Home equity is one of the main benefits of owning a home. Renting puts money into a landlord’s pocket, but owning a home helps you increase the value of your investment over time. When you do build home equity, it opens up cash-out options that can be used for home improvements, education expenses, paying off debt or other projects.
How can you tap into this valuable equity and turn it into cash? Typically you can access equity through a second mortgage, such as a home equity line of credit (HELOC) or a one-time home equity loan, or by using an alternative option like a cash-out refinance.
Let’s take a look at what a HELOC is, how it works and how it differs from other products that allow you to take advantage of the equity you’ve built in your home, like a home equity loan or cash-out refinancing.
What Is a Home Equity Line of Credit (HELOC)?
A home equity line of credit allows you to take out funds based on your home equity and pay it back with a variable interest rate. You can think about it as a credit card: Homeowners have access to a credit line that they can take from and pay back while using their home equity as collateral if they’re unable to make payments. Essentially, HELOCs enable homeowners to borrow against their own home equity.
Generally speaking, HELOCs have lower interest rates compared to similar options, like home equity loans or personal loans. That said, because HELOCs use variable rates, the interest rate will change based on certain benchmark rates and the current market. This, along with the amount of money you’ve spent using the line of credit, will determine your payments.
Although Pennymac does not currently offer HELOCs, we are available to answer any questions you have about how they work or what your other options are. Don’t hesitate to get professional advice. Contact a Pennymac Loan Expert to determine just what you should be doing with your home equity.
How to Qualify for a HELOC
To qualify for a HELOC, you will need a sufficient amount of equity in your home, a good credit score and low debt-to-income (DTI) ratio. Here are some tips to help you start the HELOC process and increase your qualification chances.
Start Building Home Equity
Since you usually need at least 15-20% home equity to qualify for a home equity line of credit, start prioritizing increasing the value of your home. You can build your equity by making slightly larger payments on your principal balance for your current mortgage. You can also consider refinancing your existing mortgage into a shorter-term mortgage.
Know Your Credit Score and History
Your credit score affects your eligibility for a HELOC, similar to when you were a first-time homebuyer applying for a mortgage. Most lenders require a credit score between 580 and 620, although that is ultimately dependent on the type of loan you choose and other qualifying factors.
Decide Why You Need the Funds
You don’t want to be casual with your HELOC spending, so be specific and intentional with borrowing by having a plan in place. While you may use a HELOC to have flexible on-hand funds, that doesn’t mean you should be careless. Set boundaries from the beginning on what you can and can’t spend these funds on, how often you want to make payments, etc.
People often use a HELOC to pay for home renovations, debt consolidation, education and special events, like weddings.
Do Your Research
Talk to multiple lenders, compare rates and benefits and read reviews. Look for a credible lender who is upfront about fees, timelines and other expectations. When deciding who to work with, it’s important to carefully evaluate the HELOC’s fees and terms and the lender’s reputation.
You’ll also want to know the following:
The length of the draw period, i.e., how long you’ll be able to access the funds
The period of time you’ll have to pay the remaining balance after the draw period ends. Sometimes terms can be 15 years and you may have a steep payment.
Is the interest rate fixed once you can no longer access the credit line
Understand Typical Contracts and Look for Fees
Understand the terms of your HELOC agreement. Are there prepayment penalties that prevent you from paying off more of your credit during the draw period? Is there a minimum amount you have to take out, and does it make sense to take out that much with your financial goals? Are there annual fees? What about application fees? Make sure you know the overall cost before signing a contract.
Know Your Debt-to-Income Ratio (DTI)
The debt-to-income ratio is the percentage of your monthly income that goes toward your current debt. Keep in mind that you can only have so much debt before lenders no longer consider you eligible. Paying off debt is a good way to show lenders that you know how to manage your money. Having too much debt, especially compared to your income, will indicate to lenders that you can’t sustain a line of credit with interest. Lenders typically look for your DTI ratio to be less than 43-47%. Reach out to a licensed loan officer who can help you figure out where you stand.
What Can You Use a HELOC For?
Essentially, homeowners can use a HELOC for whatever they need to, though it’s not wise to use these funds for nonessentials or day-to-day expenses. HELOC funds are best used for the following:
Home improvement. Home improvement is one of the best uses of HELOC funds. From renovations to additions, projects that increase the value of your home also help contribute to your home equity. Plus, there are potential tax deductions for certain home improvement projects.
Emergency funds. If you find yourself without a job or facing other emergencies, HELOCs are a good source of revolving funds that can be carefully managed, even in the draw period. Because interest doesn’t accrue on unused funds, you can use and pay off only what you need.
Debt consolidation. Though you should be careful not to generate more unnecessary debt, you can use a home equity line of credit to consolidate current credit card debt. Instead of dealing with high-cost credit card loans, you switch to a low-cost line of credit.
Medical bills. Medical bills can add up quickly, especially for unexpected or ongoing health concerns. People often take advantage of the low cost and low interest rates of HELOCs for these types of health expenses.
Education costs. Some people also use a home equity line of credit to pay off student loans or pay for tuition, especially because HELOC interest rates can be lower than student loan interest rates.
How Much Can You Borrow?
Even if you have substantial home equity, most lenders only allow you to take out some of what your home equity is worth.
Typically, you can use up to 85% of your home equity value, though it could be less depending on your financial history and other personal qualifications. Factors that influence your overall eligibility, how much you can borrow and the interest rate you may qualify for include:
Credit score and credit history
Current debt
How much home equity you have
Reliable income
Payment history
How to Pay Back a HELOC
A home equity line of credit is paid back with interest on whatever you take out of your revolving funds. However, HELOCs have a unique two-phase repayment method. These two phases are the draw and repayment periods, though the names can be misleading since you will make payments during both periods.
Phase 1: The Draw Period
The first phase is the draw period. This is when the credit line is open and your funds are available to use.
During the draw period, you can borrow funds as needed and only have to make minimum payments, or sometimes even interest-only payments for what you have borrowed. However, funds aren’t limitless; they’re revolving. If you hit the limit of available funds, you’ll need to pay back some of the money before you can continue borrowing.
The draw period is usually between 5 and 15 years. Some borrowers, like investors, commonly take out the maximum amount of funds and pay it off several times over. More commonly for homeowners, HELOCs can just be paid in minimum payments. Any other payments made on the principal loan during this time will lessen the amount you have to pay back during the repayment period.
Phase 2: The Repayment Period
Once your draw period is over, the repayment period begins when you must make recurring monthly payments. You also can’t take anything more, as access to the home equity line is closed. Payments will vary depending on whether or not you paid any interest during the draw period and how long each period is. Since most HELOC loans use variable interest rates, how the rate changes also affects payments.
Minimum payments may become significantly larger if you choose interest-only payments, so even if you have an interest-only payment option during the draw period, consider both the current and future financial consequences. These two periods aren’t necessarily split evenly, either; a 30-year HELOC loan is common, with a 10-year draw period and a 20-year repayment period.
It’s important to know when your draw period ends and when your repayment period begins so you can properly prepare. If you aren’t prepared to adjust financially, it’s tempting (or necessary) to open other lines of credit to pay what you owe on the HELOC, which can bury you in debt. It’s also possible to refinance if you aren’t ready to or don’t want to enter the repayment period when it arrives.
Pros and Cons of a Home Equity Line of Credit
HELOCs are a great way to put the money sitting in your home to work, but there are both pros and cons that homeowners should be aware of. Not every scenario calls for a HELOC loan, so consider the following benefits and drawbacks.
Advantages of a HELOC
Lower upfront costs. Compared to home equity loans, HELOCs tend to have lower upfront costs, which may help a homeowner decide what type of cash-out option they prefer.
Low or no closing costs. There are typically no closing costs for HELOCs. If there are closing costs, they are very low.
Lower interest rates. Traditional credit cards tend to have higher interest rate fees, but HELOCs generally offer lower interest rates. This makes consolidating debt a bit easier.
Interest is charged sparingly. Interest accrues only on funds that you actually use. You may have $200,000 available, but if you’ve only used $20,000, interest is applied just to that 10% utilized.
Flexibility. Because you don’t have to pay interest on more than what you’ve taken out, homeowners have much more flexibility and opportunity with their spending. You’ll have affordable funding options if something unexpected pops up or a project costs more than anticipated. You can use it for what you need, even for education.
Tax deductions. In some instances, the government allows homeowners with HELOCs a tax deduction for interest payments. Please consult your tax advisor regarding the tax benefits of HELOCs.
Disadvantages of a HELOC
Minimum draws. Some lenders require you to use a certain amount of the equity funds for their own benefit. Even if you end up not needing the minimum, you still have to take out and pay back (with interest) that money. Most lenders also charge an inactivity fee if the account isn’t being used.
Upfront costs. Though lower cost than other loans, HELOCs may still require application fees, home appraisal costs and other procedures. Consider the upfront expenses and determine if they’re worth the funds you would have access to.
Variable interest rates. Variable rates can go up and down depending on the market and federal lending rate, which can affect your monthly HELOC payments. When they are low, it’s great for borrowers, but high-interest rates can take a toll.
Fees. Without properly vetting a lender, you may find yourself stuck with unexpected or overwhelming fees such as cancellation fees, application fees, annual fees and prepayment penalties.
Potential credit damage. If you are unable to make payments, as with any loan, your credit score will take a hit.
Risking your home. Remember, your home is the collateral. If a homeowner mismanages their funds, misses payments and ultimately defaults when the repayment period rolls around, they could lose their home.
Attraction to nonessentials. Having large amounts of available funds can be freeing, but some homeowners struggle to use their funds only for essential or intentional spending, which can lead to greater debt that’s harder to pay off. HELOCs are not meant for day-to-day expenses like a regular credit card.
The Difference Between a Home Equity Loan and Line of Credit
HELOCs and home equity loans are similar in that they are both loans that use the value of your house as collateral and tend to have lower interest rates. However, there are some key differences.
What Is a Home Equity Loan?
A home equity loan is a form of consumer debt that allows you to borrow money against your home’s equity. The loan is paid separately in addition to your first mortgage which is why a home equity loan is often called a “second mortgage.” The following are some of the main differences between a home equity loan and a HELOC.
Lump sum payment. Home equity loans aren’t a revolving source of funds like HELOCs are. Instead, homeowners still use their home equity funds, but are given the money as a one-time lump sum.
Fixed interest rate. Unlike a home equity line of credit, home equity loans usually come with fixed interest rates. A fixed interest rate also means a fixed payment — you’ll know exactly what you are going to pay every month regardless of what’s going on in the market.
Prepaid interest costs and closing costs. With a home equity loan, you may have prepaid interest costs that you’ll have to sometimes pay at closing time. You also usually have to pay 2-5% of the loan amount in closing costs, whereas a home equity line of credit doesn’t often have closing costs.
Home equity loans are often used when borrowers need a big sum of cash for a one-time expense. If you need more flexibility, a HELOC loan lets you acquire funds as needed. If you know exactly what you need the money for and prefer fixed payments, a home equity loan is probably best.
