Preventing Foreclosure- It is Critical Financially and Here’s How You Do It…

Compiled by Aazim Sharp of Steeplegate Homes

Like so many Americans in this Great Depression of OUR era, are you behind on your mortgage payments? Has that lousy Annual Renewable Mortgage (ARM) you signed a few years ago made your payments impossible – to the point where you may lose your home?
The good news is that all hope is not lost… not just yet. There are strategies that can be employed for people out that who are at risk of losing their home. If you're worried about foreclosure, here are some key approaches you will want to keep in mind that will avoid foreclosure.
1. Whatever you do, do not ignore it – this problem won’t simply go away
If you are unable to make your payments you need to approach the problem in a proactive manner. Avoiding the issue until the bank recalls the loan is NOT the best way to deal with the situation. Call your lender immediately and discuss with them potential options and see if they have a program to assist you.
2. Open and respond to all mail
Lenders would rather help bring you up to date than take your house, but they have no way of knowing your intent if there is no dialog between all parties.
3. Research your options

Visit Hope Now for options on credit counselors and loss mitigation specialists who specialize in help people avoid foreclosure. Hope Now is a government sponsored organization designed to help people survive the current credit crunch.
4. Seriously curb your spending habits
Here’s a check up from the neck up…Cable TV does not qualify as a necessity when you are facing losing your home, and if you're trying to make bills work, you need to eliminate all luxury spending. Also, trying to pay on unsecured credit card debt is shaky… you may need to decide which bills get paid first. Mortgage payments and insurance should be the most important bills you have – so pay them first.
5. Avoid foreclosure scams

There are far more lousy companies out there performing very unsavory deeds, preying on desperate homeowners. Paying someone to help you avoid foreclosure doesn’t make much sense if you are on the brink of financial ruin; that money should go towards the mortgage payments. Be wary if someone claims to be able to solve your foreclosure problems quickly and easily, and don't sign documents unless a lawyer or real estate professional has gone over the documents with you. Many people have unknowingly signed over the deeds to their houses to companies claiming to instantly solve foreclosure problems.
6. Be prepared to ask for assistance
If you do find you need to sell your home, don't wait until 2 weeks before the foreclosure is complete. The average market time is 100+ days in most markets provided the house is well priced. If you want to sell more quickly, you will need to discount the price of the home accordingly. Now is not the time to pull a For Sale By Owner, make sure you get in touch with a professional who is EXPERIENCED in helping homeowners avoid foreclosure.
7. If you enter foreclosure, you will also lose your credit score
This is common sense – if you default on any loan your credit score will take a hit. But a foreclosure is especially harsh; expect a 100-150 point drop in your credit score. If you are foreclosed on, that number can climb as high as 250 points, making purchasing another home nearly impossible. Talk about adding salt to this already gaping wound. Ouch!

The bottom line is that there is help out there; you just need to be ready to ask. I speak with homeowners daily in regards to situations like this, and I'm always willing to provide as much information and advice as I can, to help people and their families remain in their homes.

Aazim Sharp is a real estate professional who resides in New Jersey and is the proprietor of Steeplegate Homes.

Section 8 housing – and how it can provide a stable source of income for your investment properties

The upside to Section 8 rentals...

Compiled by Aazim Sharp of Steeplegate Homes

If you have properties that are in need of steady, healthy ongoing renters, you may want to look no further than the Section 8 system in your state. I have included some history of the system and some serious benefits that should be taken into consideration.

The Housing Choice Voucher Program is a type of Federal assistance provided by the United States Department of Housing and Urban Development (HUD) dedicated to sponsoring subsidized housing for low-income families and individuals. It is more commonly known as Section 8, in reference to the portion of the U.S. Housing Act of 1937 under which the original subsidy program was authorized.

By the way, the name “Section 8” refers to Title 42, Chapter 8 of the United States Federal Code.

