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Buying and Renting FAQs

 

Q: Why single family homes?
A: A quality single family home is easier to rent and to sell than any other kind of real estate.  As a rule, renters would rather live in a home than in a duplex, triplex, or fourplex.  While multiple rental units sell mainly to investors, single family homes sell to homeowners, who vastly outnumber investors.  With single family homes, your investment portfolio is scalable and your are able to diversify easier within a community or nationwide.

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Q: Why new homes?
A:  Value.  The homebuilders we work with are able to sell new homes for less than individual homeowners with similar properties for sale.  Plus, you get the benefit of full term warranties.  There are fewer maintenance costs and headaches.  And, given a choice between new and used, a tenant will choose new every time.  This means higher rents and less vacancy.

Of course, as years go by, your property will gradually show wear and you will get gradually lower rents compared to shiny new homes.  Yet your rents should still be higher than if you bought a used home to start with, as an older home would be even more out of date and show even more wear.  If you buy in an area that is appreciating in value, then rents should be appreciating as well, contributing to a more positive cash flow.

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Q: Why single story homes?
A: One story homes have fewer limits than two story homes.  A prospective tenant does not have to choose between "master up" or "master down." One story homes generally have a larger "footprint" on the lot, which means less yard maintenance for the tenant.  Plus they are easier for tenants to move in and out of.

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Q: How do I find a good builder?
A: We can help with this.  We know who has track records of quality and service.  Plus we've actually negotiated discounts with builders strictly for our investors.

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Q: How do I know a neighborhood is good for investment?
A: If a neighborhood has good access to shopping, schools, and if it looks nice, it can be a good candidate.  The rents must support the sales price.  We have tools to obtain rental history to help with your selection.

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Q: What upgrades should I choose?
A: At a minimum, you should require a fenced yard that has been landscaped and sodded on all four sides; it should include an automatic lawn irrigation sprinkler system.  Interior should include ceramic tile floors and upgraded carpet pad for durability, also ceiling fans for comfort.  Such upgrades will help preserve the quality of your investment and make it easier to rent.  We have negotiated special upgrade packages for our investors so that the home is turnkey ready for rental and move in the day of closing.

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Q: How do I choose a lender?
A: Three basic choices:  Local Austin lender, builder's preferred lender and your existing lender (if you have one.)

Most homebuilders have a business relationship with a local lender. Larger builders actually own lending institutions that make them money.  Builders sometimes offer incentives for you to use their preferred lender.  If you choose to go this route, you might consider getting a quote from another lender to satisfy yourself that your rate and fees are acceptable.

Your existing lender:  There may be some overhead here, as an out-of-state lender who does not regularly loan in Texas may have difficulty getting you the best financing.  They also don't know who the best and fastest appraisers are and don't have relationships with the local title companies, which can cost you. If you like your existing lender, I would encourage you at a minimum to compare good faith settlement estimates between them and at least one of the above two lenders to help ensure you are getting the best rate and terms.
 

Be sure to discuss insurance requirements with your lender.  Some lenders require loss of rent coverage in case property damage forces the tenant to vacate.  Such coverage can substantially raise the cost of insurance.

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Q: How do I find a good tenant?
A: You want to get a lot of exposure so that you can attract the best tenants. You get the most exposure utilizing the Austin Multiple Listing Service (ACTRIS).  Your property manager should be an ACTRIS subscriber.

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Q: How long does it take to find a tenant?
A: As of March 2005, Austin area lease homes averaged 65 days on market.  There was a 22% increase in numbers of leases from a year ago, with an average lease price of $1070/mo., 1% higher than a year ago.  Anecdotal evidence shows that the majority of lease applications are from folks moving to Austin.  This is quite different from just a couple of years ago, when most leases were to Austin tenants moving within the area.

When reviewing such statistics, keep in mind that averages don't tell the whole story.  The rental market is affected by regular seasonal changes as well as with less predictable economic factors.  Factors such as local neighborhood supply and demand can affect both how long it takes to lease and how much you get.  It's possible that you may have to lower the rental offering price below your expectations and/or offer incentives.  Although the market shows impressive signs of strengthening, you need to have enough money in reserve for weak markets.  Also, it's a good idea to develop and maintain a relationship with a competent and busy property manager to help stay up-to-date on the rental market.


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Q: Who  manages the  property?
A: I like the old saying, "You never really know someone unless you're married to them or rent to them." If you are not interested in handling maintenance calls day in and day out, you might consider hiring a professional property manager. Property managers charge 7-10% of the monthly rents for management and a percentage of the first month's rent to lease the property.

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Q: Is an inspection really necessary on a new home?  Should I use the builder's inspector?
Texas law prohibits real estate agents from performing home inspections.  The most thorough home inspectors are licensed by the State. We recommend that you have a professional inspection performed to protect your investment.

If you choose to have an inspection done, there are dozens of licensed inspectors in Austin.   Technically, it is your choice and your responsibility to choose and retain an inspector.  Because you are probably not an Austin resident, we can help you set up inspections.

Builders sometimes provide inspectors for free.  In our experience, these inspectors' scopes are determined by the builder and with emphasis on cosmetic issues.  Such an inspection is most often not as thorough as one you would get with an independent inspector.

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Q: What should I do about insurance?
A: You need to discuss desired coverage with your insurance agent as soon as you have contracted to purchase your property.  Because of recent substantial changes in insurance policies, procedures, and costs, it will serve you well to sustain a relationship with a knowledgeable and involved insurance agent.

Be sure to discuss insurance requirements with your lender.  Some lenders require loss of rent coverage in case property damage forces the tenant to vacate.  Such coverage can substantially raise the cost of insurance.

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