HELOC Alternative: Cash-Out Refinancing
HELOCs are flexible and offer a lot of freedom, but they aren’t for everyone. If homeowners don’t want to take out a second mortgage, there are other options like cash-out refinancing.
What Is Cash-Out Refinancing?
A cash-out refinance is a new “first” mortgage that replaces your original mortgage with a new one through refinancing. Unlike the original, a cash-out refinance allows homeowners to borrow cash that they can use as needed. The new mortgage loan will be higher than the old one, and the difference between the loan amounts is distributed directly to the homeowner.
Cash-out refinancing allows you to maintain just one mortgage rather than two while still getting the immediate cash you need. These also offer fixed rates, which some people prefer for consistency.
How do you decide between a cash-out refinance and a HELOC? Determine whether you’d like to replace your current mortgage to get the cash you want (cash-out refinance) or add a second mortgage to get that cash (HELOC). For help understanding which could be the best fit for your needs, talk to a Pennymac loan expert.
HELOC Rates
Most often, the interest rate on a HELOC is variable. Variable rates come with pros and cons, and they are largely dependent on the current market and economy. Your eligibility will also affect the kind of rate you qualify for. Rates usually start lower at the beginning of the loan, or in this case, at the beginning of the draw period.
However, the rates will change based on benchmark interest rates, which can lower or raise your payments in both HELOC phases. Still, many lenders offer caps so that your interest rate won’t exceed a certain percentage. This is especially important to look for in a contract and consider as you’re trying to decide on a lender or on applying for a HELOC.
Also consider that HELOCs are a type of second mortgage, and generally speaking, rates for second mortgages are higher because the lender is taking on more risk.
HELOC FAQs
Here are some of the common questions many homeowners have regarding home equity lines of credit.
How Does Home Equity Work?
Many people want their home equity to work for them instead of being stagnant. That’s why HELOCs, home equity loans and cash-out refinance options exist. Homeowners should understand that though home equity refinancing can be helpful, you’re putting your home at risk if you aren’t properly prepared for the payments. Done correctly, though, home equity can be a great alternative source of funds and debt management.
How Can You Use Your Home Equity?
You can use your home equity loan for all sorts of reasons, as long as the lender hasn’t set certain limitations. Some lenders do limit what the line of credit can be used for, so it’s always best to discuss such limitations with lenders before signing anything. Also remember that funds shouldn’t be used for nonessentials or like a traditional credit card. Most often, people use HELOC loans to add value to their home through home improvement, to pay off extensive bills or expenses or to consolidate their current debt to get a better rate and lower costs.
Can You Pay Off a HELOC Early?
As long as the lender sets no prepayment penalties, you should be able to pay off a HELOC early, even in the draw period. The more you pay off during the draw period, the less you’ll have to spend during repayment. If, for example, the variable interest rate is relatively low during the draw period, you could pay the interest plus a little extra on the principal balance. Again, some lenders will penalize you for paying more than the required minimums, so learn about the lender’s prepayment policies.
How Long Does the Closing Process Take for a HELOC?
Closing a home equity line of credit usually takes 1-2 weeks. However, it can take up to 4 weeks to get everything settled, and even after that, you may have to wait several days or weeks before accessing the available funds. It all depends on the appraisal process, documentation timeline and the lender’s underwriting process.
What’s the Difference Between a HELOC and a Home Improvement Loan?
The main difference between a HELOC and a home improvement loan is how you receive the funds. HELOCs allow borrowers to take out smaller amounts of money depending on how home projects change and evolve. Home improvement loans are also limited to specific home projects, whereas HELOCs can be used outside the home for any purpose.
Is a HELOC Right for You?
A home equity line of credit can be a great solution for established homeowners who need more flexible spending options. If funds are used carefully, for the right reasons and through a reliable lender, borrowing against your home equity is a viable option for many.
However, a home equity loan may be a better option if you could benefit from a lump sum of immediate funds and prefer fixed interest rates and predictable monthly payments. To learn more about turning your home equity into cash in hand, speak with a Pennymac loan expert today.
Many people are lured into the world of real estate investing by stories of millionaires who started their journey with no money down or no steady employment. But the reality is that making money in real estate isn’t easy; a good credit score, investment capital and steady income can help in the beginning.
You’ll also need to grasp the nuances of the local real estate market and learn how to manage financial aspects such as cash flow and property taxes. While real estate buying, selling, and renting may not be much like a game of Monopoly, it is possible to earn steady side income, supplement your retirement, or even build a full-time real estate investment business with the right tools, knowledge, and patience.
Unlike mutual funds, the stock market, cryptocurrency or many other investments, real estate is tangible. Real estate is a concrete asset—one can see, touch, and even reside in. That gives investors a sense of security. However, it also creates unique challenges.
Managed well, the stability and passive income from rental properties can be a safety net against more volatile investments.
This guide is here to clarify the process for beginners. It aims to empower you to make informed decisions, reduce risks, and lay a strong foundation for your real estate investing journey.
Benefits of Investing in Real Estate
The allure of real estate goes beyond the mere ownership of tangible assets. It presents a robust suite of financial benefits that have the potential to amplify wealth and provide stability in uncertain times. As we navigate the advantages, it becomes evident why many seasoned investors prioritize real estate in their portfolios.
Steady and Passive Income
Real estate investing, especially in rental properties, stands out for its potential to provide a consistent revenue stream. When you own a rental property, the monthly or quarterly distributions from tenants contribute to steady income, which can safeguard your finances against unexpected events or economic downturns.
This consistency contrasts with the often erratic nature of the stock market, which can fluctuate daily based on global events, company performances, and other factors. Additionally, for those aiming to attain financial freedom, the passive income generated from real estate can be a step closer to achieving that goal. Over time, as the mortgage payment decreases or remains static, rental rates may rise, increasing your monthly cash flow.
Appreciation Potential
Every investor dreams of their assets appreciating, and real estate often doesn’t disappoint. While there can be periodic downturns in the real estate market, historical trends suggest that properties generally gain value over the long run.
This means that not only can investors benefit from rental income, but they can also potentially see substantial gains when they choose to sell the property.
Tax Benefits
Navigating the world of taxes can be intricate, but real estate investors often find several advantages here. The ability to deduct mortgage interest and property taxes from taxable income can be a significant financial boon.
Furthermore, strategies like depreciation allow real estate investors to offset rental income, reducing their tax burden. Consulting with a financial advisor can help investors maximize these benefits and understand other potential tax advantages, such as 1031 exchanges or deductions related to property management.
Diversification
The saying “don’t put all your eggs in one basket” is sound investment advice. Diversification is a fundamental strategy to mitigate risks. By adding real estate to an investment portfolio, investors introduce a separate asset class that doesn’t directly correlate with the stock market or mutual funds. This can provide a buffer, ensuring that a downturn in one sector doesn’t wholly derail an investor’s financial trajectory.
Leverage
Leverage, in the context of real estate investing, refers to the ability to use borrowed capital to increase the potential return on an investment. When you purchase property with a mortgage loan, you’re often putting down only a fraction of the property’s total cost, while still reaping the benefits of its entire value in terms of appreciation and rental income.
This magnifies the return on investment, as the gains and income generated are based on the property’s total value, not just the down payment. It’s a powerful tool but should be used wisely. Over-leveraging or not accounting for potential rental vacancies can turn leverage into a double-edged sword.
Types of Real Estate Investments
As one dives deeper into the world of real estate, it becomes evident that this asset class is multifaceted, with various avenues to explore and invest in. The right choice often depends on an investor’s goals, risk tolerance, budget, and expertise. Here’s a closer look at some prominent types of real estate investments:
Residential Properties
Residential properties cater to individuals or families. They range from single-family homes to duplexes, triplexes, high-rise buildings with apartments, and other multi-unit properties. You may encounter the term “MDU” or “MUD,” which stand for multi-dwelling unit or multi-unit dwelling, to describe anything more than a single family home, or SFR (single family real estate).
Investing in residential real estate, especially the SFR market, is often a beginner’s first step due to its familiarity and the perpetual demand for housing. While these properties can be a reliable source of rental income, investors should be prepared for the challenges tied to property management, tenant turnover, and ongoing maintenance.
Commercial Real Estate
When one thinks of skyscrapers lining city horizons or sprawling office parks in suburban locales, that’s commercial real estate. These properties are tailored to businesses, and can include complete corporate headquarters or individual offices.
Commercial leases often run longer than residential ones, offering the potential for stable, long-term rental income. However, the entry point can be higher, with larger down payments and a more extensive due diligence process. Additionally, commercial real estate values can be closely tied to the business environment of the locality.
Industrial
Industrial real estate encompasses properties like warehouses, distribution centers, and manufacturing facilities. They’re integral to business operations, ensuring products move efficiently from manufacturers to consumers.
Investing in this sector can offer substantial rental yields, especially if the property is strategically located near transportation hubs. However, the nuances of industrial real estate, such as zoning laws and environmental concerns, necessitate a more in-depth understanding than residential or commercial sectors.
Retail
This sector includes shopping malls, strip malls, and standalone stores. What’s unique about retail real estate is that leases sometimes include a provision where the landlord gets a percentage of the store’s profits, termed as “percentage rent.”
In a thriving commercial area, retail properties can be quite profitable, with long-term leases and the potential for appreciating property values. However, investors should be mindful of shifts in consumer behavior and the evolving retail landscape, especially with the rise of e-commerce.
Multi-Purpose Commercial
A new breed of commercial real estate has emerged to compete with the growth of e-commerce. Multi-purpose commercial spaces blend housing units with office space and retail, often adding hospitality and entertainment venues.
Typically, these spaces are the domain of large real estate investment and property management firms. But if you invest in commercial office space or retail, you will be competing with these multi-purpose properties for tenants, so they are worth acknowledging.
Real Estate Investment Trusts (REITs)
For those not keen on direct property ownership, REITs present an attractive alternative. These are companies that own, operate, or finance income-producing real estate across various sectors. What makes REITs distinctive is that they’re traded on stock exchanges, similar to stocks.
By investing in a REIT, you’re buying shares of a company that manages a portfolio of properties, thus gaining exposure to real estate without the hassles of property management. Moreover, by law, REITs are required to distribute at least 90% of their taxable income to shareholders, leading to potentially attractive dividend yields. However, it’s essential to remember that like all publicly traded entities, REITs can be subject to market volatility.
9 Ways to Invest in Real Estate
Investing in real estate can seem tricky for beginners. But, with time and patience, anyone can master it. Focus on simple investment methods first to get to know your local property scene, meet experienced investors, and learn how to handle money wisely. As you learn and grow, you can dive into more complex investment options.
Here are some great ways for beginners to start in real estate:
1. Wholesaling
Acting as the bridge between property sellers and eager buyers, this method primarily focuses on securing properties at a rate below the prevailing market value. The secured contract is then transferred to an interested buyer, ensuring a margin for the wholesaler.
