A class act… Screen for Success via Rental Housing Association

I’ve been a big fan of Tamara Simon and her landlord focused classes for some time. She’s been kind enough over the years to provide slimmed down versions of them for my clients and other public classes I’ve sponsored over the past 5 years. So, today I’m giving her a plug for an upcoming class she is doing for RHA where she has been involved in the education committee for years. She’s a top educator in this field and a darn good business woman and property manager.

Anecdotally, in my own RE business I’ve seen an uptick in interest in rental housing purchases (MFH) as prices have softened in that market area (read dumb money leaving the market! :)) so if you’re one of the people looking to own rental property, and especially if you plan on self-managing, this is a class to attend.

Presented by Rental Housing Association of Puget Sound

Screen for Success
Wednesday, March 12, 2008

Speaker: Tamara Simon, owner of Koss Property Management and a licensed Real Estate Broker since 1983.

Location: RHA Conference Room
529 Warren Ave N
Seattle, WA

Time: 3:00pm – 6:00pm

Cost: $45 for members

Come learn practical useful information on how to screen and select the winners from the losers. This class is more than learning to read a credit report. It helps you from knowing how to effectively advertise and show your rental, to the final step of renting it to your new tenant!

$435,000 Ballard home: only $900 a month

But only if you’ll send a check to Rev Robin Beaty in West Africa. I just put up a post on the Estately blog, but I thought I’d alert the RCG community to the more-humorous-than-dangerous side of real estate scamming (Reba keeps it real with the scary real estate scamster stories).

We received the following by someone clearly looking for a good deal on Seattle rents ($900 for a Ballard 2BR is tough to pass up).


Our hot tipper goes on to wish, as I do, that people had the common sense to avoid scams like this. Word to the unwise: don’t send the dude your money.

How difficult is it to find a good rental in Seattle?

I have a few “Google alerts” set up to be notified when certain terms are published on the web, such as Rhonda Porter, Mortgage Porter and West Seattle.   Tonight, the West Seattle Google alert pointed me to someone who is looking to rent a 2 bedroom home with “a soul” for up to $2800.  

We are moving to Seattle very soon. Need online resources to find a nice rental home for the two of us. We are looking in the Ballard, Queen Anne, and West Seattle areas. I’d prefer non-mega corporate rentals, ie. one or two unit townhomes, a house, or a smallish apartment building. I’m familiar with craigslist, which I’ve been using a lot. Also familiar with NWapartments. The larger sites like rent.com list rentals that are just too cookie cutter and commercial for us. Please give resources to help us find a nice, unique, home with a soul. BTW, we are looking at the $1800-$2800/month rent range for a 2bedroom.

Are rents that high?  Do rental homes really lack soul?  I rented my two bedroom in West Hill Auburn on Northlake a short time for $1800 per month a couple years ago that had “the soul” of worn out shoes.   I loved that funky house.   However, it was not a “good rental” for many reasons (1/3 acre garden, septic tank, etc), I clung onto it for personal reasons and have since sold it. 

I’m just full of questions after reading this!  🙂  Guess you could call it soul searching.

The Great Rent vs. Own Debate

Owning a home is not right for everyone. There are certain benefits to not owning the home you live in. If something goes wrong with the property, you simply ring up the landlord and they get to fix it. You pretty much know what your cost are going to be month to month (unless your landlord decides to sell the property, increase rent, convert the condo, etc.). On comments from last Friday’s post on interest rates, there is a discussion debating if one could consider having a mortgage as a forced savings plan. I know I’m going to seem biased since I am a Mortgage Planner…and I fully expect all of the number-crunching-junkies out there to have a heyday with what I’m about to post…but here goes!

[photopress:northgaterental.jpg,thumb,right]I found two similar homes, both in the north Seattle area. The rental property is available for $1850 per month. The home for sale, with close square footage, rooms, area, etc., is available (actually, an offer is pending) for $499,995.