Summary of the program

Currently, the main Section 8 program involves the Voucher Program. A voucher may be either "project-based" (where its use is limited to a specific apartment complex) or "tenant-based" (where the tenant is free to choose a unit in the private sector, is not limited to specific complexes, and may reside anywhere in the United States or Puerto Rico.

Under the voucher program, individuals or families with a voucher find and lease a unit (either within a specified complex or in the private sector) and pay a portion of the rent (based on income, but generally no more than 30% of the family's income).

There is an asset test in addition to earned income. Over a certain amount, HUD will add income even if the Section 8 tenant doesn't receive any interest income from, for example, a bank account HUD calls this "imputed income from assets" and in the case of a bank account, HUD establishes a standard "Passbook Savings Rate" to calculate the imputed income from the asset. This makes the tenant's contribution higher since his gross income is made higher.

The Public Housing Agency pays the landlord the remainder of the rent over the tenant's portion, subject to a cap referred to as "Fair Market Rent" (FMR) which is determined by HUD. FMR is determined by several factors, including:
* the geographic area (city or county) where the unit is located (generally, a unit in a metropolitan area will have a higher FMR)
* the unit size (in terms of the number of bedrooms; generally, the more bedrooms the higher the FMR, while a studio apartment would be at the low end)
* whether the owner or tenant will pay utilities (generally, FMR is higher for units where the owner pays utilities)

The landlord cannot charge a Section 8 tenant more than FMR and cannot accept payments outside the contract which would cause the total rent to exceed FMR.
In addition, landlords, though required to meet fair housing laws, are not required to participate in the Section 8 program.

However, many landlords willingly accept Section 8 tenants, due to:

• a large available pool of potential renters - the waiting list for new Section 8 tenants is usually very long


• generally prompt regular payments from the PHA for its share of the rent


• a perceived higher quality of tenants, since a tenant can be permanently removed from the Section 8 program if s/he damages the rental unit and/or fails to pay his/her share of the rent

Whether voucher or project-based, all subsidized units must meet HQS, thus ensuring that the family has a healthy and safe place to live. This improvement in the housing stock is an important by-product of this program, both for the individual families and for the larger goal of community development.

In many localities, the PHA waiting lists for Section 8 vouchers may be thousands of families long, waits of three to five years to access vouchers is common, and many lists are closed to new applicants. Families who participate in the program must abide by a series of rules and regulations, often referred to as "family obligations," in order to maintain their voucher, including accurately reporting to the PHA all changes in household income and/or family composition so the amount of their subsidy (and the applicable rental unit size limitation) can be updated accordingly. In recent years, the HUD Office of the Inspector General has spent more time and money on fraud detection and prevention.

In this unsteady economic climate the housing market is facing today, real estate investors need to look at some fresher, unorthodox approaches. The fact is that many traditionally "good" renters are scarce yet there are more than enough Section 8 applicants who earn a voucher for $1,600 even $2,000. That money, paid by the government is steady and is paid every 1st of the month... that is a renter worth holding out for.

Aazim Sharp is a real estate professional who resides in New Jersey and is the proprietor of Steeplegate Homes.

Short Sale vs Foreclosure and the Impact on Credit Scores

Short Sale vs Foreclosure
Real Estate Trends – compiled by Aazim Sharp of Steeplegate Homes.

I have gotten the impression from many real estate agents in our field that they are unaware of the effect of a Short Sale on their clients' credit report. The common belief is that a Short Sale isn't as bad as Foreclosure or Deed in Lieu of Foreclosure.

I have debated with people about this and there is a lot of information out there with claims to the contrary. It scares me because I see a lot of lawsuits in the future regarding this.
Short Sales, Deed in Lieu of Foreclosure, or full blown Foreclosure are all weighted the same in determining credit score computations. This information comes directly from MyFICO.com. MyFICO.com is operated by the Fair Issac Corporation, the inventors of credit scoring. I have not stated this without extensive research. This is "straight from the horse's mouth."

Earlier this year, the Federal National Mortgage Association (AKA Fannie Mae) announced that a record of foreclosure on a credit report will require that three years must pass prior to placing a borrower into a FNMA insured loan. At the beginning of June 2008, that time frame was extended to five years. That is five years from the sale date.

