May 26, 2006: A rental house in the Phoenix area can be a smart opportunity if it is set up as business
I'm helping a young friend buy his first home. I've known him since he was in high school. I admired his decision to defer college for an arduous tour of duty in Iraq. He's back in school now and he and his mother are buying a three-bedroom home to use as his staging ground for his assault on ASU.
I think this is very smart by itself, but here is the stroke of genius: He is going to rent his two spare bedrooms to other students, using their rent to help amortize the property. The house will be his starter home, but it will also be his first foray into real estate investment.
Here are some ideas I want to share with him that may also prove to be of value to you:
1. Form a limited liability corporation to own the property. God forbid something tragic should happen in the home, but, if it does, you want to limit your liability to the home itself, not the rest of your assets.
2. A verbal agreement isn't worth the paper it's printed on. In Arizona, a lease of less than 12 months does not have to be in writing, but if you take your verbal lease before a judge, he will treat you to equally verbal laughter. A written lease protects both parties, the landlord and the tenant.
3. The past is prologue. If a prospective tenant cheated his last three landlords, he'll cheat you, too. Credit and rental history matter, and the most important part of being a happy landlord is mastering tenant selection.
4. Pay your own rent. Since the home will be owned by an LLC, pay the corporation the same rent your tenants are paying. If there is a surplus on costs, you'll be able to use it for maintenance and improvements - or as capital for future investments.
Owning a rental home is the smallest of small businesses - but it is a business. Treat it that way and it will enrich you now and for years to come.
Greg Swann is the designated broker for BloodhoundRealty.com, a full-service Metropolitan Phoenix real estate brokerage. This article originally appeared in the West Valley regional sections of the Arizona Republic.
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Am I link-baiting? You bet. The quid pro quo is free content for your site that pulls eyeballs and excites interest.<a href="http://www.bloodhoundrealty.com/" target="_blank"> Phoenix Realtor Greg Swann</a> suggested I share this with you:
