Landlords Steps To Prevent Tenant Lawsuits

Rental property ownership can be a rewarding path to financial freedom. However, whether the property is a vacation rental property that has tenants only renting for short periods of time, or an apartment building with year-round lessees, managing an investment property can also be intimidating,

Without prudent safeguards in place to shield against lawsuits from tenants, the landlord can be held personally liable for lawsuits stemming from the property ownership.

Landlords can protect their investment property from tenant lawsuits if they set up their business under the protection of a Limited Liability Corporation or LLC. This will protect any personal assets against a lawsuit from a tenant against the property.

A carefully drafted rental agreement, or lease, dictating precisely how the tenant is expected to treat the property is a necessity. Adding a clause that would make it necessary for arbitration instead of court is advisable.

Another layer of protection is an insurance policy for the property that includes liability coverage. That way, it is quite possible that the insurance company will show up in court to defend the lawsuit, should one occur.

To avoid premise liability lawsuits, landlords should also comply with all local fire and building codes. Routine inspections with local inspectors of all systems (think: fire alarms, CO2 alarms, hot water heaters, etc.) are advised to have on record annually. Being aware of any hazards such as trip hazards, lead paint, or chemical leaks, and not warning the tenants or removing the hazard can also lead to a lawsuit.

Discrimination is another area that can lead to lawsuits. Be familiar with the Fair Housing Act, or FHA, which not only states that landlords cannot refuse to rent based on race, religion, nationality or gender but also based on disability status.

Multifamily properties must also be accessible to all disabilities, per the FHA. Any requests made for disability modifications (within reason) must be granted.

Security deposits can be a major dispute between tenant and landlord. When a tenant leaves their rental property, they are expecting a quick return of their security deposit. Disputes over the cost of damages or repairs could lead to the tenant suing a landlord.

Doing a pre and post rental walk-through with the tenant and providing an itemized list of the damages and necessary repairs can minimize the risk of litigation.

Another important strategy to avoid tenant lawsuits is compliance with state laws and what they say about security deposits.

Investing in rental property can bring a lifetime of reliable income. Capable property management is important to protect that income from tenant lawsuits. If overwhelmed, to help with the day to day management, there is the availability of property management companies to assist.

With the right systems in place, the proper compliance techniques, and the best business practices, a landlord should be able to operate a successful and litigation-free property for many years.

EBIT and EBITDA – Shortcut to Cash Flow

EBIT and EBITDA – Shortcut to Cash Flow

While there are several factors that go into qualifying for a variety of business loans, there is one metric upon which banks heavily rely, but is unfamiliar to most applicants.

It is the Fixed Charge Coverage ratio (slightly modified for pass-through entity accounting), and it measures your projected ability to pay back the loan with interest better than any other calculation or ratio.

EBIT and EBITDA – Shortcut to Cash Flow

The bank wants to know how many times your cash flow can cover your loan payments. The way they determine cash flow is EBIT, or calculating your earnings before interest and taxes.

Your may have heard of EBITDA, which adds Depreciation and Amortization back to EBIT, and I have always contended that this is the lazy man’s formula to derive free cash flow.

The investment and banking community have established this standard.

Pass-Through Entity Hides Cash Flow

But the problem with EBIT, or even EBITDA, is that it leaves out a significant decrease in cash flow inherent to S-corps and most LLCs — owner draws or dividends.

Due to tax and other reasons, owners of and partners in S-corps, and most LLCs, often receive a large portion of their income as draws or distributions, for which EBIT and EBITDA do not account.

A bank, therefore, is possibly seeing a prospective borrower too favorably without accounting for this form of owner compensation.

Modified Fixed Charge Coverage Ratio

Banks have gotten smart. They have taken the Fixed Charge Coverage ratio, which was derived to more accurately determine a company’s wherewithal to make its loan payments than the Interest Coverage ratio, and added the owner draws/distributions to the formula.

It is focused on assessing all of the company’s fixed financing commitment, in which fixed distributions to owners should be included. Here is how it works:

[EBIT + Lease Expense + Owner Draws]

[Interest Expense + Lease Expense + Owner draws]

Don’t feel overwhelmed by all of the inputs into the formula; it’s not that hard to pull together.

What’s good?

A ratio of exactly one means the business is running on tight cash flow but it will be able to make all of its obligations.

A ratio greater than 1.2 is a comfortable place for a bank to lend, and a ratio over 3 means the company may not be using leverage to its maximum potential.

Here’s an example:

Saul’s Deli generates EBIT of $80,000 annually. Saul has fixed leases in place of $20,000 and takes another $60,000 out of his company every year as a dividend (he is an S-corp). He pays $15,000 per year in interest. Here is his Fixed Charge Coverage ratio:

[80,000 + 20,000 + 60,000]

[15,000 + 20,000 + 60,000]

[160,000]

[95,000]

Fixed Charge Coverage ratio = 1.68

This means that Saul’s Deli can cover his existing debt and obligations by 1.68 times.

A bank would likely feel comfortable with this ratio if he meets the other loan underwriting criteria and the new loan does not decrease this ratio too much. Interestingly, the interest coverage ratio would have come back over 5, not nearly as realistic as the fixed charge coverage ratio in determining Saul’s ability to service his existing and potential new debt.