Remember, that the home owner does have redemption periods after default and because of this, the sale date is the actual date of the foreclosure. An owner wouldn't necessarily know this without researching the actual date.

The Mortgage Bankers Association announced that one in every 200 homes with mortgages is facing foreclosure. That is a lot of bad news to many families. This information was announced in June of 2008 and the news has become much worse as I write this in the begining of 2009.
The "Bail Out" bill now being reviewed again by the House of Representatives will give some "bite" to those of us who renegotiate for loan modification. Loan mods are put together for a home owner cannot keep up with the current terms of the mortgage. Changes can be negotiated and will keep you in your home.

Some 18 months ago, a business colleague I lunch with correctly predicted that short-refis would exist. They do now.....it is called Loan Modification or a "Loan Mod". A new FHA loan to reduce the balance on home loans and make the payments easier was announced yesterday. This new bill being passed will bring some order to the process and make it easier to accomplish.

If I had my home on the market because of a bad loan, but felt I needed to sell when I really wanted to stay, this would be wonderful news. If I found out that my agent said a short sale wouldn't hurt me as badly as foreclosure then I would have been gunning for someone to pay. I would rather it wouldn't be you.

Aazim Sharp is a real estate professional who resides in New Jersey and is the proprietor of Steeplegate Homes.

10 Commonly Made Mistakes Made in Real Estate

How to Avoid 10 Common Mistakes Made By Real Estate Investors
Real Estate Trends – compiled by Aazim Sharp of Steeplegate Homes.

My clients have the same concerns all real estate investors have - they want to avoid loss and maximize their return. For these purposes, I have compiled the top ten mistakes made by real estate investors, according to bankrate.com. Bankrate has put together the top ten mistakes after speaking to established, full-time real estate investors and other professionals involved in real estate investment such as bankers. Read on to be able to quickly identify them and ultimately avoid them at all cost.

1. Not planning up ahead. Lack of a proper and weel thought out plan is the biggest mistake made by novice investors. Finding a house after forming a proper investment strategy is the right way instead of looking for a house to fit the plan. Many make the mistake of buying a house because it seems to be a good deal and then trying to see how they can fit it into their plan. Instead of buying a house and thinking one can plan in due course, investors should rather concentrate on the numbers and try to make offers on multiple properties. This will ensure a good property that not only matches their investment model but also works out well with the numbers they had planned for.

2. Believe you can make money quickly. The second major mistake that real estate investors make is to think it is very easy to get rich in real estate straight away. This is only a myth and the reality is that investing in real estate is a long-term project and in the long-term you will accrue wealth.

3. Doing it single-handedly. For becoming a successful real estate investor one needs to build a team of professionals who would assist the investor in his deals. This would ideally include a real estate agent, an appraiser, a home inspector, a closing attorney and a lender.

4. Making excess payment. One other reason that investors in real estate goof up in their investment is by paying too much for the properties they buy. Paying too much and locking up all the funds in the erred property deal will leave you with no money to redeem yourself.

5. Leaving out the groundwork. Failure to do your homework could be a costly mistake if you were a real estate investor. Every field of business needs sufficient amount of homework to be done, and real estate investment is no exception. Learn the fundamentals and then venture into investing in properties.

6. Throwing caution to the winds. Investors have to exercise a certain degree of caution and take earnest efforts while making a deal. New investors often fail in this regard and sign a deal without doing adequate research on the property.

7. Miscalculating money flow. Investors whose strategy is to buy, hold and rent out properties need to ensure sufficient cash flow for maintenance. Property managers could be expensive and the owner has to incur more expenses such as mortgage, taxes, insurance, advertising costs etc. Investors have to allocate their budget such that all these expenses are taken care of, or end up having their asset turn into a liability.

8. Lowering the volume. A larger volume of deals or transactions helps in increasing the profits by reducing the impacts of marginal deals. It's a way to diversify your investment portfolio for the purpose that any one bad sale will not adversely effect the rest of the portfolio greatly.