2. Prehabbing
Unlike intensive property renovations, prehabbing is about amplifying a property’s appeal through minimalistic enhancements. These properties, once given their facelift, usually attract investors with a keen eye for larger renovation projects.
3. Purchasing Rental Properties
An avenue promising consistent returns, this involves acquiring properties to lease them out. For those not inclined towards the intricacies of landlord duties, there’s always the option of hiring seasoned property management professionals.
4. House Flipping
A strategy that has garnered significant attention, house flipping involves a cycle of purchasing, upgrading, and promptly reselling properties, aiming for a profit. The emphasis is on swift transactions and keen market acumen.
5. Real Estate Syndication
Envision a collective where like-minded investors come together, pooling both resources and expertise. Such collectives venture into large-scale property acquisitions, and the ensuing profits or rental incomes are distributed among the participants.
6. Real Estate Investment Groups (REIG)
Primarily, these are conglomerates that steer their operations around real estate investments. By amassing capital from a plethora of investors, they dive into acquisitions of sizeable multi-unit residences or commercial holdings.
7. Investing in REITs
Real Estate Investment Trusts (REITs) revolve around the ownership and meticulous management of properties that yield income. However, investors don’t have to handle the management themselves. Instead, participants can relish the benefits of the real estate sector without the responsibilities of direct property ownership.
8. Online Real Estate Platforms
A fusion of technology with real estate, these platforms seamlessly connect potential investors with vetted property developers. This synergy enables backers to finance promising property ventures and, in exchange, enjoy periodic returns that encompass interest.
9. House Hacking
A blend of homeownership and investment, house hacking is about maximizing the potential of a multi-unit property or a single-family home. Investors live in one segment while leasing out the remaining portions. This dual approach can significantly reduce or even negate monthly housing expenses, serving as an excellent introduction to the world of property management for novice investors.
6 Steps to Get Started in Real Estate Investing
Starting on the path of real estate investing requires careful planning, due diligence, and a methodical approach to ensure that your investments are sound and have the potential for fruitful returns. Whether you’re dreaming of becoming a millionaire real estate investor or merely looking to diversify your investment portfolio, following a structured process can be the key to success. Here’s a step-by-step breakdown:
1. Assess Your Financial Health
Every investment journey should begin with introspection. As an aspiring real estate investor, it’s essential to have a clear understanding of your current financial standing. Ask yourself questions like:
How much capital am I willing to invest?
What are my short-term and long-term financial goals?
Do I have an emergency fund set aside?
Evaluating your risk tolerance is equally crucial. Some might be comfortable flipping houses, while others might prefer the steadiness of rental properties. Consulting a financial advisor at this stage can provide insights tailored to your financial health, enabling you to make informed decisions as you proceed.
2. Dive Deep into Market Research
Knowledge is power in the world of real estate. The local market can be significantly different from national or even statewide trends. Delve deep into understanding:
The demand for rental properties in your target area.
The average property values and rental rates.
The historical appreciation rates.
Any upcoming infrastructure projects or urban development initiatives.
Furthermore, familiarize yourself with real estate terminology. Phrases like “cap rate,” “loan-to-value,” and “operating expenses” will become a regular part of your vocabulary. The better informed you are, the more confidently you can navigate your investments.
3. Assemble Your Real Estate Team
No investor is an island. Success in the real estate business often hinges on the strength and expertise of your team. Look for professionals with a proven track record and positive reviews. Your team might include:
Real estate agents who understand the investor’s perspective.
Property managers to streamline tenant interactions and maintenance.
Lawyers specializing in real estate transactions.
Accountants familiar with the tax implications of real estate investments.
4. Explore Financing Options
The path to acquiring a property is paved with various financing methods. Traditional mortgages are common, but the real estate industry offers other mechanisms like:
Hard money loans.
Private money loans.
Real estate syndication where multiple investors pool resources.
Seller financing.
Each of these has different pros and cons, interest rates, and repayment terms. Understand each deeply to determine which aligns best with your financial strategy.
5. Analyze Potential Properties
The crux of real estate investing is ensuring that the numbers make sense. Before purchasing, assess the property’s potential for generating rental income. Break down:
Monthly mortgage payments
Property taxes
Maintenance costs
Potential vacancy rates
Your goal should be a positive cash flow, where the monthly income from the property (rent) exceeds all these expenses.
6. Negotiate and Close the Deal
Once you’ve zeroed in on a property, the negotiation phase begins. Here, understanding the property’s market value, any existing damages or repair needs, and the local real estate market dynamics can give you an edge.
When it comes to closing, be aware of all associated costs. These might include inspection fees, title insurance, and escrow fees. Being well-informed can help you negotiate these fees and ensure that you’re not overpaying.
Risks and How to Mitigate Them
Like any investment, real estate comes with its set of challenges and uncertainties. The difference between successful real estate investors and those who falter is often the ability to anticipate risks and prepare for them. Here’s an exploration of some prevalent risks in real estate and actionable steps to manage them:
1. Market Fluctuations
Real estate markets can be volatile, with property values rising and falling based on a myriad of factors.
Mitigation: To protect against market downturns, it’s essential to buy properties below their market value. Conducting comprehensive research and seeking expert investment advice can help investors make informed decisions. Remember, real estate is often a long-term game, so a short-term dip can be offset by long-term appreciation.
2. Unexpected Repairs and Maintenance
Properties can often come with surprises, from plumbing issues to roof repairs.
Mitigation: Regular property inspections can catch potential problems before they become major expenses. Setting aside a buffer fund specifically for maintenance can also cushion the financial blow of unforeseen repairs.
3. Vacancy Periods
There might be periods where your property remains unoccupied, leading to loss of rental income.
Mitigation: Properly vetting and building a good relationship with tenants can lead to longer lease periods. Diversifying your investment properties across different areas can also help, as vacancy rates might vary from one location to another.
4. Legal and Tax Implications
Real estate investors can sometimes find themselves entangled in legal disputes or facing unexpected tax bills.
Mitigation: Regular consultations with a tax professional or attorney familiar with the real estate industry can keep investors informed and protected.
Long-term Strategy and Growth
Real estate investing is not just about making a quick buck; it’s about building lasting wealth. Adopting a long-term perspective and continuously refining your strategy can pave the way for consistent growth in the real estate industry. Here’s how:
1. Define Your Real Estate Identity
Are you more comfortable with a buy-and-hold strategy, where properties are retained for long-term growth and steady rental income? Or do you thrive on the excitement of flipping houses, where properties are bought, renovated, and sold for profit? Understanding your preference can help tailor your investment strategy.
2. Reinvestment is Key
For those adopting a buy-and-hold strategy, reinvesting the rental income can substantially grow your real estate portfolio. By channeling profits into purchasing additional properties, investors can benefit from compounded growth.
3. Diversify Your Portfolio
As you gain experience, consider diversifying across various real estate sectors. Branching out into commercial real estate or exploring real estate investment trusts (REITs) can provide additional avenues for income and growth.
4. Continue Your Education
The real estate industry is continually evolving. By staying updated on market trends, attending seminars, and networking with other real estate professionals, you can adapt your strategy and seize new opportunities as they arise.
5. Scale Strategically
A real estate empire begins with just one property. With time, dedication, and a sound strategy, it’s possible to grow your holdings into a substantial full-time income. As you scale, ensure you’re not overextending; always prioritize the quality of investments over quantity.
Key Tips for Beginners
Embarking on a journey into real estate investing can be thrilling, yet the complexities of the industry can sometimes overwhelm beginners. Simplifying the learning curve is essential for novice investors to make informed decisions and find success. Here are some pivotal tips to guide those just starting out:
1. Start Small and Scale Gradually
Many millionaire real estate investors began their journey with a modest property. Purchasing a smaller, more manageable property as your first investment can help you navigate the nuances of the real estate business without being overwhelmed. As you gain confidence and experience, you can then venture into bigger and more diverse properties to scale your portfolio.
2. Prioritize Education
The world of real estate is vast and ever-evolving. Leverage online real estate platforms to learn about market trends, investment strategies, and financing options. Additionally, joining real estate investment groups can be invaluable. These groups not only provide mentorship but also offer opportunities to share resources, insights, and deals with other investors.
3. Location is Crucial
In the real estate realm, location often takes precedence over the type or condition of a property. A mediocre house in a prime location can fetch better returns than a grand mansion in a less desirable area. Research local market dynamics, neighborhood amenities, future development plans, and other location-specific factors before making an investment decision.
4. Networking is Key
Surrounding yourself with knowledgeable people can fast-track your learning process. By connecting with seasoned real estate investors, you can gain insights from their experiences, avoid common pitfalls, and even discover potential partnership opportunities. Attend local real estate seminars, join investor forums online, and participate actively in real estate conferences to grow your network.
5. Stay Updated and Adapt
The real estate industry is not static. Market conditions, property values, and investment strategies can change. Being adaptable and staying updated on industry trends will ensure you remain ahead of the curve and can capitalize on new opportunities.
6. Always Conduct Due Diligence
Before diving into any real estate transaction, thorough due diligence is imperative. From understanding property taxes and zoning laws to estimating potential repair costs and evaluating tenant profiles, leaving no stone unturned will protect you from potential setbacks.
8 Terms Beginner Real Estate Investors Should Know
Venturing into real estate can feel like you’ve entered a world with its own language. Don’t worry; everyone feels this way at the start. Knowing basic real estate terms can help you communicate confidently and make informed decisions.
Dive into these essential terms every beginner should grasp:
Appreciation: Appreciation is the increase in the value of a property over time. It’s one of the primary ways real estate investors make money, especially in growing markets. Appreciation can result from factors like inflation, increased demand, or improvements made to the property.
Capitalization rate (cap rate): Think of the cap rate as a tool to gauge the potential return on a property. It’s a percentage derived from comparing a property’s net operating income to its current market price.
Cash flow: This term captures the money dance – what’s coming in and what’s going out. In the context of rental properties, it means the rental earnings minus all the costs. Positive cash flow indicates you’re earning more than you’re spending.
Equity: Equity represents the value of ownership in a property. It’s calculated by taking the market value of the property and subtracting any outstanding mortgage or loans against it. As an investor pays down their mortgage or if the property appreciates in value, their equity in the property increases. This equity can be tapped into for various financial needs or reinvested.
Leverage: This term refers to the concept of using borrowed money, often in the form of a mortgage, to invest in real estate. It allows investors to purchase properties with a small down payment and finance the remainder. When used correctly, leverage can amplify returns, but it can also increase the risk if property values decline.
Net operating income (NOI): Simplified, NOI is the profit made from a property after deducting all operational costs. It’s your rental income minus all the expenses, showing the true earning potential of a property.
Real estate owned (REO): An REO property is one that didn’t sell at a foreclosure auction and is now owned by the bank. These properties are often sold at a lower price because banks aim to sell them quickly, making them attractive to investors.