Conclusion

Applying for a loan can be intimidating. You should know your ratios, including your fixed charge coverage ratio, before you even start the application.

Not only will the EBIT and EBITDA coverage ratio, along with the modified fixed charge coverage ratio help you think like a banker, but it will also help you determine if asking for a loan will help or hurt your business.

Things To Consider When Applying For A Commercial Loan

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A commercial loan has a more in-depth application process and its specifications are much more thorough when compared to personal loans, as commercial loans need details and financial data from not only the borrower but the business too, though personal loans only call for information from the individual borrower.

When applying for a commercial loan, there are many significant elements to consider for example credit ranking, financial history, and other factors, and each commercial lender focuses on different factors when making a loan decision.

There are two main general commercial loan collateral types, the secured and unsecured loan. For people with a powerful company an outstanding credit rating, unsecured loans can be a great option as the borrower will not have to present any collateral to secure the loan.

The only problem with unsecured loans is that the interest levels are normally higher because of the increased risk to the commercial lender, and they’re usually harder to get.

A secured commercial loan is where the loan is backed by the pledging of collateral like a residence, commercial property, or business asset(s). The risk of a secured loan is that the asset(s) pledged are at risk need a default happens. But because commercial lenders prefer to do secured loans, the interest rates and terms are usually much better along with secured loans.

The type of commercial real estate and loans the amount of paper work of which the commercial lender will need you to complete and this could even more increase the processing time. But you don’t have to go through the lengthy process of doing your commercial loan application on your own.

You need to work with a professional firm, such as Winston Rowe & Associates that understands the processes and underwriting guidelines that the various lenders use.

A firm like Winston Rowe & Associates will submit a summary to potential commercial lenders and investors to get the process started and to gauge their interest level.

The summary will include details such as the loan quantity requested, purpose, and your ability to repay the loan, requested interest rates, fees, and terms. Commercial loans really have their positive aspects, however there will also be disadvantages based on the nature of the loan that must not be ignored.

Why use a firm like Winston Rowe & Associates, because many traditional banks and lenders only offer one or two loan programs with limited options.

Borrowers often do not get the best financing solution or are constrained with terms that are inadequate because the lender is inflexible. Getting the “right” loan requires a lender with multiple program options and the willingness to be creative in its approach. With multiple alternatives available,

Winston Rowe & Associates customizes each loan to meet the specific needs of the Borrower.

 

Tips For Finding Off Market Real Estate Investment Deals

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Off market real estate deals whether you’re looking for real estate for sale by owner or bank-owned properties, off market deals are frequently the best ones. Here are some strategies that can help you find them:

Off Market Real Estate Tip #1: Property for Sale By Owner

While FSBO pricing has improved with the availability of Internet data sources, it still isn’t always as spot-on-the-market as the list price that a qualified real estate agent will come up with. As such, you might find some FSBO deals that are under priced relative to other properties in the market.

Dealing directly with the owner may also give you additional negotiating leverage that you can use to turn even an overpriced property into a great deal.

Off Market Real Estate Tip #2: Expired Listings

When real estate that was listed expires, sometimes, the owner still wants to sell it. Furthermore, once real estate goes off the market, you can go directly to the owner and make an offer that is less than what he needed to get when he had to pay an agent.

These properties can turn into very good deals just on the basis of that discount alone.

Off Market Real Estate Tip #3: Know Area Lenders

While most conventionally-mortgaged homes end up going through Fannie, Freddie or Ginnie Mae’s sale process, properties that have loans held by local banks or private lenders have a much less predictable sale process.

Sometimes, you can contact the lender directly while the property is in foreclosure and carve out a position for yourself before the real estate goes on the market. Getting to know the realtors that work with private lenders can also give you a leg up.

Off Market Real Estate Tip #4: Contact Owners Directly

Another way to find property for sale by owner is to contact owners directly. When you do this by calling or writing and delivering the straightforward message that you are willing to buy the property, you can not only potentially avoid brokerage fees, but you can also avoid competition and maybe save money.

How to Become a Success in Real Estate

How to Become a Success in Real Estate

Create a Strong Real Estate Team:

Though it is possible to have some success in real estate as a one-person business, you’ll eventually need to build a team around yourself in order to scale up.

Your team of people can include direct employees to find and negotiate property sales for you, as well as well-liked contractors to handle repairs on the properties you acquire.

By surrounding yourself with talented and driven people, you will be able to focus in on only the most important aspects of your real estate investment business.

Balance Flipping and Rental Properties:

In real estate investment, there are two basic ways to make money.

The first is to realize a large sum by buying a property, improving it in some way and then reselling it for a higher price.

The second method is to create a flow of passive income by acquiring and then renting out properties.

Though both of these are great ways to make money in real estate, truly successful investors typically include both in their businesses. By flipping and renting at the same time, you will be able to create a more stable financial situation for yourself and your business.

Commercial Insurance Options That Apartment Owners Should Consider

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Having the right knowledge and some basic management skills are essential, but even seasoned landlords might be missing out on some crucial coverage.