With the comparison, I’m going to assume someone has 20% down to either invest in the stock market or to buy a home. The current rate for a 30 year fixed is 5.75% (APR 5.904%). Principle Principal and interest is $2,334 plus taxes and insurance equals a total payment of $2623. First year monthly tax benefits are $606 (mortgage interest benefit will decrease, property tax benefit will most likely increase).

The prospects are in the 28% tax bracket; they have a gross income of roughly $8000 per month and can have $700 in monthly debts with credit scores at 680 or better. The investor will receive 11% from the stock market and the homeowner will benefit from an appreciation of 7% on their real estate.


at 5 years


at 5 years

Total Payment $117,863 Total PITI $157,396
Principal Paid 0 Principal Paid $28,951
Tax Benefit 0 Tax Benefit $35,293
Net Cost


Net Cost


Real Estate Value 0 Real Estate Value $701,269
Loan Balance 0

Loan Balance

Total Home Equity


Total Home Equity



at 10 years


at 10 years

Total Payment $254,498 Total PITI $314,792
Principal Paid 0 Principal Paid $67,519
Tax Benefit 0 Tax Benefit $67,893
Net Cost:


Net Cost:


Real Estate Value 0 Real Estate Value $938,566
Loan Balance 0 Loan Balance $332,477
Total Home Equity


Total Home Equity




Opening Balance $109,000 Opening Balance 0
5 Yr Return @ 11% $188,452 5 Yr Return @11% 0
10 Yr Return @11% $325,817 10 Yr Return@11% 0
5 Year Net Worth


5 Year Net Worth


10 Year Net Worth


10 Year Net Worth


The first five years with the mortgage provide an average monthly principle reduction of $482.47 per month. Taking out any appreciation factors, the principle principal paid each month is a forced savings plan. With that said, home equity does not earn interest. And I would probably encourage most clients to consider not using the entire 20% for the down payment to stay more liquid (depending on their entire financial picture).

For many Americans who do not have a savings plan (and the statistics show that many do not save), owning a home is as good as it gets for building savings…and it ain’t so bad.

Let the games begin!

Got renter's or condo unit insurance?

I’m constantly amazed at how many people don’t get renter’s insurance when they are renting a house or apartment. Did you realize that if a major catastrophe happens to the property you’re renting that the landlord is not responsible for your belongings?  You should.

Renter’s insurance is relatively inexpensive for the peace of mind that it will give you. Not only are you covered if a major issue happens to the property and damages your belongings, you can also check to see if the policy will cover you in the event of a break-in. Most people don’t consider the fact that a water heater might blow out and cause flooding to the interior of a property. This event could damage clothing, furniture, or more. The landlord will likely be responsible for fixing or replacing the water heater but they won’t be responsible for your stuff.

A while back we were representing a buyer on the purchase of a 20-unit apartment complex. There were 2 buildings with 10 units each. For some bizarre reason the seller decided to replace the roofs mid-contract. Unfortunately for her it rained right at the time the new roofs went on and 4 units were ruined and more were damaged – along with the tenant’s belongings. Thus began a nasty fight between her and the tenants – several moved out, resulting in lost rents, and others started attempting to boycott the property and prevent others from moving in to replace those that chose to move.

The majority of these tenants did not have renter’s insurance. More landlords are getting savvy and are adding provisions to their lease agreements that spell out a requirement for renters to show proof of insurance within a short period of time of moving in. My own lease agreements have similar language and it states very clearly that I’m not responsible for their stuff if something happens. Nature can impact a property at any time – I had this happen when a neighbor’s tree smashed into my duplex roof a couple of years ago. Thankfully my tenant’s didn’t get impacted but they could have since the tree punctured holes in the roof. Thankfully we got the roof repaired pretty quickly so no major damage occurred but it could have been ugly.

