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Ask Our Broker The Landlord Lure: Are You Cut Out to Be a Landlord?

QandA WITH PETER G. MILLER

BY CHARLES SCUTT
Content That Works

If you’ve ever rented a resi-

Will My Rental Deposit Climb
Right Along with My Rent?
Q: I’m a tenant. My current rent
is $1,500 per month and the
deposit is $1,500, but the landlord
dence, you’re familiar with that
small pang of regret you feel in
the pit of your stomach every
month when you hand over the
check to the landlord. Now, imag-
ine how it feels to be on the
receiving end of that legal ten-
der.
Low interest rates, a topsy-
turvy stock market and the entic-
ing vision of making a lucrative
real estate investment have led
many people to consider pur-
chasing rental property.
An apartment complex, a sin-
gle-family home, an office condo-
minium building or a vacation
residence can all yield satisfying
returns, provided an investor
researches the opportunity care-
fully, say the experts.
“It’s always a great time to
invest in rental property if you
have a long-term investing hori-
zon, are patient enough to select
quality properties and have ade-
quate capital,” says Eric
Blumenfeld, president of EB
Realty Management, a
Philadelphia real estate manage-
ment/development firm.“The
last few years have generally
been excellent for landlords, and
people have made a lot of
money, at least on paper, really
See LANDLORD, Page 2

Trademark Properties
wants to raise the rent. Can the
landlord accept a deposit that’s less
than the new monthly rental?

A: You bet.The amount of the deposit is negotiable.

While it’s typically equal to a month or two of rent, it
can be less. If you’ve paid the rent in full and on time
and the property is well maintained, the landlord might
be open to continuing with the deposit at its current
level.There’s no harm in asking.

Q: We purchased a prime residence in Florida

in October 2004. We have now decided to sell
this home, return to Maryland and purchase
another home right away. Will we have to pay
hefty federal taxes on the capital gains from the
sale of the home?

A: No. If you have lived in your prime residence for

two of the past five years then you can shelter as much
as $500,000 in taxes if married, $250,000 if single. For
details, please see a tax professional.

Q: I heard from a couple of people that the

price of homes and mortgages will be going
down within the year. Is this true? I’m trying to
get my son to hold off on purchasing a home. Is
not buying right now the best strategy? Transformed by paint: slate-colored siding, crisp white trim and a bold red door distinguish a Charleston, S.C. home remodeled for sale. Before (inset), the house
was plain white and poorly maintained.
A: No one knows.A year ago few people would
have guessed that interest rates would remain below 6
percent or that nationwide homes could appreciate
more than 13 percent in a year.
No less important, the answer to your question is not
Neutral Colors Remain a Seller’s Best Friend
what happens nationwide, but rather what happens BY BARBARA BALLINGER make the outside of their house shine. ers might consider them ho-hum or even bor-
with a particular home in a specific community. Home Content That Works While “location, location, location” is the ing. Houses in your neighborhood may offer
values around the country do not move in lockstep. adage to heed when buying,“preparation, clues.Take a walk or drive to shop for colors

What happens nationally or in a metro area five hours
from your home could be very different from the
results you see locally.
Q: If the previous owners of a foreclosure sign
a quitclaim deed, does that waive the redemption
period during which they might be able to get
back the house? This question comes from a state
where the redemption period is 12 months.
A: You have conditionally acquired a home through
See ASK OUR BROKER, Page 2
M
any factors go into giving a house that
all-important selling feature known as
curb appeal.A clean walkway, healthy
grass and flowers, trimmed shrubs and a freshly
sealed driveway can make your residence more
appealing to a potential buyer than a compara-
ble listing.
It’s a mistake, though, to focus on the lawn
and landscape more than the exterior of the
house itself.The condition of the brick or sid-
ing, shutters and front door all speak loudly
about how well the current owners maintain
the rest of the home. Many potential buyers
will judge your house by its facade. Smart
sellers will take the time and spend money to
preparation, preparation” should be a seller’s
mantra, says Holly Slaughter, brand manager
with Realestate.com in Charlotte, N.C., and a
former interior designer.
What exactly does a seller need to do?
Evaluate each element of your home’s exteri-
or for needed repairs and possible repaint-
ing.And choose a color palette – not accord-
ing to your personal preference but with an
eye toward grabbing the attention and inter-
est of potential buyers.The goal is to lure
them out of their cars and inside your home
for a viewing.
Certain color combinations are simply
more popular, even though some homeown-
to mimic, says Slaughter.
Apart from the colors that may be most
popular in your neighborhood, shades of
cream and ecru are universally preferred col-
ors for a wood or vinyl facades, Slaughter
says. Lighter colors also tend to make a house
look larger than darker colors, she says.
Richard C. Davis, owner of Trademark
Properties, a real estate company in
Charleston, S.C., featured in the new A&E
cable TV show “Flip This House,” has bought
and sold many homes. He believes that home-
owners can be a bit hipper and opt for popu-
See COLORS Page 2

