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I was talking to a friend the other day who said he wanted to get into real estate. Some past attempts had ended badly and she had been forced to sell a house she had bought at a loss. So, since I have lots of experience in real estate I offered to partner on a deal. “Great,” She said. “I’ve got about $100,000 to invest. We would both put in equal amounts of money, right?”

Wrong! That’s not how real estate partnering normally works. One partner puts up the money and the other partner brings the skills. The profit is split 50/50. Partnerships work well when each person brings different assets to the partnership. If one person has both the money and the skills they don’t need a partner. However, if you don’t have the money or the confidence to go it alone find a partner. Fifty percent of something is better than one hundred percent of nothing!

An effective way to finance your real estate transaction is by using “hard money lenders.” These lenders make short term loans based on ‘hard’ assets not your credit worthiness. These loans are made by private lenders not banks or conventional mortgage companies. The interest is usually substantially higher than banks because they are funding deals that the bank would normally decline. Consequently, their default rates are higher than the banks.

To protect themselves, hard money-lenders base the loan amount on a low percentage of the value of the property. Usually they will lend between 60%-70% of the market value. That gives them the opportunity to sell the property quickly if the borrower defaults on the loan.

This type loan is best used on re-hab projects that you plan to fix up and sell. Another option would be to fix up a property, put a tenant in it, and try again for more traditional funding. All the while you should be working on your credit rating to make yourself a more desirable borrower.

You can find hard money lenders by checking with mortgage lenders or real estate agents in your area.  You can also type in “hard money lender” using quotation marks in a search engine like Yahoo or Google.

There are lots of ways to finance the purchase of you investment property. There are, of course, two major categories: your money or other people’s money. In this article I want to talk about using your money.

The advantage to using your own money is that you do not have to share the profits. Financing the deal yourself may be easier than you think. A small down payment may be all that is needed to get the property. If you have a decent credit score you may be able to take over the payments on the property.

There are many motivated sellers out there that are desperate to move. Some are willing to walk away from any equity they may have in the property just to prevent a foreclosure. Others may have been forced to move because of a job relocation and are now trying to support two homes.

Don’t assume that you need deep pockets or a pot of gold to invest in real estate. Don’t be too quick to look for partners or outside financing. Not having to split the proceeds when you sell or rent can make it worthwhile to be a lone ranger in your next real estate purchase.

Unfortunately we live in an age when everyone does not believe honesty is the best policy. Consequently, it is imperative that you verify the information on the tenant application before you accept the tenant as a renter. It’s better to have an empty house or apartment than to put in a tenant that could cause a nightmare down the road.

When you first accept the application sit down with the tenant and make sure all the information is complete. (My assumption is that you have already developed an effective application. If not, getting one is your next step.) If anything is unclear ask them to explain. Your application should have a final clause which gives you permission to verify any of the information included in the application.

There are three major areas that you will want to investigate. I’ll discuss them briefly below:

Personal Information: First of all, make sure you know who you are talking to. Get a copy of their drivers’ license, govt. ID, school ID or other official picture identification. Also, get a copy of their social security card. Second, if you’re really concerned about the character of the individual you’re renting to, contact their personal references and ask what type person the applicant is. You’ll be surprised at the candor you get. Most applicants don’t expect you to call so they may not ‘warn’ their friend or they may give you a wrong number which should be an alert for you. Finally, you can’t get more personal than a credit check. Run one every time without fail.


Rental History: This is one of the best indicators of whether or not the tenant will pay their rent. Like Dr. Phil says, ” Past performance is the best indicator of future behavior.” Call the previous landlord and ask what kind of tenant they were. Sometimes you have to listen between the lines. The final question should be “Would you rent to them again?”

Don’t be dissuaded if they say they live at home. Call their mother, aunt or whoever for information. A mother will often give you accurate infomation on whether or not their child is responsible enough to live on their own.

Examine the credit report carefully. It will reveal judgements or evictions. It will also reveal previous addresses. These should match what the application says.

Employment History: I always request a letter from their employer stating their social security number and weekly/biweekly salary. Follow up with a phone call to the personel department of the company. It’s smart to get the phone number from an independent source such as the yellow pages.

Follow these tips and you will have a better chance of getting a tenant who will pay your rent and not destroy your property.

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I always let the market tell me if my rental rates need to be changed. If my occupancy rate is 100% and there is a waiting list I know that I could probably raise my rents. The first step is to raise the rate for new tenants. If I’m still able to attract new tenants then I know I didn’t raise it too high. I usually raise the rent about 5% at a time. That’s $25 on a $500 apartment. If I still have a full house over the next 3 to 4 months, I’ll raise the rates again. This is a no risk method. It’s easy to lower the rate if the phone stops ringing.

Once I have established that the market will bear higher rents I then take a look at my current rent roster. Since I use month-to-month leases I can change anyone’s rent with a thirty day notice. I personally don’t like to raise the rent on tenants who have been renting from me for less than a year. It’s also a good idea to check the rate of your major competition before you determine how much to raise a current tenant’s rate. Tenants will move if they feel like their rent has been raised unjustly. It is not necessary to take current tenants up to the rate of new tenants. Unless I’ve made visible improvements in the building I won’t raise rates over $25 at a time. (Of course, you can raise the rent much more if you’re dealing with luxury, high end apartments.)

In general, I raise rents every year. Even if it’s only $5 or $10 per unit. Most people don’t even complain about such a small amount. They certainly won’t move to save that amount. Plus, it gets them in the habit of getting rental increases. A $10 per month increase on a 20 unity apartment building will add $2,400 to the bottom line for the year. That’s a $24,000 increase in the value of your property!

I must confess, however that I didn’t raise rents in 2006. The economy was bad and the rental market was very soft. Every building had ‘rent specials’ signs hanging from them. Many were offering free rent or no move in costs. You can’t raise rent when there is a glut of empty apartments in the area. Wisdom not rules is the key to success.