New condominium buildings are also requiring owners and tenants to have contents insurance. For owners of these units the requirement is that the policy cover up to the deductible of the homeowner’s association policy. Frequently that amount is roughly $50,000.00.  These are good things to know. Many of the condo sales require proof of insurance at closing so be sure to contact an insurance company prior to the end of your transaction if you’re in the process of buying. One guy I know that can handle this for you is Gerald Grinter of Gerald Grinter Insurance.  He can handle policies for condo owners and renters.

Screaming rent controllers

Renter, Reader or

Two entirely unrelated shorts today:

We used to have a lot more screaming readers at RCG, but like any good troll, they became bored and moved on. It’s really too bad, because my new favorite do-right-by-your-users-blog tells me that screaming users are good.

Over at AHI, there is a good write up (read: I agree with it) on rent control. If New York wants to benefit all of the poor and not just those who were lucky enough to find and stay in a rent controlled apartment, they should give rent subsidies or a form of the earned income tax credit to those earning under a specific income (New York is expensive – $80,000 a year?).

Lease Options – Investor, Tenant, Agent: Win/Win/Win?

Within the segment of consumers who want to be homeowners, there’s a subset who cannot qualify for a loan, and will therefore not be a homeowner until they can. Typically, these folks have a credit profile that precludes them from qualifying for a loan that can work within the parameters of their income and debt. In the past, the only alternative to buying was to continue to rent while working to fix credit issues, and decrease debt (and if income happened to increase along the way – a bonus).

Today, this segment of folks have the ‘Rent to Own’ option available to them. Popular with conservative investors who want the advantages of appreciating investment property, but without the hassles of rental income, the Lease-Option is an arrangement whereby an investor leases a property to a tenant, who is also extended an option to purchase the property within a certain time frame (two years is typical in the Puget Sound market). For an investor, the Lease-Option playbook is extensive – there are multiple approaches to this type of investment.

However, a program that seems to be growing in popularity is the ‘Pick Your House’ program that agents offer potential homeowners. The scenario the agent shares with the tenant is that they can pick the house in which they want to live (as long as the price of the home – rather, the monthly costs associated with the home – falls within the tenant’s budget). The agent then finds an investor to purchase the property. The rent is structured to cover all the investor’s monthly costs (PITI). Additionally, there is typically an option fee that the tenant pays to the investor up front. I’ve seen it fall into the 1% of property market value. Though non-refundable, this fee is applied as a credit toward the purchase price should the tenant exercise the option. Sometimes, a small portion of the monthly rent is applied toward the purchase as a credit as well. The option price is calculated under certain assumptions (such as 8% annual appreciation), and the price therefore might be set at 10% over current market value at the end of two years. This allows the tenant to capture some equity upon exercise, assuming appreciation is higher. Additionally, the tenant is contractually obligated to manage small repairs (where a renter would just call the landlord), with the investor taking care of larger repairs (in excess of some agreed upon dollar amount).

It’s a good way for a potential home buyer to get his foot in the door – as a matter of law, they have an interest in the property with the option (this can and should be recorded with the county to protect the tenant’s interest).

The option can be lost if the tenant defaults on the terms of the lease, or if he chooses not to exercise the option. Here’s the kicker – I’ve read/heard that the default rate for lease option tenants hovers near 70%. The biggest reason seems to be that bad habits are hard to break. If the tenant is counseled correctly, the lease period is an opportunity to repair credit, pay off debt, and position the tenant to qualify for a loan needed to exercise the option. The reality is that tenants don’t pay their rent, continue to over-extend themselves, or decide upon a different direction with their life that requires a move.

Unscrupulous investors and scammers will take advantage of these tenants and pull the option from underneath them for the smallest deviation from the lease terms. In fact, Lease Options were outlawed in Texas due to the scams. However, if the investor enters the transaction and deals with tenants fairly, it’s a win/win for the investor and the tenant/optionee.

