Boise Real Estate is full of opportunity right now, and many people are asking me, “Can I rent out my current home and buy another?”  Seems like a good strategy, and, it is.  But, before you go shopping for that new home, you need to know the ins and outs of how to turn your primary home into a rental and qualify for another.

Step One–Talk to a Lender or Mortgage Broker

Before you get all ethered up on the smell of the opportunities in new construction or use up a bunch of gas checking out open houses, you need to see what it takes to qualify for that second home.

I’ve asked Tim Baldwin at Source Mortgage to provide me with some of the basic qualification guidelines for converting your primary home into a rental–Of course, this is just a simple outline, but, here’s what he came up with:

Basic requirements for turning Primary Resident in to an Investment Property

• DTI – is up to 50% Approve Eligible

• Can’t smell of buy and bail (words from the lender)

• 620 minimum credit score

• In order to count the rental income of the converted property, the borrower must have documented equity of at least 30% (appraisal value minus outstanding liens) in the existing home based on a full appraisal.

Ok, lets break this down a bit. 

DTI, or Debt to Income Ratio is  your total income (wages/salary, investment income, rental income, etc.)   divide by your total debt (credit cards, car payments, secured loans, etc.).  If your monthly debt, not bills (gas, utilities, phone bill, etc.) totals $1000/month and your total income is $3000/month, then your debt to income ratio (DTI) is 30%.  According to the basic requirements of converting your primary residence to an investment property this scenario would allow for a total debt of about $1500.

Buy and Bail–It means what it says.  Historically, many homeowners who were upside down on their mortgage saw opportunities to move up for less money.  They got the new loan and stopped paying on the other other.  Smarmy, really.

Rental Income–Pretty straight forward.  It’s the income you get from the home that’s been turned into the rental.  In many cases, you can’t use 100% of the rental income toward your DTI, but only 50-75% to figure for a vacancy factor.

Do You Qualify?

Every situation is unique and I can’t say for certain if you can qualify so you need to call Tim right away if you’re interested.  In just a few moments, he can see if you’re a candidate for converting your primary home into a rental. Right now, the rental market is doing well;  homes are renting quickly and are bringing in top dollar.  If the housing market takes off again, you’re very well positioned to sell if you’d like.  On the other hand, if prices and values drop, it will force more people into the rental market and again, you’re covered.

Where’s the Risk?

Like any kind of investment, there is some inherent risk; market fluctuations (addressed above), job loss, accident or injury affecting income.  But, with rentals, your biggest risk is going to be non-payment from a tenant and damages from a tenant, and those are a possibility.

Mitigating the risk.  Hiring a property manager is the best way to protect yourself from risks of being a landlord.  Of course, not all property management companies are created equal, so do your homework, or hire me; my company currently manages residential homes throughout Boise/Meridian/Eagle/Star.

What’s holding you back?

If you’re ready to upgrade, downsize, upsize, move to a different part of town or whatever reason you can come up with for moving, this is a pretty amazing time:

• Interest rates are still low
• Rental Rates are high
• Rental Vacancy Rates are low
• Real Estate inventory is on the decrease (down 44% from this time last year)

Just take a look at my home search page and see what’s out there–you’ll be amazed at the opportunities.  It doesn’t cost you anything to consider it, or check out the opportunity!  It may not be right for some, but it is right for others–which category do you fit into?  Don’t wait, give me a call or email

Paying a property manager to take a slice of your pie might seem excessive.  After all, a property manager just finds renters and collects rents right?  Wrong.  If you’ve owned a rental property for quite some time, you’ll know that a property managers fee is a small bit of insurance when the going gets rough…and it will get rough. Not to mention, property managers are skilled at saving you money and time. Usually in the time it takes you to get your own home rented, a skilled property manager could have saved you a mortgage payment!

A successful rental is only as good as your tenants.  The key is to get the largest stack of applications to choose from, not just one or two.  Getting all those applications is what property managers do best…if you let them.

What does a property manager do?