9. Getting trapped in your own deal. Having a multitude of options at hand for the property you buy is a wise strategy. This helps one to be prepared for fluctuations in the real estate market. Plans to rent out the house could go awry when the rental market slumps. Having alternative plans helps you cut down losses and tackle unexpected situations.

10. Making incorrect estimates. People who plan to rehab their house need to check if they will still reap the benefits at double the time that they had previously estimated. This ensures they do not miscalculate and lose money on the deal.

Real estate investment is perhaps one of the most lucrative forms of investment today. But it is also equally risk bound especially when one is not well versed with the trends and nuances of the real estate market. So if you are contemplating on investing in real estate, it is best to avoid costly mistakes in real estate investment especially when you invest your hard earned money into it. Knowing the most common mistakes made by real estate investors helps one steer away from making such mistakes in the future and ensures good return on investment.

Aazim Sharp is a real estate professional who resides in New Jersey and is the proprietor of Steeplegate Homes.

20-Year, 30-Year... what about a 40-Year Mortgage??!!

Is a 40-Year Mortgage Anything to Seriously Consider?

Real Estate Trends – compiled by Aazim Sharp of Steeplegate Homes.
A short while back, the Toronto Star’s Ellen Roseman wrote an article titled 40-year Mortgage Comes with Hidden Hazards. At Steeplegate Homes, we often try to pick up where the main stream media left off. Instead of just telling readers the 40-year mortgage is bad for their wallets, we offer practical advice that addresses the needs of today's home buyers.

Let me start off by saying that a 40-year mortgage is not for everyone. Anyone who qualifies to buy a home with a 25-year mortgage but opts for a 40-year mortgage instead because it leaves them with a little more spending money in their wallets is downright foolish. If you want more spending money in your pocket, spend less on your home - don’t get a 40-year mortgage and pay more interest over the life of that mortgage.

Having said that, does this mean that a 40-year mortgage is wrong for all home buyers? Is a 40-year mortgage like long term renting? Not quite.

Unlike Roseman, many of today's first time buyers are not buying their first home with their partners and therefore don’t have the luxury of counting on a second income to help pay their mortgage. Last year, the same newspaper reported that single women account for 20 percent of the real estate market. Many of the home buyers who are turning to 40-year mortgages are single income buyers who can’t afford to buy a home with a 25-year amortization.

So what is a single (or similarly positioned) first time home buyer to do? Should they eschew buying a home today out of fear that they’ll be paying their mortgage well after they’ve retired, as Roseman suggests? This is definitely one option.

But if the single home buyer shouldn’t buy today, when should they buy? Should they wait another 5-10 years for their salary to increase enough for them to afford a home with a 25-year amortization? This strategy is also risky, since renting and delaying your purchase for 5-10 years also pushes your mortgage payments further into your retirement years.

For the home buyer who doesn’t want to wait another ten years to be able to afford a home with a 25-year mortgage, here are a couple of tips to help you beat the risks and costs of the 40-year mortgage.

Memorize these words “Accelerated Bi-Weekly.” These are the most important words you’ll need to know when signing your mortgage documents. Say them out loud a few more times to make sure they stick.

Accelerated Bi-Weekly, Accelerated Bi-Weekly, Accelerated Bi-Weekly

When your mortgage broker prepares your mortgage documents, she is going to ask you whether you want your mortgage payments to come out monthly or bi-weekly. This is when you are going to have to recall today’s word(s) of the day: “Accelerated Bi-Weekly.” Don’t confuse this with just bi-weekly which is something very different as far as banks are concerned. Accelerated bi-weekly puts more money in your pocket, not the banks'. Let’s look at a real life example to see how this works.