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 LANDLORD
CONTINUED FROM PAGE 1
fast.Will that continue? Who
knows? Over time, however, if
you invest in good properties,
you should make money.”
In recent years, the decline in
interest rates has significantly
lowered landlords’ largest cost –
the cost of capital – and capital-
ization rates that buyers and
lenders use to value properties,
resulting in an increase in values,
says Blumenfeld.
“Real estate is a terrific busi-
ness in that there are many
lenders who will lend 80 per-
cent or more of your price, so
you can control a property with
20 percent or less of its value,”
Blumenfeld says.“If that property
increases in value by 25 percent,
you will more than double your
money. But if it decreases by 25
percent and you have to sell, you
will lose all your money and may
have liability to the lender if you
had to guarantee the loan.”
The moral of the story? The
rewards are great, but so are the
risks.“If you want to be success-
ful, you have to make a real com-
mitment,” says Blumenfeld.“The
more time you spend, the more
information you will have and
you should be able to acquire
properties more efficiently and
get better terms from lenders.”
Before you take the rental
property plunge, it’s essential to
crunch the numbers and deter-
mine possible cash flow or loss.
First, estimate your expected
rental income, calculated by
researching local newspaper
classified sections and determin-
ing current rental prices for
comparable properties.Then,
subtract taxes, mortgage pay-
ments, insurance, management
fees, maintenance, repairs and
other expenses.Your goal is to at
least break even, which will still
allow you to profit from any tax
deductions available to rental
property owners. Over time,
your property may appreciate in
value.
Next, talk to a tax advisor
about the tax ramifications of
your investment. Get an attorney
to review all contracts and agree-
ments prior to submitting an
offer for a property.
Before shopping for lenders
to finance your loan, work on
improving your credit rating. Be
aware that lenders typically
require larger down payments,
higher interest rates and stronger
finances when you’re purchasing
rental property.Visit several dif-
ferent lenders and compare the
total costs of the loan carefully.
When it’s time to make an
offer, base your bid on prices for
similar rental units/buildings in
the area, which can be obtained
from a local real estate agent.
Remember that if you overpay
for a rental property, it’s
extremely difficult to recoup the
money you could have saved had
you pushed for a better bargain.
Choosing the ideal rental
property will depend on your
location, how much money you
can borrow, your ability to man-
age the property and more than
a little bit of luck and proper
timing.
“If an owner is looking to sell
or refinance a property, then
those areas where values have
increased most dramatically are
the best,” says Blumenfeld, who
added that the residential rental
market in Florida and on the
West Coast has been impressive-
ly strong lately.“If an owner is
looking to buy more properties,
then areas where values haven’t
moved up as much are better. If
an owner is looking to hold his
properties, keep them managed,
rented and maintained, then sta-
bility is probably the best envi-
ronment.”
Nicole Persley, a real estate
agent with Real Estate of Florida,
Boca Raton, says low-income
rental property in areas where
the community is more geared
to renting than purchasing is a
good bet.
“If the property is up to code
and in excellent condition, you
can get tenants who are eligible
for Section 8 government assis-
tance [funded by the U.S.
Department of Housing and
Urban Development], which is
basically a guaranteed rent check
each month,” she says.
Vacation homes are another
popular option for first-time
rental property owners. In the
last 12 months, resort-area prop-
erties, for example, have appreci-
ated at more than twice the
national rate, says Dave Eaton,
director of real estate operations
for ResortQuest, a vacation prop-
erty management company in
Nashville,Tenn.
Whatever type of real estate
you’re looking to acquire, it’s
best to work with a reputable
real estate agent, search in areas
you find desirable and closely
examine properties in your price
range.
“Find a real estate agent
whose background is consistent
with your objectives and who is
recommended by a friend or
within the local area,” says Eaton.
Additionally, try scouring the
area for foreclosures, running a
newspaper classified ad, and net-
working with local officials, bank
personnel or even other land-
lords who may have an inside
scoop on bargains in the area.
Once you’ve acquired a prop-
erty, you’ll need to develop a
management plan or hire a man-
agement company to ensure that
the property is maintained
according to the lease with the
tenant, says Persley.
Persley says it’s also important
to take stock of your tenants.
Realize that “a good tenant is
worth his weight in gold, but a
bad tenant could cost you their
weight in gold.”
To guard against the bad
apples, Persley recommends
requiring a deposit that includes
first month’s rent, last month’s
rent, an amount to cover possi-
ble damage “plus a little extra to
cover an eviction and other legal
expenses.” She also suggests put-
ting each property you own in a
Limited Liability Corporation
(LLC) to protect your personal
assets in the event of a lawsuit.
Lastly, realize that your per-
sonality will greatly affect your
success.
“Having a great deal of
patience and good intuition are
very important personality traits
for a landlord,” Persley says.“The
experience needed is more com-
mon sense than formal educa-
tion training. But a strong per-
sonality is essential, so tenants
do not feel they can take advan-
tage of you.”
© Content That Works
Ask Our Broker
CONTINUED FROM PAGE 1
a foreclosure, but in your state the former owners can
get the property back if they meet certain require-
ments within a year. It may be that even if they sign a
quitclaim deed, the owners will still have a right of
equity redemption under state rules. In other words,
they may not be able to waive the redemption period,
which is effectively what would happen with a quit-
claim deed.
It’s very much in your interest to have a clean title.
For this reason you should pay whatever it costs. Sit
down with a local real estate attorney and see if the
past owners can give up their redemption rights. Be
sure to ask if a payment from you to the former owners
is required to have a valid quitclaim deed.
Q: My spouse and I make about $85,000 annu-
ally and have almost no debt. We live in an
expensive California area and spend $1,500 a
month for rent. One of us wants to buy a house
now, the other wants to wait until market drops.
Should we buy or wait?
A: In your situation there are two issues. First, no one
knows what will happen to property values. Second,
your income, while solid by most standards, is likely to
be insufficient to buy a typical home in your state.
The Office of Federal Housing Enterprise Oversight
has just reported that California home prices increased
an average of 25 percent in the past year.The California
Association of Realtors (CAR) says a typical home in
that state sold for $540,900 in July.
According to CAR, the minimum household income
needed to purchase a median-priced home at $540,900
in California in July was $125,670, based on an average
effective mortgage interest rate of 5.73 percent and
assuming a 20 percent down payment.
In contrast, says CAR, the minimum household
income needed to purchase a median-priced home at
$218,000 in the U.S. in July 2005 was $50,650.
Imagine that you bought that California typical home,
put down 20 percent ($108,180) and then had a
$432,720 mortgage.At 5.73 percent interest the month-
ly payment for principal and interest over 30 years
would be $2,520. Closing costs, property taxes, insur-
ance and utilities would be extra. Please speak with
local brokers for details.
© Content That Works
Do you have a question or a quandary about buying, sell-
ing or renting? Peter G. Miller, author of The Common-Sense
Mortgage, specializes in providing real solutions to real estate
dilemmas. E-mail your questions to
peter@contentthatworks.com.