Return on investment (ROI): In simple terms, ROI measures the bang you get for your buck. It’s calculated by comparing the profit you made to the amount you invested. The higher the ROI, the better your investment performed.
Conclusion
Real estate investing offers an avenue to diversify your portfolio, generate steady income, and potentially achieve long-term growth. With due diligence, a clear strategy, and the right team, beginners can successfully navigate the complexities of the real estate industry and lay the foundation for a prosperous investment journey. Remember, every millionaire real estate investor started with their first property. Your journey is just beginning.
The mere thought of filing for bankruptcy is enough to make anyone nervous. But in some cases, it really can be the best option for your financial situation. Even though it stays as a negative item on your credit report for up to ten years, bankruptcy often relieves the burden of overwhelming amounts of debt.
There are actually three different types of bankruptcy, and each one is designed to help people with specific needs. Read on to find out which type of bankruptcy you might be eligible for. We’ll also help you determine whether it really is the best option available.
What are the different types of bankruptcy?
In general, bankruptcy is the process of eliminating some or all of your debt, or in some cases, repaying it under different terms from your original agreements with your creditors.
It’s a very serious endeavor but can help alleviate your debt if you calculate that it’s unlikely to you’ll be able to repay everything throughout the coming years.
The two most common for individuals are Chapter 7 and Chapter 13. Chapter 11 is primarily used for businesses but can apply to individuals in some instances. Let’s take a look at some bankruptcy basics and the other details that set them apart from each other.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is designed for individuals meeting certain income guidelines who can’t afford to repay their creditors. You must pass a means test to qualify. Then, instead of making payments, a bankruptcy trustee can sell your personal property to help settle your debts, including both secured and unsecured loans.
There are certain exemptions you can apply for to keep some things from being taken away. It all depends on which debts are delinquent. If your mortgage is headed towards foreclosure, you might only be able to delay the process through a Chapter 7 delinquency.
If you’re only delinquent on unsecured debt, like credit card debt or personal loans, then you can file for an exemption on major items like your home and car. That way they won’t be repossessed and auctioned off.
Eligible exemptions vary by state. Usually, there is a value assigned to your assets that are eligible for exemption. You may keep them as long as they are within that maximum value. For example, if your state has a $3,000 auto exemption and your car is only valued at $2,000 then you get to keep it.
Most places also allow you to subtract any outstanding loan amount to put towards the exemption. So, in the situation above, if your car is valued at $6,000, but you have $3,000 left on your car loan, then you’re still within the exemption limit.
Chapter 7 bankruptcy is the fastest option to go through, lasting just between three and six months. It’s also usually the cheapest option in terms of legal fees. However, keep in mind that you’ll likely have to pay your attorney’s fees upfront if you choose this option.
Chapter 13 Bankruptcy
A chapter 13 bankruptcy is the standard option when you make too much money to qualify for a Chapter 7 bankruptcy. The benefit is that you get to keep your property but instead repay your creditors over a three- to five-year period. Your repayment plan depends on several variables.
All administrative fees, priority debts (like back taxes, alimony, and child support), and secured debts must be paid back in full over the repayment period. These must be paid back if you want to keep the property, such as your house or car.
The amount you’ll have to repay on your unsecured debts can vary drastically. It depends on the amount of disposable income you have, the value of any nonexempt property, and the length of your repayment plan.
How long your plan lasts is actually determined by the amount of money you earn and is based on income standards for your state. For example, if you make more than the median monthly income, you must repay your debts for a full five years.
If you make less than that amount, you may be able to reduce your repayment period to as little as three years. You can enter your financial information into a Chapter 13 bankruptcy calculator for an estimate of what your monthly payments might look like in this situation.
To qualify for Chapter 13, your debts must be under predetermined maximums. For unsecured debt, your total may not surpass $1,149,525 and your secured debt may not surpass $383,175. However, unlike Chapter 7 bankruptcy, you may include overdue mortgage payments to avoid foreclosure.
Chapter 11 Bankruptcy
Chapter 11 bankruptcy is usually associated with companies. However, it can also be an option for individuals, especially if their debt levels exceed the Chapter 13 limits. A lot of the characteristics of Chapter 11 and Chapter 13 are the same, such as saving secured property from being repossessed.
Having to pay back priority debts in full and having a higher income bracket than a Chapter 7 bankruptcy are also common characteristics. However, unlike Chapter 13, you must make repayment for the entire five years with a Chapter 11. There is no option to pay for just three years, no matter where you live or how much you make.
Another reason to pick Chapter 11 is if you are a small business owner or own real estate properties. Rather than losing your business or your income properties, you get to restructure your debt and catch up on payments while still operating your business, whether it’s as a CEO or as a landlord.
One downside to be aware of with a Chapter 11 bankruptcy is that it’s usually the most expensive option. However, you can pay your legal fees over time so you don’t have to worry about spiraling back into debt.
What are the long term effects of bankruptcy?
It should come as no surprise that going through bankruptcy causes your credit score to plummet. Depending on what else is on your report, your score could drop anywhere between 160 and 220 points.
Those effects linger. A Chapter 13 bankruptcy stays on your credit report for seven years. And a Chapter 7 bankruptcy remains there for as many as ten years. Their effects on your credit score do, however, begin to diminish as time goes by.
You’ll probably have trouble getting access to credit immediately following your bankruptcy. Eventually, you’ll start getting approved for loans and credit cards, but your interest rates are likely to be extremely high.
A new mortgage will probably be out of reach for at least five to seven years from the time you file for bankruptcy. Additionally, any employer performing a credit check can see all of these items on your credit report.
Government agencies can’t legally discriminate against you because of your bankruptcy, but there is no specific rule for privately-owned companies. It could be particularly damaging if the job you’re applying for deals with money or any type of financials. No matter where you work, though, you can’t be fired from a current employer because of a bankruptcy.
Should I file bankruptcy?
There’s no correct answer to this question. It’s ultimately something you’ll need to decide on your own. However, there are a few things you can do to make sure you’re making the best decision possible. Start by finding a licensed credit counselor to help analyze your individual situation. They’ll help you review the guidelines for each type of bankruptcy and determine if you’re even eligible.
At first glance, filing for bankruptcy may seem like a great way to settle your debts and move on with your life. Unfortunately, the process isn’t as simple as filling out a form. The effects of bankruptcy will stick with you for years.
As you begin the evaluation process of whether bankruptcy is right for you, there are several considerations to consider. This overview will get you thinking about your situation. It will also point you in the right direction for more in-depth resources when you need them.
Is your current status temporary or permanent?
You should also look at your expected future and compare your potential earnings to your amounts of debt. If you don’t see how you’ll ever pay off that debt, then bankruptcy may be a wise option. Also, understand the types of debt you owe. Tax payments, student loan debt, and liens on your mortgage or car will not be discharged even when you file for bankruptcy.
Once you figure out which specific options are available to you, it’s time to contact a bankruptcy attorney. You’re certainly able to represent yourself, but the process is complicated. It’s usually best to have a professional work on the case on your behalf. Just be sure to interview a few different lawyers to get multiple opinions and prices to compare.
Evaluate Your Situation
Even when your bankruptcy is underway, it’s smart to spend some time evaluating how you got there. Was it due to a one-time financial hardship, like a long bout of unemployment? If that’s the case, then you know that you have a brighter future ahead of you with the promise of work and steady income to pay your bills.
However, if you’re on the path to bankruptcy because of reckless spending, you really need to look inward and address your overspending habits. Otherwise, it becomes too easy to put yourself in the same situation a few years down the road. Use your bankruptcy as a second chance to start fresh with a clean financial slate.
Why Consider Bankruptcy?
If you’re considering bankruptcy, then you’re most likely feeling overburdened with debt and other financial obligations. You probably have a tough time paying your bills each month and may even worry about how you’ll ever pay off some of your outstanding balances.
If you’ve already exhausted your other options, like working overtime and cutting back on your non-necessities, it might be time to seriously think about potentially declaring bankruptcy. Some signs that you might be ready include:
Increased interest rates because of late payments or bad credit
Using credit cards for daily purchases without paying off the balance each month
Already downsized things like house, car, and other assets
Working multiple shifts or jobs
Paying off debt with retirement funds
Wages are being garnished
If one or more of these situations apply to you, then you should probably continue your research into bankruptcy. If not, try finding other ways to improve your financial situation. For example, you could rework your budget if there are easy places to cut back on.
You can also try negotiating with your lenders, particularly if you’re experiencing just a short-term setback. Most lenders are willing to work with you. They would much rather set up a new payment plan than have the debt discharged or settled through bankruptcy.
Bankruptcy Alternatives
If you want to file for bankruptcy it takes careful planning. Due to the long-term legal and financial consequences of bankruptcy, there are many rules that must be followed before you’re eligible.
For example, it’s necessary to show the bankruptcy court that you have obtained credit counseling and considered debt relief options like debt settlement or debt consolidation. Bankruptcy is controlled exclusively by the federal judicial system, which strongly recommends hiring an attorney before attempting to file.
If you need help finding a bankruptcy lawyer, contact the American Bar Association. They offer free legal advice, and you may qualify for free legal services if you are unable to afford an attorney.
Creating a Checklist to Avoid Dismissal
Before you file for bankruptcy, there are several important questions you should ask yourself. There are also several key steps that you need to take. First, it’s necessary to ask yourself if you really need to file for bankruptcy.
If you don’t, you probably won’t be approved anyway. You also need to calculate income, expenses, and assets, find a trustworthy attorney, and select a credit counseling program.
It’s helpful to be methodical and to use a checklist. Failure to take the right steps and find the right credit counseling could result in more wasted money and a bankruptcy dismissal where they throw out the case.
Reasons to Delay Bankruptcy
Even if bankruptcy is the best choice for you, there may be some situations where it’s smart to delay the process so you can maximize your benefits. First, if you had a high income within the last six months that no longer applies to your situation, then you might want to wait.
That’s because the bankruptcy court weighs your last six months of income to determine your eligibility for Chapter 7 bankruptcy. If you had a nice monthly salary a few months ago but have been laid off since then, that means test isn’t going to reflect your current situation accurately.
Another reason to delay bankruptcy is if you are anticipating an upcoming major debt. New debt isn’t allowed to be discharged once you file for bankruptcy.
So, for example, if you’re about to have a major medical surgery, you might consider waiting until it’s over to include the medical bills as part of your bankruptcy plan. Talk to a professional to see the eligibility requirements. Luxury items charged right before a bankruptcy filing, for example, likely won’t be included as part of your debt discharge.
Changes in Bankruptcy Law
Before getting started, it’s important to note the changes that went into effect in 2005 under the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). While the changes don’t affect some people applying for bankruptcy, they may affect others.
Federal bankruptcy laws require mandatory credit counseling to make sure you fully understand the consequences of declaring bankruptcy. It also created stricter eligibility requirements for Chapter 7 bankruptcies. For Chapter 13 bankruptcy filings, the law requires tax returns and proof of income.