You can minimize some of the risk by requiring your tenants to carry renter’s insurance; however the bulk of the insurance side of things is squarely on your shoulders.

Winston Rowe & Associates, a national advisory firm that structures apartment and multi-family financing solutions nationwide.

Commercial Loan Due Diligence Review

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Winston Rowe & Associates utilizes a best efforts approach to perform the necessary due diligence for their clients, pursuant to our executed Letter of Interest.

Overview:

Winston Rowe & Associates initial due diligence is a client driven process. It’s important that requested supporting documents be submitted in a timely manner.

Prospective Client’s must request a transaction summary, from Winston Rowe & Associates that must be submitted via email in a MS Word format for Winston Rowe & Associates to consider you as a client.

Incomplete transaction summary documents will not be processed.

It’s important to note that if you are a broker, consultant or intermediary submitting a transaction, that it includes the prospective clients contact information.

Without it, Winston Rowe & Associates will not process your transaction.

Upon acceptance of the transaction summary, the ensuing steps are an overview of the process.  Please note; private equity transactions require different engagement and due diligence procedures.

Step 1 Transaction Summary:

Upon receipt of the transaction summary, it will be reviewed by Winston Rowe & Associates. If the proposed transaction appears to meet Winston Rowe & Associates pre-determined capital source(s) lending criteria it will be submitted for review.

Step 2 Processing & Due Diligence:

If there is an interest from the pre-determined capital source, Winston Rowe & Associates will schedule a conference call and then provide to the prospective client a list of supporting documentation needed to begin the initial processing and due diligence to prepare the proposed transaction for underwriting.

The initial due diligence will include the collecting and analyzing the supporting documentation pursuant to the transaction.

Winston Rowe & Associates utilizes a global approach during the initial due diligence. This approach includes the review of all business and personal financial documents.

If it is found that there is a material misrepresentation of the transaction by the client’s representative or the client. The transaction will be terminated.

Step 3 Submissions For Underwriting:

Once Winston Rowe & Associates completes the initial due diligence of the proposed transaction it will be submitted to the pre-determined capital source for underwriting.

During the underwriting phase of the the proposed transaction. Winston Rowe & Associates may require additional supporting documentation.

Upon completion of underwriting the pre-determined capital sources will issue general terms and conditions defined within a Letter of Interest or conditional Commitment Documents.

Step 4 Commitment Documents, Reports & Loan Closing:

The client will be placed in direct contact with the capital source to finalize the transaction.

Once the proposed transaction has completed underwriting; property reports are then ordered.

These reports are paid for directly prior to funding by the prospective client which include; appraisals, surveys and studies. Report types vary according to real estate type.

When the necessary property reports are completed. The title work is ordered and a closing is scheduled.

Apartment Buildings & Complex Investment Loans No Upfront Fees

Real Estate Investing

Apartment Buildings & Complex Investment Loans No Upfront Fees

There are many investments out there that can create wealth and security. People invest in stocks, bonds, and single-family homes, but multifamily and apartment properties, make the best sense.

Savvy investors are turning to Winston Rowe & Associates, a no upfront fee national commercial finance specialist for apartment and multifamily investors.

Why consider apartment buildings instead of single family homes? Well – many other real estate investments have some of the following attributes, but only apartments and multifamily properties have all five.

Income:

Multifamily properties produce income. Unless you receive dividends, most stocks don’t give you income, and although single-family rentals might bring a little cash flow, the income is usually not substantial unless you’ve held the property for many years. Receiving regular income from your investment frees you up to do other things.

Depreciation:

Although multifamily properties increase in value over time, for tax purposes they depreciate. The tax benefits of depreciation are substantial, and many investment vehicles lack this significant attribute. Stocks and bonds bring zero depreciation. You can use depreciation when flipping single-family homes, but because the transaction is temporary, the tax benefits will not be as great.

Equity:

The property will increase in its equity value every month just from paying the mortgage. The rent your tenants pay you goes toward the mortgage every month, so your equity increases as others pay your mortgage. Real estate investments have the advantage over stock-related investments when it comes to equity.

Appreciation:

Over time, real estate investments appreciate, meaning they are worth more now than they were in previous years. The land beneath your property becomes more valuable over time as the city around it grows. In addition, you can increase appreciation by raising rents and cutting costs. Single-family homes appreciate as well as multifamily properties, but the scale is larger with multifamily properties, and there is more room with multifamily properties to raise rents and cut costs.

Leverage:

Multifamily properties can be bought without any of your own money. When you sell a property, the equity you’ve gained in it can be applied five-fold to purchase a bigger, more expensive property.

Generally, you need 20% down on properties, so $100,000 in equity on one property means you can leverage that equity to acquire a $500,000 property. Every time you sell a property your leverage becomes greater.

Investors seeking apartment building financing should turn to Winston Rowe & Associates because or their efficient, end-to-end commercial real estate financing solutions that provide commercial mortgage capital to owners of all commercial property types, nationwide.

With flexibility and speed of execution, they are able to offer a broad range of financing capabilities. In most cases they can close your loan within 30 days.

You can review Winston Rowe and Associates by clicking this link.