I am wondering about the ethics of an agent working with a tenant to pick a house, then bringing in an investor to purchase it. At first glance, it seems that there is a clear conflict of interest. Isn’t there? Maybe not. The tenant is informed and gives consent to the process from the start. The agent is there to help find the home, but the investor is actually purchasing it. However, since an option – and therefore an interest in the property – is involved, does this create a technical conflict of interest? The investor is more concerned with the profile of the tenant, and with making sure that the numbers work for the transaction. The tenant is more like a client to the agent. They are driving around with the agent, evaluating neighborhoods, and picking the home, subject to investor approval.

Are ‘Pick your Own’ Lease Option programs a win/win/win for the tenant (who may successfully purchase the home by exercising the option), the investor (who gets a fixed return assuming an exercised option) and the agent (who gets the commission from the transaction)? A fourth party, adding another ‘win’, is the mortgage broker who may very well finance the deal for the investor, and create a relationship with the tenant that leads to financing the exercise of the option down the road.

Full disclosure – as an investor, I have purchased four properties with tenants who had options to purchase. However, none of them were acquired in the ‘pick your own’ method discussed above. I acquired the contracts by paying an assignment fee.

Required Reading…

Another list of 10:

  1. Worth reiterating: Polly’s comments should be required reading for all agents (including the comments within the post about her comments! 🙂 ).
  2. Claudia Wicks lets us know about this “genealogy” site geared toward homes instead of people… The site includes maps, photos, etc.
  3. Also, are press releases still valuable? A quick search on Claudia shows that a recent press release she put out about being one of the Top Woman Real Estate bloggers dominates the coverage of her name on a google search. Fascinating.
  4. Artemi just emailed me to let me know that he just released a major upgrade to his real estate search site for England. The features that stick out for me are the simplicity, the tags for each property, and the natural language search (like the fact that the site also pre-fills in the search box with relevant tags). Great stuff…
  5. Interesting to read Jim’s perspective on the new website he is building with Ubertor. From what I’ve seen, the website definitely suffices as far as websites go, but if I was searching for an agent, I’d say his blog does a much better job selling himself.
  6. Searchlight had a follow up to their renting is for suckers article that describes some reasons a person should not buy a house. I can’t tell if they read my comment, but they clearly addressed some of the issues I brought up.
  7. Joel gives some insight into the art of being good enough
  8. And then follows it up with news that Prudential is jumping on the Zillow API bandwagon.
  9. My take? Here are the ingredients for housingmaps style publicity: map. geocode. data1. data2.
  10. Jim’s worth noting column reminded me that I really wanted to mention DataPlace at some point. I saw a presentation of this tool at Where2.0 and was very impressed with the massive amount of neighborhood, demographic, socio-economic, etc. data that the Fannie May Foundation has manage to squeeze into their interface (and it is all free!). To give an overview, check out the massive amount of mortgage information available for the Seattle-Bellevue area or better yet, check out the map that I was able to easy build on post on my site of home ownership rates in the area:

Rent back a recently sold home or wait to sell?

A reader asked me this great question today, and I simply don’t know the answer. Can anyone give him some advice?

As a buyer of new construction, we recently found out that the builder wasn’t going to make our late July completion date. Instead the builder estimated a mid-September completion. Ugh, we have a child who will start school in a new school district, so this will cause a hassle.

Anyways, we were planning on listing this week (with an open house on the weekend hosted by our agent) but because of the delay in construction I’m at a loss of what to do. Here are my thoughts on the numerous statistics and opinion I’ve found so far:

  • Spring, especially during the last weeks of school is generally one of the best times to list a home
  • Listing a home later in summer can increase Days on the Market slightly, but sales price is often unaffected
  • Due to the region having great job growth and numerous relocations, the school calendar, has a lesser effect on home sales than other regions.

BTW, we are selling a condo in the Klahanie – Issaquah area. So, long-winded way of asking… Do I:

  • List in mid-late June and get a high volume of traffic but have a request that we pay rent through mid-September (roughly 45 days+ if the condo sale closed near end of July)?
  • List in mid-late July hoping to close in late August, thereby having to pay rent to stay only an extra two weeks?
  • Do something else?