Suppose you are about to sign up for a $250,000 mortgage. Your mortgage broker gives you the option of paying $1,312 monthly or accelerated bi-weekly, under which you would pay half of that amount, $656.11, every two weeks. What’s the difference? With monthly payments you would end up making 12 payments of $1,312 each year for a total of $15,744. Under accelerated bi-weekly you end up making 26 payments of $656.11 for a total of $17,058. You’ll notice that the accelerated bi-weekly option results in you making the equivalent of one extra monthly payment of $1,312 each year. This one extra payment reduces the life of your mortgage from 40 years to 30.8 years. By choosing accelerated bi-weekly, you’ll have your mortgage paid off 9 years ahead of schedule and will have saved over $104,649 in interest payments.
I used a mortgage calculator, which I was happy to see defaulted to accelerated bi-weekly payments.

Another tip is to increase your mortgage payments as your salary increases. Don’t count on making lump sum payments during the year. While many home owners intend on making additional payments to their mortgage, the reality is that few do because it’s hard to save up the cash. It’s easier to increase your mortgage payments as your salary increases because you don't miss the cash as much. The key with this tip is to do it regardless of how big or small your salary increase might be. If your salary increases by 2% each year, increase your mortgage payment by 2%. Even this small increase will cut years off of the life of your mortgage if you stick to it every single year.

A 40-year mortgage can be hazardous to your financial health if you don’t take the necessary steps to mitigate the risks and costs. But if you have a real need for one, follow the tips above and you’ll have a 40-year mortgage in name only. Your mortgage will actually be paid off years earlier.

Aazim Sharp is a real estate professional who resides in New Jersey and is the proprietor of Steeplegate Homes.

NJ Real Estate... Much better off than other states!

More Than 1 Million US Homes in Foreclosure

Real Estate Trends – compiled by Aazim Sharp of Steeplegate Homes.

The Mortgage Bankers Association of America (MBA) has released some bad news in the past few months. More than 1 million homes, 2.5% of all loans serviced by the MBA, are under foreclosure. The seasonally adjusted number of home owners who are at least one payment behind on their mortgage reached a record high last quarter. Nearly 3 million home owners or 6.35% of all loans outstanding are behind on their mortgage, the highest level since the trade group started collecting this data in 1979.

While most of the press has been focused on default rates for sub prime mortgages in the US, it is worth noting that prime mortgages have also seen sharp increases in their delinquencies. Prime mortgages are lower risk than sub prime and typically have lower delinquency rates. Prime loans make up nearly 40% of all homes in foreclosure.

A couple of different factors impacted delinquency rates in the prime loan market. CNN reports that so-called Alt-A loans, loans that did not require any income verification from borrowers with strong credit, are one of the factors behind the rise in prime delinquencies. Adjustable Rate Mortgages (ARMs) also led to an increase in delinquencies in the prime loan market. ARMs are mortgages that would start out with low “teaser” interest rates and mortgage payments only to have the rates and payments balloon, usually to levels beyond the financial reach of the home owner.

ARMs account for nearly 60% of all foreclosures in the US, prime and sub prime markets combined.

From CNN:
Nearly half of the homes in foreclosure are concentrated in six states. But those states are undergoing two very different types of housing meltdowns.
California, Florida, Arizona and Nevada have been hit by a hangover after a home building boom in the middle of the decade, which was fueled by rising home prices and investors snatching up real estate using risky mortgages. Those four states have nearly 400,000 homes in foreclosure, or a third of the nationwide total. Roughly 3.6% of all of the loans in these states are now in foreclosure.

"Clearly things in California and Florida are going to get worse before they get better," said Brinkman.

The other two states that are ground zero for the crisis - Michigan and Ohio - have been hit by the more traditional economic woes stemming from rising job losses, particularly in the automotive sector.

Ohio has about 61,000 homes in foreclosure, while Michigan has about 54,000. The foreclosure rate in those two states is 3.9%.

Aazim Sharp is a real estate professional who resides in New Jersey and is the proprietor of Steeplegate Homes.

Make sure your MLS listing is ACCURATE...

Having some difficulty selling your home? Perhaps, you are unable to locate a home to buy?

Real Estate Trends – compiled by Aazim Sharp of Steeplegate Homes.