A [good] property manager does more than just collect the monthly rent.  They provide a full list of  services that you aren’t likely to do on your own.

Experience is everything.   Renting out your home is best left to the people who know and understand landlord/tenant law, especially if things deteriorate.  A good property manager has the experience in not only identifying great tenants through screening processes, but can also employ conflict resolution if needed.   You might get lucky on your own, but a property manager has the experience and skills to avoid pitfalls and common mistakes by do-it-yourselfers.

Here is a quick list of things that good property managers do daily:

• Competitively price rental rates with the market.
• Advertise and promote your property effectively.  Anyone can buy a $12 “For Rent” sign and put up an ad on Craigs List, but can you access a database of real estate industry relationships and share your vacant rentals with other industry professionals?
• Show your property at the drop of a hat.  While you’re working people want to see your home.  If you’re not available, the other rental is and that’s where tenants go.
• Interview prospects.  You might be a nice guy, but can you identify a snake in the grass?  In my 5 years of management, there are at least 3 things every bad prospect will say and when they do, they’re off the list.
• Screen Applications.  Easy enough right!  You bet, collecting the appropriate documentation to prove income, employment and good rental history is just the beginning.  How about prior eviction filings or even criminal history?
• Run a Credit Check.
• Execute a strong lease.  Do yourself a favor, don’t get a fill-in-blank lease from Office Depot or Staples.  Instead, have a lawyer draft you one that will work with Idaho Code.
• Perform inspections.  Keeping on top of the issues before they happen is key.  Thousands of dollars of damages can happen in one day.  If you don’t check up on your property how will you know what’s really going on inside?
• Enforce a lease.  Knowing how and when to evict might come up.  In fact, it’s not a matter of if, it’s a matter of when.  To do it right takes a firm understanding of Idaho tenant/landlord law.
• Repair work.  When a pipe breaks, you need immediate action.  With preferred relationships, property managers will get service before you do every time.
• Reduce loss.  Knowing how to reduce the turnover rate in a rental is important when considering the validity of your investment.  What can you do to keep tenants in your house?

Before you attempt to manage your own rental:

Ask yourself the following questions

• Do you have experience managing rental property yourself?
• Are you familiar with fair housing and landlord/tenant laws in the jurisdiction(s) where your property is located?
• Do you have relationships with contractors that ensure you can get 24 hour service at reasonable prices?
• Do you have a reliable means to determine fair market rent and returns on your investment property?
• Do you know and have the proper notices and legal process to deal with non-paying tenants?
• Do you have a current, professionally crafted lease and related agreements/forms to minimize your exposure to liability should a tenant sue?
• Do you have relationships within the real estate and rental community to get leads and referrals for outstanding tenants?
• Do you have 24/7 availability to manage the property.
• Can you show the property daily?

If you answered ‘NO’ to any of those questions, then you should likely hire a property manager to avoid wasted time and excessive loss.

If you’d like a free consultation about the services that my property management services, just give me shout: 208-724-7602!

Property Management is just one of the services that I provide as a Real Estate Agent.  As such, I’ve decided to ditch my old property management website and put all of my available rentals here on Boise Real Estate Soup.

You’ll notice that at the top of the site along the navigation bar, you’ll see a page that says “Rentals”.  Click that button and you’ll see that I have them categorized in the areas that we currently have availability.  Right now we have a few homes for rent in Boise and one home for rent in Meridian.

If you know of people looking for a place to rent, just send em over to the site or have us call em!

Also, don’t forget to sign up on my RSS Feed for notifications by email or on your Google Homepage!

Welcome to the very first ‘Guess The Place’ photo contest!  I’m out and about the Treasure Valley all the time and will be posting photos on my blog and if you can Guess The Place, you win!

It’s pretty simple really – be the first to successfully guess the photo and leave a comment below with your answer.  At the end of the day, I’ll approve the comments and see who the winner is!

Make sure you leave an email address so that I can get you your prize!