An informed decision begins with understanding bankruptcy laws, the bankruptcy process, and what has changed. It’s essential to better understand these changes before you make any final decisions.
Filing Under Chapter 7 or Chapter 13
Understanding how bankruptcy works means understanding the process and laws related to Chapters 7 and 13 of the Bankruptcy Code. Depending on the details of your situation, you might be eligible to file under Chapter 7 or Chapter 13. Which route you choose has a lot to do with your income and what assets you want to keep.
Your debts can either be resolved quickly or over a several-year period. It’s helpful to read up on in-depth frequently asked questions related to each route.
Calculating Chapter 7 Means
To have all your unsecured debts eliminated under Chapter 7 bankruptcy, you must qualify under the Chapter 7 means test. Using your personal information, or a basic estimate, an online calculator can help determine this for you. When filing bankruptcy, you must also fill out an appropriate form in which you enter your income, expense information, and data from the Census Bureau and IRS.
If you don’t meet the income level requirements to file for Chapter 7 bankruptcy, you can still file for Chapter 13. A Chapter 13 will settle many of your debts after you successfully complete a three to five-year repayment program.
Qualifying and Qualifying Debts
Your debts qualify for bankruptcy relief when you can prove you are unable to pay them, but a great deal depends on your situation and which chapter you are filing bankruptcy under. Debts can be either unsecured or secured. Secured debts include mortgages, cars, and debts related to a property you’re still paying for.
Unsecured debts include credit card debt, bills, collections, judgments, and unsecured loans. It’s important to know which debts qualify for bankruptcy. But, it’s even more important to know whether your situation makes you eligible for this major step. To determine this, a full financial assessment is necessary. You can start by reading more about debts that qualify.
Defaulting on a Student Loan
If you have defaulted on a student loan, there are several options open to you. Bankruptcy is one of them, but if your goal is to have a student loan discharged under Chapter 7, this can be very difficult.
Nevertheless, taking certain steps as soon as possible can help prevent wage garnishment. Knowing your options can help you make the best choice before matters become more difficult. Under Chapter 13, your defaulted loan can be consolidated with your other bills. This will give you a better payment plan or a temporary reprieve from making payments.
If you have a federal student loan, check out your repayment options, especially if you are facing financial hardship. Otherwise, read more to figure out how to pull yourself out of student loan default.
What Assets You Can Keep During Bankruptcy
Depending on how you file for bankruptcy, there are certain assets you can keep. Different states have different exemptions, and in certain states, you can choose between state and federal bankruptcy exemptions.
If you need to have debts discharged, are out of work, and cannot afford a repayment plan, some assets might be lost. In most cases, however, people who declare bankruptcy can keep their homes and cars and much of what they own while they repay their debts under a modified plan. It all depends on your unique circumstances and how you file.
Get a FREE Credit Evaluation Before You File Bankruptcy
A bankruptcy can affect your credit for 7 to 10 years and should be considered a last resort option when all other options have failed. Many times, people file bankruptcy when it is completely unnecessary. A credit professional can help you fix your credit and deal with your creditors so you can avoid filing for bankruptcy.
Before filing bankruptcy, talk to a credit specialist:
Visit the website and fill out the form for a free credit consultation with a professional credit repair company.
I have owned rental properties for many years and recently we started using a company that allows us to accept credit cards for rent payments. There are pros and cons to accepting credit cards but our tenants love it and they can pay online with many different sources besides credit cards. It can be quite complicated to set up credit card payments on your own but there are companies that will do this service for you greatly reducing the headaches.
Should you accept credit cards for rent payments?
One of the first things many landlords may ask themselves is should you accept credit cards for rent. There are some ethical concerns with helping tenants get further in debt. Credit cards can get people in trouble and in a bind they may not be able to get out of. However, you have to ask yourself if it is your job to decide how your tenants spend their money and how they pay rent as well.
While some tenants may get themselves in trouble paying with a card some may be responsible enough to handle it. Some tenants may earn points that help them get cash back or travel rewards. Even tenants who can’t use cards responsibly may be in a position to pay rent with a credit card or not pay rent at all. Personally, I don’t think it is the landlord’s job to decide these things. We rent to adults who make their own decisions.
How to get started investing in rental properties.
What are the advantages of accepting credit cards for rent?
Many of my tenants like to pay rent in cash or with a money order. They do not like checks which can make our jobs difficult because someone needs to be available to collect the money. Many of those tenants are willing to pay with a credit card or some other online form of payment. It cuts down on the time it takes to collect rent and the risk of having a lot of cash lying around the office if we accept cards.
If tenants do not have the cash or funds to pay rent, they may have room on their credit card which means landlords may have fewer issues with late rent. This could also be an advantage for tenants as well since they can avoid late rent fees.
What are the most landlord-friendly states?
How can landlords accept credit cards for rent payments?
There are many ways to accept credit cards for payments. I also own a liquor store and mini-mart and we have POS systems to accept credit cards for our customers. I also have some online coaching programs that accept cards through Teachable and I have used Stripe in the past as well. This would be a bit overboard for collecting rent and luckily there are companies that can collect online payments for you and even offer other property management services.
I have been using DoorLoop for a few months and love it. We have set numerous tenants up on auto pay and online payments for rent which they love and makes our lives easier as well. I get notifications when payments are made which is a welcome alert! Many other property management companies will offer this service as well, both local and online. If you are thinking of accepting online payments it may not be as difficult as you think!
Should you use a property manager?
Another thing to consider if you are collecting rent yourself is if it is worth your time. I have a real estate brokerage and people who help me manage the properties and collect rent. There is no way it would be worthwhile for me to do all the tasks involved with property management.
If you are thinking of collecting rent with credit cards you may also consider handing over all of the property management duties as well.
Rent abatement is a powerful tool that can benefit both landlords and tenants, providing a financial cushion in times of hardship or unexpected events. By understanding the ins and outs of rent abatement, you can ensure a mutually beneficial agreement and avoid potential legal disputes. In this blog post, we will delve into the different types of rent abatement, negotiation strategies, common scenarios, insurance options, and legal aspects to help you navigate this crucial aspect of the landlord-tenant relationship.
Key Takeaways
Rent abatement is an agreement between landlords and tenants which can provide mutual protection while potentially increasing tenant attraction.
Negotiating rent abatement requires understanding one’s rights, being prepared for counteroffers, considering the entire agreement and relevant market conditions.
Successful implementation of rent abatement requires open communication and a thorough review of lease terms to ensure mutual protection.
What is Rent Abatement?
Rent abatement, including partial rent abatement, is a temporary reduction or suspension of rent payments in specific situations, such as property damage or natural disasters, benefiting both landlords and tenants. It is a powerful financial tool that can help protect both parties from unforeseen circumstances, especially in commercial real estate where businesses can be significantly impacted by property damage or other issues.
A smooth and successful relationship between landlords and tenants is facilitated by incorporating rent abatement terms in the lease agreement. These terms can provide substantial protection and lead to increased tenant attraction and revenue for landlords, while tenants may enjoy a partial discount on the overall rental period.
Commercial Lease Rent Abatement
In commercial leases, rent abatement can be negotiated during tenant improvements, as a concession, or due to the space being untenantable. Rent abatement is often viewed by landlords as a necessary compromise, given it is a more attractive option than having an empty office space during the abatement period.
Typically, rent abatement is applied in commercial leases when the tenant’s space is undergoing construction or to cover the tenant’s business opening. This can result in a rent reduction for the tenant during the specified period, helping businesses minimize their financial burdens during times of transition or renovation.
Residential Lease Rent Abatement
Residential rent abatement typically applies when a property becomes uninhabitable due to damage or necessary repairs. This form of rent relief helps protect tenants from financial hardships when they are unable to fully utilize their living space. During this period, the tenant may be eligible for abated rent, depending on the terms of the lease agreement.
Both landlords and tenants have specific rights and responsibilities regarding rent abatement in residential leases. Landlords must ensure that the rental property is safe and habitable, while tenants must adhere to the lease agreement and make timely rent payments.
For a successful rent abatement implementation, open communication, thorough review of lease terms, and preparedness to negotiate are key strategies landlords and tenants should adopt.
Negotiating Rent Abatement in Lease Agreements
Successfully negotiate rent abatement in lease agreements by understanding your rights and responsibilities as a landlord or tenant and being prepared for counteroffers from the other party. This process can be complex and requires careful consideration of the entire agreement, as well as an understanding of the relevant market conditions.
Landlords may offer alternative options such as longer lease terms, higher lease rates, and higher yearly rent escalations in lieu of rent abatement. To navigate these negotiations effectively, it is advisable to save the abatement request for a later stage, after addressing the primary requests and concessions. Flexibility and openness to compromise can lead both parties to an agreement that offers mutual benefits.
Know Your Rights and Responsibilities
When negotiating rent abatement, landlords and tenants should be aware of their rights and responsibilities. For landlords, this involves:
Evaluating the tenant’s request and determining the legitimacy of the stated reasons
Communicating with the tenant
Negotiating the terms of the rent abatement agreement
Tenants, on the other hand, have the right to request rent abatement if they are experiencing issues with their rental unit that may affect their ability to pay rent. They also have the responsibility to communicate with the landlord, provide necessary documentation or evidence, and negotiate the terms of the rent abatement agreement.
A comprehensive understanding of these rights and responsibilities can enable both parties to collaboratively reach a fair agreement.
Be Prepared for Counteroffers
When negotiating rent abatement, tenants should expect counteroffers from landlords, such as longer lease terms or higher rent. These counteroffers may be offered as alternatives to rent abatement, so it’s important for tenants to be ready to negotiate and be amenable to compromise.
To effectively negotiate counteroffers, tenants should engage in transparent dialogue with their landlord, thoroughly analyze the lease terms, and be willing to meet halfway. Preparation for counteroffers and a clear understanding of their rights and obligations under the lease agreement can empower tenants to successfully navigate rent abatement negotiations and reach an outcome that benefits both parties.
Rent Abatement Scenarios
Rent abatement scenarios include property damage and repairs, as well as natural disasters and evacuations that render the property unusable. In these situations, rent abatement provisions in lease agreements can provide financial relief for tenants and help landlords avoid potential legal disputes.
Whether the property is commercial or residential, understanding the various rent abatement scenarios and the implications for both landlords and tenants is crucial for a successful landlord-tenant relationship. By being aware of these scenarios, both parties can work together to address the issues and find a fair solution that meets everyone’s needs.
Property Damage and Repairs
Rent abatement may apply when a property is damaged and requires repairs, making it temporarily uninhabitable. In such cases, the landlord is obligated to cover the costs of repair, and their business liability insurance typically provides the necessary coverage.
During the rent abatement period, rent abatement can provide tenants with financial relief, allowing them to stop paying rent for an unusable space and focus on finding temporary housing or alternative arrangements without the burden of paying rent.