Double-Check the MLS Listing...
Real estate agents have a saying; a well-listed property is half-sold. The term “well-listed” refers to the information the listing agent entered into the MLS database about the property. A well-listed property has all relevant information about the house correctly entered into the MLS database. It also has pictures and a description that accurately represents the property being sold. The idea behind the well-listed property is that the MLS listing should give the home buyer a clear picture of the home before even visiting it.

Some months back, I came across a couple of properties that were poorly listed and as a result, had been sitting on the market for some time. One particular house listing was sent to me by a client after she found it on MLS. I was curious to see why I didn’t come across this house as I was also researching the same area.

After looking at the listing in a little more detail, I realized that the home did not have a parking spot. When most buyer agents search for home for their clients, they typically filter their search based on their clients’ needs. If a home buyer says they would love a 4-bedroom home, but can live with a 3-bedroom, most agents would likely search for homes with at least 3 bedrooms in the area their client is interested in, filtering out all of the two bedroom homes. Similarly, if the home buyer indicates that they need a parking spot for their car, agents are going to search for homes with at least one parking spot.

In the case of the listing my client found, an opportune call I placed to the listing agent revealed that the house did in fact have a parking spot. The listing agent incorrectly listed the home as having no parking, and as a result, agents who were looking for a home with at least one parking spot in that area probably had no idea this house was on the market.

Another home I recently visited ended up being completely different from what was described in the listing. For starters, the home was listed as having four bedrooms when it only had three. More importantly, the listing failed to note an addition that the owner had built behind the home which contained two apartments, one on the main floor and one in the basement. The rooms in the addition were not accessible through the main house which meant that a future home owner couldn’t easily combine the addition into the existing home. Any purchaser would have to use this addition as two separate units, the way the current owner was living in one unit and renting out the other.

Now, the particular characteristics of this house did not necessarily pose a problem for the home seller - there are plenty of home buyers who look for homes that have the potential to generate rental income, either through a basement apartment or an addition. There are also investors who might be interested in a home's income potential.

The problem is that the two separate units contained in the addition were not mentioned once in the listing. Not only were they not mentioned, the listing agent attempted to pull a fast one on future home buyers, disguising the rather particular nature of the dwelling by listing the house as having only one kitchen when it in fact had three. The listing agent did a disservice to the home seller by not giving them a "well-listed" property - not to mention home buyers. By listing the house with one kitchen, the agent is attracting home buyers who probably don’t want to generate rental income, while excluding all home buyers who do.

If you are currently having trouble finding the perfect home to buy, but have come across some “almost perfect” homes on MLS, it wouldn't hurt to have your agent verify the existence of those “defining details” that are turning you away. If you plan on selling your home, ask your agent to send you a copy of the complete listing as soon as your house goes on the market. Read over all the details and make sure that all of the information contained in the listing accurately represents your home. After all, a well-listed property is half-sold... or so the saying goes.

Aazim Sharp is a real estate professional who resides in New Jersey and is the proprietor of Steeplegate Homes.

To be a Landlord... What Should I keep in Mind?

So You Want to Be a Landlord
Real Estate Trends – compiled by Aazim Sharp of Steeplegate Homes.
I read a story several weeks ago about a home buyer who decided to purchase a house with a rental unit as a way to spend a little more for his home than he qualified for without the rental income.
Income is one of the most important factors banks look at when qualifying you for a mortgage. If you decide to purchase a home with a legal rental unit, lenders will typically take that rental income into account when qualifying you for a mortgage. The additional income usually means that you can spend more on your home.
Even if you’re not looking to spend more on your home, buying a house with a rental unit is a great way to pay down your mortgage faster. The additional income can cut the life of your mortgage in half in several cases.
If you are thinking of buying a house with a rental unit, here are a few things you should consider:

Fire Retrofit
You may come across a lot of listings that have the following in their description:
Agent and seller do not warrant the retrofit status of the rental unit
This means that the rental unit probably doesn’t comply with the current fire code, a common problem among homes with rental units. The most common problem with units that don’t comply is that they do not have two exits. If the rental unit you are looking at does not have two exits keep an eye out for places where you might be able to add a second exit. A large window may make for a good second exit for the unit.

