8 we began the steps that occur after signing a contract, the first being the inspection. We also looked at the timeframe in which we should perform an inspection, along with actions to take based on the results of the inspection.

Chapter 9 discussed the appraisal and what our options are, depending on where that estimate comes in. We followed that by reviewing the next step of the closing process in chapter 10—the title search and estoppel letter. Here we dug into what the title search provides us, why a title commitment is an important contingency in the sales contract, and if or when an estoppel letter is needed.

Chapter 11 took us into the homestretch of closing on a property—the final walkthrough! We discussed what to look for, the possible scenarios that could arise, and how to handle them.

Chapter 12 was the conclusion of our property purchase journey as we covered what to expect at closing, including what to bring to closing as well the items you should posses when leaving the closing table. We also delved into reviewing some key points on your closing statement and comparing it to the earlier closing disclosure and loan estimate.

http://scaredycatguide.com/calculator/


71

From there we jumped into section II, focusing on the rental aspect of a property. Chapter 13 covered how to not only get your property rent ready but action items to tenant proof your property. Once our property is rent ready it is time to screen tenants. In chapter 14 we covered the five key points to use when screening tenants, thus putting us in a position to find good ones!

Once a tenant is found then you better have a way for them to submit their rental payment, which is covered in chapter 15—the Dos and Don’ts of Collecting Rent. The rental payment method will be listed in your residential lease along with everything else that encompasses a landlord-tenant agreement. We reviewed the key items of residential leases in chapter 16.

Finally, just in case you’re not planning to manage the rental property yourself, chapter 17 covered hiring property management, the steps to vet out a good property manager, and how to get clarity on what they provide and exactly what you pay for.

Now that you have reached the end of the Scaredy Cat Guide to Real Estate Investing, your journey is ready to begin.

You should now have a clear understanding of how to buy a property and the criteria needed for that property to be a cash flowing rental. This understanding is exactly what empowers us to take action!

It’s that fear of the unknown that lets our inner scaredy cat stop us from taking action. The saying “knowledge is power” really is true. Use your newfound knowledge to take action and tame that scaredy cat once and for all!

That’s it! Thanks for taking the time to read this book. You can find more information at

http://scaredycatguide.com/, and don’t forget to download the ScaredyCatGuide property calculator.


investing...scaredycatguide - investing in rental properties! 3 contents introduction..... 8 what is...

Documents