It’s important for both landlords and tenants to understand the terms of their lease agreement regarding property damage and repairs to ensure a smooth rent abatement process.
Natural Disasters and Evacuations
Natural disasters and government-mandated evacuations can also trigger rent abatement provisions in lease agreements. In these situations, the property may be rendered unusable, and tenants may require financial assistance to cope with the unexpected event.
By incorporating rent abatement clauses in lease agreements, both landlords and tenants can be prepared for such scenarios and ensure that their rights and responsibilities are clearly outlined. Understanding the role of rent abatement in natural disasters and evacuations can help both parties navigate these challenging situations and reach a fair resolution.
Insurance Options for Landlords and Tenants
Insurance options for landlords and tenants include renter’s insurance, business liability insurance, and business interruption insurance to cover various risks and expenses. These insurance options provide financial protection for both parties in situations where rent abatement may be applicable, as well as in other unforeseen events.
A clear understanding of the available insurance options and their respective coverages enables landlords and tenants to make informed decisions on the best policies to suit their needs and mitigate potential risks. This ensures that both parties are adequately protected and prepared for any challenges that may arise during the rental period.
Renter’s Insurance
Renter’s insurance covers personal belongings and temporary housing in case of property damage or rent abatement ineligibility. This type of insurance is essential for residential tenants, as it provides financial protection against theft, fire, natural disasters, and other unexpected events that may affect their personal property.
Obtaining renter’s insurance is a recommendation applicable to all tenants, irrespective of their rental situation. This way, they can safeguard their personal belongings and enjoy peace of mind knowing they are covered in the event of unexpected occurrences.
Business Liability Insurance
Business liability insurance protects commercial tenants from property damage and loss of personal property caused by the rented space. This type of insurance is crucial for commercial tenants, as it provides coverage for losses incurred due to property damage and helps them avoid potential financial hardships.
Commercial tenants should carefully consider the extent of their business liability insurance coverage for their commercial property, as well as any additional coverage options that may be necessary for their specific situation. By doing so, they can ensure that their business is adequately protected against potential risks and unexpected events.
Business Interruption Insurance
Business interruption insurance covers lost income and operating expenses due to property damage or destruction. This type of insurance is particularly important for commercial tenants, as it provides financial assistance to businesses that experience a loss of income due to a covered peril, such as a natural disaster or property damage.
When obtaining business interruption insurance, tenants should ensure that they have set appropriate policy limits and understand the coverage provided by the policy. This will help them to be prepared for any unexpected events that may impact their business operations and minimize potential financial losses.
Legal Aspects of Rent Abatement
Legal aspects of rent abatement include incorporating rent abatement clauses in lease agreements and taking a rent abatement case to court if necessary. Understanding the legal implications of rent abatement is crucial for both landlords and tenants, as it ensures that their rights and responsibilities are clearly outlined and that any disputes can be resolved fairly and efficiently.
Awareness of the legal aspects of rent abatement enables landlords and tenants to collaboratively address potential issues and find a resolution benefiting both parties. This helps to maintain a positive landlord-tenant relationship and minimize the risk of legal disputes.
Rent Abatement Clauses in Lease Agreements
Rent abatement clauses in lease agreements outline the terms and conditions under which rent abatement can be applied. These clauses are essential for ensuring that both landlords and tenants understand their rights and responsibilities in case of property damage, natural disasters, or other scenarios that may trigger rent abatement.
Incorporating clear and comprehensive rent abatement clauses in lease agreements helps both parties sidestep misunderstandings and potential disputes. This helps to maintain a positive landlord-tenant relationship and ensures that both parties are protected in case of unexpected events.
Taking a Rent Abatement Case to Court
Tenants can take a rent abatement case to court if the landlord fails to meet lease terms or provide a habitable property. In such cases, tenants may be required to request an inspection by city officials and, if the landlord still does not comply with the required repairs, the tenant can bring the case to court.
Understanding the process of taking a rent abatement case to court is crucial for tenants who may need to pursue legal action against their landlord. Preparation and knowledge about the legal aspects of rent abatement empower tenants to protect their rights and ensure they receive the appropriate financial relief.
Tips for Successfully Implementing Rent Abatement
Successfully implementing rent abatement requires open communication between landlords and tenants, as well as a thorough review of lease terms. By maintaining a positive dialogue and understanding the legal implications of rent abatement, both parties can work together to reach a fair and mutually beneficial agreement.
Maintaining a successful rental relationship and ensuring protection of respective rights and responsibilities can be achieved by landlords and tenants through proactive addressing of potential rent abatement scenarios and adherence to these tips.
Communicate Openly and Honestly
Maintaining open and honest communication between landlords and tenants is essential for ensuring a smooth rent abatement process. By being transparent in their communication and receptive to each other’s perspectives, both parties can work together to address any issues that may arise and find a fair solution.
Maintaining open communication can be achieved through strategies such as proactive discussions about potential rent abatement scenarios, clear and timely updates on property repairs, and a willingness to compromise and negotiate. Through effective communication, both landlords and tenants can build trust and ensure a successful rental relationship.
Review Lease Terms Carefully
Both parties should review lease terms carefully to understand their rights and responsibilities regarding rent abatement. By being aware of the specific clauses and provisions related to rent abatement in their lease agreement, landlords and tenants can avoid potential misunderstandings and disputes.
Review of lease terms by both parties should take into account clauses related to rent abatement. These clauses may include stipulations for:
Rent reductions or waivers in the case of property damage
Rent reductions or waivers in the case of natural disasters
Rent reductions or waivers in the case of other scenarios
By understanding these terms and ensuring that they are clearly outlined in the lease agreement, both landlords and tenants can work together to address potential rent abatement issues and find a mutually beneficial solution.
Summary
In conclusion, rent abatement is a powerful financial tool that can benefit both landlords and tenants in times of hardship or unexpected events. By understanding the different types of rent abatement, negotiation strategies, common scenarios, insurance options, and legal aspects, landlords and tenants can navigate this crucial aspect of their relationship and ensure a successful rental experience. Remember, communication is key, and a thorough understanding of your lease terms is essential to protect your rights and responsibilities.
Frequently Asked Questions
What is the rent abatement in NJ?
In New Jersey, a rent abatement is a court order resulting from a finding that the property was not maintained in a habitable condition. It allows the tenant to be charged only with the reasonable rental value of the property in its imperfect condition during the tenancy.
How do I request rent abatement in NYC?
To request rent abatement in NYC, you can submit an individual complaint by using the DHCR Form RA-81 or submitting a complaint online at www.hcr.ny.gov.
How do you use rent abatement in a sentence?
Tenant acknowledges and agrees to a rent abatement granted as additional consideration for entering into an amendment and paying rent under the lease.
What is the main purpose of rent abatement?
Rent abatement is a beneficial measure which allows landlords and tenants to temporarily reduce or suspend rent payments in specific situations, such as property damage or natural disasters.
How is rent abatement negotiated in lease agreements?
Rent abatement can be successfully negotiated in lease agreements by being knowledgeable about your rights and responsibilities and being prepared for counteroffers.
This article is intended for informational purposes only and should not be considered legal advice. Always consult a qualified attorney in regards to any legal matters.
A financial instrument is simply a contract between entities that represents the exchange of money for a certain asset. Financial instruments include most types of investments: cash, stocks, bonds, mutual funds, exchange-traded funds (ETFs), certificates of deposit (CDs), loans, derivatives, and more.
Financial instruments facilitate the movement of capital through the markets and the broader economic system. While this may take different forms, the flow of capital remains a central feature.
What Is a Financial Instrument?
Generally Accepted Accounting Principles (GAAP) defines a financial instrument as cash; evidence of an ownership interest in a company or other entity; or a contract. A financial instrument confers either a right or an obligation to the holder of the instrument, and is an asset that can be created, modified, traded, or settled.
Investors can trade financial instruments on a public exchange. The New York Stock Exchange (NYSE) is an example of a spot market in which investors can trade equity instruments for immediate delivery. 💡 Quick Tip: The best stock trading app? That’s a personal preference, of course. Generally speaking, though, a great app is one with an intuitive interface and powerful features to help make trades quickly and easily.
Financial Instrument vs Security
A security is a type of financial instrument with a fluctuating monetary value that carries a certain amount of risk for the individual or entity that holds it. Investors can trade securities through a public exchange or over-the-counter market.
The federal government regulates securities and the securities industry under a series of laws, including the Securities Act of 1933, the Securities Exchange Act of 1934, and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
All securities are financial instruments but not all financial instruments are securities.
Like financial instruments, securities fall into different groups or categories. The four types of securities include:
• Equities. Equities represent an ownership interest in a company. Stocks and mutual funds are examples of equity securities.
• Debt. Debt refers to money lent by investors to corporate or government entities. Corporate and municipal bonds are two examples of debt securities.
• Derivatives. Derivatives are financial contracts whose value is tied to an underlying asset. Futures and stock options are derivative instruments.
• Hybrid. Hybrid securities combine aspects of debt and equity. Convertible bonds are a type of hybrid instrument.
Recommended: Bonds vs. Stocks: Understanding the Difference
Types of Financial Instruments
Financial instruments are not all alike. There are different types of financial instruments in different asset classes. Certain financial instruments are more complex in nature than others, meaning they may require more knowledge or expertise to handle or trade.
1. Cash Instruments
Cash instruments are financial instruments whose value fluctuates based on changing market conditions. Cash instruments can be securities traded on an exchange, such as stocks, or other types of financial contracts.
For example, a certificate of deposit account (CD) is a type of cash instrument. Loans also fall under the cash instrument heading as they represent an agreement or contract between two parties where money is exchanged.
2. Derivative Instruments
Derivative instruments or derivatives draw their value from an underlying asset, and fluctuate based on the changing value of the underlying security or benchmark.
As mentioned, options are a type of derivative instrument, as are futures contracts, forwards, and swaps.
3. Foreign Exchange Instruments
Foreign exchange instruments are financial instruments associated with international markets. For example, in forex trading investors trade currencies from different currencies through global exchanges.
Asset Classes of Financial Instruments
Financial instruments can also be broken down by asset class.
4. Debt-Based Financial Instruments
Companies use debt-based financial instruments as a means of raising capital. For example, say a municipal government wants to launch a road improvement project but lacks the funding to do so. They may issue one or more municipal bonds to raise the money they need.
Investors buy these bonds, contributing the capital needed for the road project. The municipal government then pays the investors back their principal at a later date, along with interest.
5. Equity-Based Financial Instruments
Equity-based financial instruments convey some form of ownership of an entity. If you buy 100 shares of stock in XYZ company, for example, you’re purchasing an equity-based instrument.
Equity-based instruments can help companies raise capital, but the company does not have to pay anything back to investors. Instead, investors may receive dividends from the stock shares they own, or realize profits if they’re able to sell those shares for a capital gain.
Are Commodities Financial Instruments?