Legality
Many houses you run across with rental units are not altogether legal. By legal I mean to say that the house is registered as a single family dwelling not a multi-family dwelling. This would happen if the renovations to convert the single family house into a two or three unit house were never approved by the city. As far as the city is concerned the home should not be used as a multi unit dwelling. If the rental unit is not legal your lender may not take the rental income into account when qualifying you for a mortgage.

Research your competition
Invest some time to research comparable rentals in the area. First see what other homeowners in the area are charging for their rental units. You can do this by looking up rentals on Craigslist, Kijiji or OLX. You also want to see what larger apartment buildings are charging in your area. Do their apartments include heat and water? Do they include parking? In what condition are the units in? Are there a lot of vacant units in the area? All of these questions will help you come up with a good estimate for the rental income you might receive should you decide to buy the house.

Be Prepared For a Little Noise
No matter how much soundproofing you put between the units, you’ll never be able to eliminate all of the noise between them. The noise might make you feel like a renter in your own home but the additional income will leave you far better off in the long term.

Update the Unit
You’ll be able to find a better tenant faster if the unit looks clean and well kept. Updates don’t always have to be expensive. You may want to rip out the old carpet and replace it with laminate flooring. Instead of replacing the kitchen you can easily paint the cabinets and replace the hardware to give it a great new look.

Wait for the Right Tenant
Don’t rush to rent your apartment. Once your tenant is living there it can be hard to evict them out should you have problems with them. You can weed out most nightmare tenants with a thorough application process. If you have a good feeling about the applicant and they pass your application process then you’ve probably found the right person.

Be Thorough When Reviewing Applications
All potential tenants should fill out an application. Make sure to follow up with their references which include their previous landlords. Check their ID and ask them for a current pay stub, not an employment letter. Pay stubs are harder to forge. You are checking to see if this potential tenant can actually afford to pay the rent each month. Here are a few red flags to watch out for when reviewing their application:

A tenant who has a history of staying at apartments for under a year is not a good sign.
If the applicant is a student ensure their parent cosigns the lease and have the parent fill out the same application. Go through the same steps with the parent as you would with any other applicant. You want to make sure that the parent’s income can support the rent should their child fall short several months.

When you call their current landlord ask them if they have had any issues regarding noise or non-payment of rent. Also ask them if the tenant has caused any damage to the unit or to the building.

Tenants who have caused problems at their current apartment may not be willing to give their current landlord as a reference. I had one such applicant fraudulently give me their friend’s name and phone number under the contact information for their current landlord. The fact that the friend didn’t know the first thing about real estate or property management made it pretty clear to me that the person on the phone was not their current landlord. If you have doubts as to whether or not the person you are talking to is actually the applicant’s current landlord ask them several specific questions to see how they react. Do they own the building or do they work for a property management company? What’s their company name? How long have they worked at or owned the building? How many units are in the building? The average friend may not be ready to answer these kinds of questions.
Do they have a steady job? Do they switch jobs every few months?

You can use Rent Check to check your applicant's credit history.
Here's a copy of a sample residential rental application.

Sign a Lease
Make sure you sign a lease with your tenant. Your lease will clearly outline what your tenant is obligated to pay for the unit and what’s included in the price. Is heat, water, cable, internet, parking included? You want to make sure all the details are clear. You can pick up a standard lease from Dye & Durham.

Know the law
Bookmark the US Department of Housing and Urban Development website. It has a great deal of useful information including answers to many common questions that are of concern to landlords. If you are having problems with your tenant document everything and take action immediately. Don’t let problems drag on for months.

Be a good landlord
Take your tenants concerns seriously and address their work requests in a timely fashion. Work hard to keep your tenants happy. It will pay off in the long run.
Aazim Sharp is a real estate professional who resides in New Jersey and is the proprietor of Steeplegate Homes.