For me, property management is an integral part of my real estate business. It keeps me connected with the housing market at large, not just the buying and selling part. Property management allows me to make contact with investor buyers/owners who are in the business of providing rental units to the rental market. It’s also a great opportunity for me to stay active in the residential real estate market even when I am not working with a buyer or seller; I get to meet people who are relocating, people who have sold their primary residence and are looking to buy another and even college students among many others.

What does a Property Manager do?

As the name implies, I manage the day to day operation of a residential building from single family homes, duplex or multi-family dwellings for the owner. Essentially, we take over the tasks that all landlords are responsible for, but we handle them in a professional, legal manner.  Here are just a few typical tasks or responsibilities we find ourselves doing as property managers:

• Screening Tenants
• Collecting Rent Checks
• Scheduling/Coordinating repairs and upgrades
• Paying utilities, bills, taxes and warranties
• Showing Rental Properties
• Posting advertisements about vacant rentals
• Inspecting Properties and doing walkthroughs

Again, these are just a few of the responsibilities that we handle on a day to day basis as property managers.  Recently I wrote a list of important things that a property owner should be doing with their own rentals if they don’t currently have someone managing for them.  These responsibilities shouldn’t be taken lightly.

How much does a property management company charge?

I cant speak for every company, but I charge a percentage of gross rents received and that percentage is usually between 8% and 10% depending upon the property, location and other circumstances.  The fee I charge on a typical rental is usually $70-$90 per month; Less than the monthly utilities.

Why would someone need a property manager?

There are many reasons that someone would want a property manager, but here are some of the reasons that my current clients have:

• The Property is owned through a Self Directed IRA/Trust
• The owner doesn’t have time to deal with the responsibilities.
• Collecting rent and keeping track of income and expenses is a hassle.
• The owner lives out of State and can’t reasonably manage the property.
• Most owners are not skilled or capable of showing, screening and meeting tenants because of their ‘personal attachment’ to the property.
• Because we understand the business and know how to deal with just about every circumstance that could threaten the property.

Most owners call us because they aren’t familiar with how to convert a home into a rental.  While it sounds simple, there are complex housing laws that are always changing.  In addition to the legal aspect, there are ‘tricks of the trade’ and knowledge that I have over someone who has never managed a rental unit.  The cost of hiring a manager is well worth it when you consider the liability and the time associated with properly managing a home.

What is the current rental market look like?

At the time of writing this letter, the outlook for property owners is mixed as well as it is for tenants.  As with the re-sale real estate market, the outlook is based on location, time of year and type of home.  But, with the re-sale market continuing to slip, the opportunity for owners to purchase quality real estate is quite good!  For tenants however, be weary!  There are a lot of good rentals available, but many are in some sort of financial distress where owners have stopped or are going to stop making payments to the bank which means you are likely to get evicted once the home has been auctioned.

In the coming months, expect there to be fewer quality rentals available and prices to trend upward with the warmer weather.  Here is a list of my average rents throughout the valley:

• Southeast Boise- 3 bed 2 bath 1500-1750 square feet- $1100-$1200+ (quality market for owners- short supply is the cause)
• Meridian- 3 bed 2 bath 1200-1500 square feet- $750-$900 (moderate to high inventory)
• Meridian- 4 bed 2.5 bath 2000+ square feet-$1200-$1500

• Kuna- 3 bed 2 bath (and a bit larger) 1500-2000 square feet- $850-$1000 (for whatever reason, homes are renting quick)

Do I need to hire property manager if I own a rental?

In one word, yes!  Certainly, you are capable of managing your own rental, and perhaps you’ve been doing so just fine, but, there will come a time sooner than later that the scope of your knowledge and understanding will not cover a certain scenario, usually by that time much is lost.   If you aren’t updating yourself on the changes in law, the changes in marketing and protecting your rental like a professional company would, then its time to give us a call.  We can diagnose your situation or even give you insight into how to get started in acquiring rental properties and start building a solid rental portfolio.