Are You Cut Out to Be a Landlord?

If you answer no more than yes to these questions, you can still become
a landlord, but you may want to hire a company to manage the property
for you.
• Do you like working with people? Are you good at organizing detailed
records? These personal qualities are necessary if you are going to be a
landlord.
• Are you willing to make a large investment of time? You will need to COLORS
interview potential tenants, show the property, call references and check CONTINUED FROM PAGE 1
information and talk with current tenants about problems or planned
maintenance. lar colors – though he notes that
these days neutral, conservative
• Are you willing to make a large investment of money? It can take a sig- earth tones are all the rage.
nificant sum upfront to buy a building and find tenants. There is no guar- Both he and Slaughter agree
antee that you will make a profit on this investment. that dark shutters and doors can
provide dramatic interest to a
• How will you handle maintenance and repairs? If you have the time neutral exterior and make for a
and skills to handle minor repairs you can save a fair amount of money. strong selling point.When the
Hiring others to do the work can save you time but will cost you money. facade is a cream or ecru,
Slaughter suggests painting shut-
• Are you willing to evict tenants who do not pay the rent? This part of
ters and doors a deep gray, like a
being a landlord can be difficult and expensive.
charcoal, or even a gray that’s
• Is your significant other on board with your decision? Even an unin- close to black. Davis thinks it’s
volved spouse or loved one will end up taking calls about plumbing leaks, fine to go with a green, too, as
empty units and late payments. Make sure that everyone in your house is long as it’s a dark, almost black
willing to pitch in. shade of green.
He would consider being very
Source: Socrates Media daring and using a fire-engine
red, yellow or gray-blue paint on
the front door if you want to
make a statement, even in a con-
servative neighborhood.“It
would spark the imagination of
lookers and get them out of their
cars.They’ll also remember your
house,” he says.A boldly colored
door will hardly scare off poten-
tial buyers if they like all the
other aspects of your home.
They can always buy the house
and change the door’s color, he
says.
Slaughter disagrees. She advis-
es sellers to steer clear of dra-
matic color statements. Having
the only red door in your neigh-
borhood will make your proper-
ty stand out too much, she
thinks.
Refrain from painting a brick
house, Slaughter advises, since
potential buyers will wonder
how much repainting the exteri-
or will require down the road.
Instead, leave the brick in its nat-
ural state and paint trim and win-
dow frames a white or off-white
and paint the shutters and doors
a color that complements the
brick, she says. Dark black or
green shutters work well with
light brick, while darker brick
calls for lighter accent shades,
perhaps ecru or taupe, she says.
Match mailbox, flower boxes
and other details to the color of
the front door and shutters,
these experts advise.Avoid gloss
or semi-gloss paint that will high-
light imperfections.
If you’re still undecided about
the right colors and combina-
tions, experiment with different
shades. Many paint manufactur-
ers offer Web sites that allow you
to virtually mix and match exte-
riors and interiors. Many compa-
nies also sell small cans of paint
to allow you to try colors with-
out spending much.
But remember, even though
paint has gotten more expensive
it’s still only paint.You can
repaint more quickly and for far
less money than it takes to fund
more complex home improve-
ments.
© Content That Works