Starting Out: Rookie Landlord/Investor Questions!

[Jonathan Firouzi]

Hi Everyone!

Let me just start by saying I'm excited to be here at this point. Without rambling, let me just introduce myself and my situation and ask for some tips from you pros on here. Basically, I am the first one in my family to take on real estate investing so this is all new territory for me. I have read books, websites, forums, and watched podcasts but now that it's time there are still plenty of questions.

So I am in Phoenix, AZ. I purchased my first home coming up on a year ago. I am ready to purchase another, so i started talking to my credit union about getting pre-approved for the next purchase. They mentioned they'd like a statement why I need a new primary residence, which I provided for them. Additionally they told me that I would need a lease agreement for my current house to offset the PITIA. They also said they need to do a 1007 - Comparable rent schedule (which they would do at the time of the new purchase closing). 

So that quickly made me realize I have a ton of questions about processes that I don't know about! So I guess some of those are ..

* Does turning my home into a rental cause my interest rate to go up since it's not considered an investment property?

* I set up a meeting with a CPA who is familiar with Real Estate to help me through the process of creating an LLC to purchase the home under and help with write offs and taxes (saw most people recommended that on this website). Any specific things I should ask about?

* Which do most landlords find to be the best site/app to post your home for rent?

* Which site/app do you recommend for background and credit checks when screening for tenant? (I know there are many that have them all in the same site such as zillow..do you all like that or not?)

* Should I buy an online lease agreement through zillow or something similar or is that a no-no?

* do you/should you do frequent property check ups to make sure everything is going well with the house?

Thank you to all who take the time to respond! I really appreciate the help and input...I guess it's one of those situations where I'm the first in my circle to really proactively invest in this manner and "you don't know , what you don't know.."

[Darla Connot]

Hi Jonathan!

Good for you on moving forward in real estate investing! Having just helped my daughter to buy her first rental property, a few things came to mind when reading this post. I have steady tenants and have not needed to do anything new for a long time.

Interest rate does not go up on a mortgage you already have, unless you are refinancing as a rental.

When you change your house from a primary residense to a rental, you must register it as a rental with the Maricopa County Assessor's Office. https://www.mcassessor.maricop...

When you own 3 or more rentals in the state of Arizona, you must obtain a Transaction Privilege Tax (TPT) License.  https://azdor.gov/form/tpt-for...

I do not use a CPA on a regular basis, but use Turbo Tax so I am actively engaged in how different entries will affect my end result. My daughter set up an LLC on her own and said it was easy and costed less than $150. https://azcc.gov/corporations/... For me, the biggest reason for an LLC is to limit my personal liability, not to save on taxes. Another way to protect yourself is with umbrella insurance.

My daughter advertised on Facebook Marketplace and had a very good response from just that alone. I always put up a sign. Do not believe everything your applicant tells you! Verify! I have never actually done a professional credit and background check, but I will next time I need to rent a house. In the past, I did searches with free resources, called their employment and previous landlord. My daughter received such a strong response of applicants, she used a basic application to screen out a lot of them. After narrowing down, she asked for more information so she could do a credit and background check. She made an application that was emailed and returned.

Always do regular house inspections! A yealy house inspection is a huge part of protecting my rental houses. Without house inspections, the tenant cannot know to what extent you care about your property. I have seen investors who did not do house inspections get slammed with huge amounts of repairs when the tenant moves out with the tenant saying, "I didn't think you cared."  Even if you tell them over the phone you care, actually showing them what you care about is important for them to know what you expect. I give the tenant a letter explaining I need to set up a date and time when to come over, what I will be looking at, and stress to be ready so I don't have to come back. I always give them plenty of notice so the tenant will be ready with a clean house and I am very flexible on setting up a date and time as long as it is during daylight hours. I state in the letter that the purpose is to make sure the house is being maintained as stated in the lease and to see what future upgrades may need to be done. I have 2 columns, one for what the tenant needs to do and one for what I need to do. I try to be fair about normal wear and tear and after the inspection the tenant is usually happy because I do maintenance like changing out shut off valves that are leaking and could have caused more damage if it weren't fixed. If you are satisfied with how the tenant is taking care of the house, you are done. If weeds still need pulled, etc, then another visit is scheduled in a week or two until everything is done. Time consuming, yes, but worth it. After a few inspections, some tenants can be trusted and inspections can be stretched out longer than a year. I also drive by the houses occasionally.

There are so many little things to think of, but once you have a system, real estate investing is well worth it!

Darla Connot