Commodities such as oil or gas, precious metals, agricultural products and other raw materials are not considered financial instruments. A commodity itself, such as pork or copper, doesn’t direct the flow of capital.
That said, there are certain instruments whereby commodities are traded, including stocks, exchange-traded funds, and futures contracts.
A futures contract represents an agreement to buy or sell a certain commodity at a specific price at a future date. So, for example, an orange grower might sell a futures contract agreeing to sell a certain amount of their crop for a set price. An orange juice company could then buy a contract to purchase oranges at X price.
For the everyday investor, futures trading in commodities typically doesn’t mean you plan to take delivery of two tons of coffee beans or 4,000 bushels of corn. Instead, you buy a futures contract with the intention of selling it before it expires. 💡 Quick Tip: It’s smart to invest in a range of assets so that you’re not overly reliant on any one company or market to do well. For example, by investing in different sectors you can add diversification to your portfolio, which may help mitigate some risk factors over time.
Uses of Financial Instruments
Investors and businesses may use financial instrument for the following purposes:
1. As a Means of Payment
You already use financial instruments in your everyday life. When you write a check to pay a bill or use cash to buy groceries, you’re exchanging a financial instrument for goods and services.
Likewise, business entities may charge purchases to a business credit card. They’re borrowing money from the credit card company and paying it back at a later date, often with interest.
2. Risk Transfer
Investors use financial instruments to transfer risk when trading options and other derivative instruments, such as interest rate swaps. With options, for example, an investor has the option to buy or sell an underlying asset at a specified price on or before a predetermined date. A contract exists between the individual who writes the option and the individual who buys it. This type of financial instrument allows an investor to speculate about which way prices for a particular security may move in the future.
3. To Store Value
Businesses often use financial instruments in this way. For example, say you default on a credit card balance. Your credit card company can write off the amount as a bad debt and sell it to a debt collector. Meanwhile, businesses with outstanding invoices they’re awaiting payment on can use factoring or accounts receivables financing to borrow against their value.
4. To Raise Capital
Companies may issue stocks or bonds in order to get access to capital that they can invest in their business. In this case, the financial instruments could be a means of raising capital for one party and a store of value for the other.
Importance of Financial Instruments
Financial instruments are central to not only the stock market, but also the financial and economic system as a whole. They provide structures and legal obligations that facilitate the regulated exchange of capital via investing, lending and borrowing, speculation and growth.
In short, financial instruments keep the financial markets moving, and they also help businesses to keep their doors open and allow consumers to manage their finances, plan for the future, and invest with the hope of future gains.
For example, you may also have a savings account that you use to hold your emergency fund, an Individual Retirement Account (IRA) that you use to save for retirement and a taxable brokerage account for trading stocks. Your checking account is one of the basic tools you might use to pay bills or make purchases.
You might be paying down a mortgage or student loans while occasionally using credit cards to spend. All of these financial instruments allow you to direct the flow of money from one place to another.
The Takeaway
Financial instruments are integral to every aspect of the financial world, and they also play a significant part in business transactions and day-to-day financial management. If you trade stocks, invest in an IRA, or write checks to your landlord, then you’re contributing to the movement of capital with various financial instruments. Understanding the different types of financial instruments is the first step in becoming a steward of your own money.
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Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at [email protected]. Please read the prospectus carefully prior to investing. Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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So, you’ve decided it’s time for you and your dog to move. You do your research, choose your preferred neighborhood and take the time to come up with several options for apartments you’d like to see. You set up viewings, find the perfect place and send in an application.
But if you’ll be renting with a dog, did you remember to check for breed restrictions? Some apartment communities have a list of restricted dog breeds — and may exercise restraint when it comes to “aggressive” dog breeds in particular.
If your dog is not accepted in your target apartment community, your application may get rejected even if you have good credit and income to cover the rent.
Before you begin the process of finding a new home — it’s important to understand what breed restrictions are and how they can impact your ability to rent with a dog when facing apartment breed restrictions.
What are apartment breed restrictions?
Breed restrictions are just what they sound like: Certain dog breeds and their mixes are not permitted to live in certain buildings, houses and apartments. That means that even if Fido is a mutt — he may not make the cut, depending on the various dog breeds in his mix.
Breed restrictions came about to protect people from what some consider “dangerous” or aggressive dog breeds — especially pit bulls. In other words, if dogs that are commonly associated with aggression aren’t allowed in, there’s likely less chance of attacks or dog bites within the apartment community.
If you’re unsure of your dog’s breed, get a DNA test done! It is tough to identify a breed or breed mix visually.
Dog breed restrictions by weight or age
Another common factor in breed restrictions is the weight and age of your dog. Because apartments are usually smaller than homes and condos, property managers may not want a large dog on-site. Often, renters are only allowed to have smaller breeds.
Age is another factor because puppies often are hyper and destructive, making landlords wary that they’ll tear up the apartment.
Why do apartments have breed restrictions?
There are three reasons dogs may face restrictions living in an apartment building:
Legislation: Some cities and counties have enacted breed-specific legislation that can ban certain breeds from even entering the city or county limits
Insurance companies: Many insurance companies have blacklists that the buildings or apartments they insure must abide by
Landlord’s choice: Breed restrictions are the decision of the building’s landlord or management company
Commonly restricted dog breeds
Each apartment community will probably maintain its own list of specific breed restrictions, but here’s a look at the most common aggressive dog breeds:
Akitas
Alaskan Malamutes
Bulldogs
Cane Corso
Chows
Doberman Pinschers
German Shepherds
Great Danes
Mastiffs
Pit bulls
Rottweilers
Siberian Huskies
Terriers
Wolf hybrids
Mixes of these breeds may also be restricted in some communities. Check with the property manager or leasing agent if you have any questions.
Are apartment breed restrictions legal?
Many activists, as well as some high-level animal organizations (including the American Society for the Prevention of Cruelty to Animals), are completely against breed restrictions for several reasons.
Consider this: Has Fido ever attacked another animal or human or acted aggressively above and beyond what’s normal for dogs? If not, why should he be restricted just because other dogs of the same breed have shown aggression?
Basically, many animal organizations agree that aggressive behavior in a dog is much more about nurture than nature — it all depends on how the animal grows up and how it responds to training. Plus, many believe that breed restrictions simply don’t work to lessen the chances of dog attacks or bites.
Unfortunately, breed restrictions have increased the number of homeless dogs — sometimes, owners simply set the dog loose or bring it to an animal shelter rather than trying to find an apartment that accepts all breeds.
What can I do if my dog is on a list of apartment breed restrictions?
Breed-specific restrictions have been slowly decreasing — great for loving dog owners like you! However, that doesn’t necessarily mean that insurance companies or landlords are going to change their minds.
If Fido is not welcome off the bat, there are a couple of things you still might be able to do to persuade your landlord into giving your beloved fur baby a chance.
1. Request a pet interview
If the breed restrictions are in place by a landlord (not an insurance company), there’s still hope! Ask the landlord if he or she is willing to do a doggie interview during which he or she can meet and interact with Fido.
If the building has an area for dogs to roam, ask if you can hold the interview there. That way, the landlord will be able to see Fido has no aggressive tendencies toward dogs or people. Create some talking points to guide the interview in the right direction.
Talk about your pet being part of the family — especially the role they play as a family member. Discuss your understanding and good track record of keeping your past properties clean and well-maintained, despite your dog(s). Offer additional money on your non-refundable pet deposit.
2. Create dog resumes
Next time you apply for an apartment, come prepared. Put together a pet resume for Fido with pictures, vet records and any other information you have. You can even bring along a video to show the landlord. Who will be able to resist those puppy dog eyes?
Apartment Guide has a simple tool that will let you build a printable pet resume for your animals.
3. Provide references
Your future landlord might not always want to meet your pet right off the bat, especially if they have a fear related to aggressive dog breeds. If this is the case, ask your vet, groomer, pet sitter/boarding facility or friends and family to write letters of reference for your furry friend.
4. Gather vet records
Gather up and provide proof of your pet’s medical records (i.e. vaccinations, Rabies shots, tag registration, etc.)
5. Create a video
Make a video of your pet showing it as a part of your family. If possible, try to include shots of interactions with children, other pets and elderly people. This might build trust between your potential landlord and your pet.
6. Offer to pay pet rent
We’ve all heard the expression that “money talks.” You might be able to offer your landlord a little more security with the promise of extra monthly rent for Fido.
7. Secure renters insurance
Many landlords will want you to have your own kind of Renters’ Insurance regardless of your pets, but in this case, try taking it a step further. Offer to secure a policy that covers your pets and has a liability policy that covers them of $300,000 — listing the landlord as an additional insured member.
Additional animal restrictions
Thinking about becoming the next Tiger King? Great! Just check with your landlord or state first.
Often, pets other than dogs face restrictions, too. Any animal from hedgehogs and ferrets to zebras or certain snakes may not find itself welcome.
Pet owners should take restricted breeds seriously
It might be tempting to lie on your application about your pets, but lying is the worst thing you can do. If a landlord discovers you’ve been dishonest about your pet(s), they can potentially evict you — and living on the street is not an option.
Wesley is a Charlotte-based writer with a degree in Mass Communication from the University of South Carolina. Her background includes 6 years in non-profit communication and 4 years in editorial writing. She’s passionate about traveling, volunteering, cooking and drinking her morning iced coffee. When she’s not writing, you can find her relaxing with family or exploring Charlotte with her friends.
Searching for a new apartment often takes a lot of time and research; in fact, it can be disheartening if you have a hard time finding an apartment you love. And that’s why winter is the best time to rent an apartment. You might be surprised at how easy it is to discover your next apartment, one that you can’t wait to turn into a home.
1. There often is lower demand in the winter
It’s no secret people love to move in the summer. The weather usually is great, the kids are out of school for families looking to relocate and there often is less demand on our time for other activities. In fact, 40 percent of all moves occur in the summer, with just 5% taking place in November and December. As a result, apartment shoppers can find some great apartments for rent, particularly new apartments that may be completed during the season.
2. You could find more options for apartment size, style
In tandem with lower demand, renters may find there is a wider variety of apartment sizes and styles available during the winter than in other seasons. Because demand is lower, it might be easier to find that two-bedroom apartment you wanted instead of having to settle for a one-bedroom unit. This also applies to those new apartments that are completed during the winter. That means you could land a great apartment with new appliances, updated finishes and special spaces such as a sunroom or screened porch.
3. There could be more availability with movers
Because people don’t move as often during the winter, you may be able to book your movers on your timetable instead of having to wait for one to become available. This is important so you can schedule the movers around your commitments and work schedule and don’t have to use valuable personal or vacation days for moving instead. Also, during this slower season, movers may not be as rushed, so might be less likely to damage your items.
4. You could have more time off to move
No one wants to spend their personal or vacation days moving instead of on a much-needed vacation. When moving in the winter, particularly around the holidays, you likely could have extra days off that won’t interfere with your PTO or vacation days. Although no one wants to spend their holidays moving, it could prove beneficial if you don’t have to take off extra time at work.
5. You could snag an apartment when a fall graduate vacates
Looking for an apartment near a college campus could be especially challenging because many, if not most, apartments are already booked from September through May. However, if you are moving to a college town during the winter, particularly in December or January, you could score an apartment when a fall graduate prepares to move out. After all, no landlord wants an apartment to sit empty until the new students arrive in August or September.
6. You could save money
While you may not be looking for a less expensive apartment, you could still score one during the winter. No landlord wants a vacant apartment, so it’s not uncommon for them to run rent specials during the winter when demand is low. This could range from waiving the security deposit to offering a free month of rent to reducing rent for the entire term of the rental agreement.
7. It’s a good time to negotiate preferred rental terms
Because landlords want to rent empty apartments during the winter, the tenant is in a good position to negotiate the rental agreement terms. This could include asking for a shorter- or longer-term lease, waiving fees such as those for pets or upgrading the appliances in the unit. If there’s something you want, now is the time to ask. The worst that could happen is the landlord says no.
Yes, winter is the best time to rent an apartment
As you can see, renting an apartment during the winter could provide many benefits, so don’t hesitate to start looking for a new apartment when the weather turns cold. You could end up scoring a hot deal on your next home.
Alicia Underlee Nelson is a freelance writer and photographer. Her work has appeared in Thomson Reuters, Food Network, USA Today, Delta Sky Magazine, AAA Living, Midwest Living, Beer Advocate, trivago Magazine, Matador Network, craftbeer.com and numerous other publications. She’s the author of North Dakota Beer: A Heady History, co-host of the Travel Tomorrow podcast and leads travel and creativity workshops across the Midwest.
Here are the steps landlords and property managers can take to evict a tenant whose lease has ended.
When a tenant’s lease agreement ends, you expect that they’ll either renew the lease and keep living in the unit or inform you that they’re moving out. But what if a tenant doesn’t take either action? That’s when they become a holdover tenant.
These tenants don’t sign a new lease but continue to live in the rental. And there are several options for handling the situation, including eviction. Here’s a look at what to do about a holdover tenant.
What is a holdover tenant?
A holdover tenant is a renter who doesn’t vacate the home at the end of a lease term and keeps living in the property without permission from a property owner or manager. They often even continue paying rent.
Tenants can actually go on living in the home without a lease, until the property manager goes through a formal process to remove them. So, the holdover period officially starts when a lease concludes and ends when the tenant is given a written notice to leave.
What to do about a holdover tenant?
Landlord-tenant laws vary drastically by state and city, so you must read up on your local area’s regulations regarding holdover tenants. In some cases, if a property manager accepts rent, it resets the lease term and you can’t evict them. In other areas, accepting rent enacts a month-to-month lease.
When drafting your lease agreement, include details about what happens once a lease agreement expires to prevent having holdover tenants. Specify a timeframe when you’ll take action if someone doesn’t move out of the home after the lease term and what that action will be.
Since rental laws vary so much, how to best handle a holdover tenant depends on where you live. The first step is to discuss the situation with the tenant to get a sense of their intentions and what might work best for everyone. Often, finding a way to keep a good tenant in your unit is best. Advertising the home and finding new tenants is time-consuming and costly.
Eviction is often one option for dealing with a holdover tenant. You can also convert them to a month-to-month lease, especially if they’re still paying rent. Include terms for how they notify you when they want to move out and how you’ll inform them when you want to end the lease. And, of course, make sure everyone signs the new lease.
How to evict a holdover tenant
If you decide eviction is the best way to deal with a holdover tenant, there are several steps to take. Keep in mind that evictions can take time and usually come with hefty expenses. Here’s how to evict a holdover tenant:
Know the law
Eviction laws differ from state to state, so start by researching local laws. The laws are complex, so hiring an attorney is the best way to ensure you do the eviction by the book. Also, double-check that there are no local eviction moratoria in your area.
Establish grounds for eviction
Before you begin the official eviction, make sure you have a good reason. Staying past a lease term without permission is often grounds for eviction — but you must know for sure. And, if you’ve been accepting rent payments, that could complicate your ability to evict. That’s why consulting with an attorney is crucial.
If the tenant isn’t paying rent, has caused damage to the property or has violated the lease agreement in other ways, that’s adequate grounds for eviction. You’ll most likely need to prove your case if the eviction goes to court. So, hang onto any emails or letters about the end of the lease, late rent or any other issue that has come up.
Ask the tenant to leave
Simply asking the holdover tenant to leave the property can save you both a lot of time and money. If you have a good relationship with your renter, you can explain that the lease term has ended and that they’ll need to sign a new lease to continue living in the unit. Otherwise, you’ll have to evict them.
Mention that the eviction will take time, likely cost them money and could harm their credit, which might affect their ability to rent a home in the future. Working out a solution is better for everyone involved.
But, never take matters into your own hands. Avoid removing a tenant’s belongings from the home or changing the locks. If you can’t persuade the tenant to leave, that’s when you should send a formal eviction notice.
Provide the holdover tenant with a formal notice
To officially start the eviction process, you must send a formal eviction notice to the holdover tenant. The notice tells the tenant that they must vacate the property by a specific date or you’ll proceed with the eviction through the court system.
The eviction notice should include the following elements:
Rental property address
Date when the tenant must move out
A detailed description of the situation, including the reason for the eviction
An explanation of why the holdover status violates the lease agreement
Deliver the eviction notice in person or send via certified mail or a read receipt email, so you have proof they received it. Deliver the notice within a certain number of days before filing with the courts, usually 30 or 60 days but it depends on local eviction laws.
File the eviction with the court
If the tenant doesn’t respond to the eviction notice or move out of the unit, file it with the court. The specific process for filing evictions with the courts is different from place to place, so contact your courthouse for the details.
Usually, the process goes something like this:
File the paperwork in person at your local courthouse
Pay a fee
Show proof that you provided a formal eviction notice to the tenant
Receive a scheduled hearing date
The court will inform the tenant of the eviction filing and hearing.
On the hearing date, be sure to attend and make your case for removing the tenant. You have the option to hire an attorney or represent yourself. And, you’ll want to bring evidence, such as the original lease agreement, records of communication with the tenant, the formal eviction notice and proof that the tenant received the notice.
Go through with evicting the holdover tenant
If the court sides with you, the holdover tenant will be given a move-out date. The exact timeframe they’ll have to move out depends on local laws.
Hopefully, they’ll go peacefully. If not, you have the right to contact local law enforcement, citing the court’s judgment in your favor. A police officer will tell the tenant to move out in a day or two or escort them off the property.
If the tenant owes back rent, you can file a small claims lawsuit to collect it. You’ll receive a court order to garnish the renter’s wages and repay the owed rent.
Evicting a holdover tenant from your rental
A holdover tenant isn’t something most property managers or owners expect, but it happens. The best way to handle it is to prepare and include provisions for holdover tenants in the lease agreement. In the worst-case scenario, you can use these tips to evict the tenant. When you list your rental at Rent., you can get in front of millions of potential renters, screen tenants and collect rent online.
Erica Sweeney covers real estate, business, health, wellness and many other topics. Her work has appeared in The New York Times, The Guardian, Good Housekeeping, HuffPost, Parade, Money, Business Insider, Realtor.com and lots more.
UK ‘mortgage meltdown’ looms amid ‘terrifying’ growth in arrears
Jump in borrowers unable to make payments with landlords particularly hit and ‘worse to come’
Analysis: will the Bank listen to business and halt rate rises?
Mortgage balances with arrears jumped by 13% in the second quarter of the year to the highest level since 2016, according to Bank of England figures that underscore the stress in the UK mortgage market.
Rising interest rates and unemployment over recent months have put pressure on household disposable incomes, forcing some families to cut or suspend their monthly mortgage payments.
Buy-to-let mortgage payers have also come under pressure in parts of the country where tenants are struggling with the cost of living crisis.
The Bank of England said the total value of mortgage balances which had some arrears rose to £16.9bn, up by 29% on the previous year and the highest since the third quarter of 2016.
Mortgage arrears are based on figures showing the number of borrowers failing to make payments equivalent to at least 1.5% of the outstanding mortgage balance or where the property is in possession.
Mortgage lending was also hit in the second quarter with gross advances falling by £6.3bn to £52.4bn. Year on year, mortgage lending slumped by almost a third, to the lowest level since the worst of the Covid-19 collapse in lending in the second quarter of 2020.
Lewis Shaw, founder of Mansfield-based Shaw Financial Services, told the news agency Newspage a “mortgage meltdown” is approaching, unless the Bank of England changes its approach.
Shaw said: “The speed at which mortgage arrears are increasing is terrifying and should give cause to pause at the next Bank of England interest rate meeting. This is dire data, and we know that it’s about to get an awful lot worse with 1.6m mortgage holders due to renew over the next 12 months at significantly higher rates than anyone has been used to for well over a decade.”
Simon Gammon, managing partner at the finance arm of estate agents Knight Frank, said the proportion of mortgage payers falling behind with payments remained low at just 1%, despite the “sizeable jump in arrears”.
He said: “That’s because the vast majority of outstanding mortgages were issued under the post-global financial crisis regime, which was much more stringent when it comes to affordability.”
However, while homeowners were more likely to make cuts to other spending before falling behind with mortgage payments, buy-to-let landlords may take a different view, he said.
“We are more likely to see arrears in the buy-to-let sector, where landlords face a unique set of challenges. If a landlord finds their mortgage is no longer affordable, or the rent no longer covers their outgoings, they only have two choices – sell or default. If they opt to sell, they may have to wait up to a year for the tenancy to end, unless they are willing to sell with a tenancy in place, which is more difficult.
“Landlords are also more likely to opt to default than those struggling with a mortgage secured against their main residence, so this is an area to watch,” he added.
Incoming Bank of England deputy governor Sarah Breeden said she agreed with her future colleagues on the monetary policy committee (MPC), which sets UK interest rates, that inflation may fall at a slower pace next year than expected, forcing the central bank to keep the cost of borrowing higher for longer than expected.
Breeden, who will replace Jon Cunliffe as the Bank’s deputy governor for financial stability after the MPC’s meeting next week, said there was also a risk that growth and unemployment will worsen.
“I will, after November, be very careful in balancing those two factors: the risk of inflation becoming embedded through more persistent, second-round effects, as well as the impact of tightening coming through,” she told parliament’s Treasury Committee in a hearing convened to approve to her appointment.
“The challenge right now is that wages are high and rising and there is a real risk that second-round effects means that this inflation becomes embedded,” she said, adding that in keeping a lid on inflation, “it is not our intention to cause a recession”.
The MPC is expected to raise interest rates by a quarter point to 5.5% on 21 September, raising the average mortgage payments by £3,000 a year for a household that refinances a 2-year fixed product.
Breeden said she expected inflation to be “around the [Bank of England’s] 2% target in two years’ time”.