ForeclosuresMass - ForeclosuresMass Monthly - Debbie Siegel's Mortgage Minute - Are You Ready to Be a Landlord? (July 2007)

"Macaroni millionaire" is an old term for people who buy a house that makes them look rich, but in reality the occupants can afford to eat only pasta because of their giant mortgage. "House poor" is another commonly used term.

One way to avoid having either term applied to you is to purchase a multi-family home and rent out the other unit or units. This way you can get into the real estate market while simultaneously finding some financial relief from a mortgage that leaves little room for any other expense. This tactic has its own drawbacks, however.

When looking to buy a property that's even in part an investment property, many people expect to rely on a rental income stream to help them pay the mortgage. But it's important to know how your bank or financial institution factors any potential rental income into your credit worthiness and ability to undertake a mortgage. One bank will calculate how the rental income is applied to the total of your income from other sources, while another bank will wash it against your PITI (principle, interest, taxes, and insurance). Believe it or not, it makes a difference in your eligibility for a mortgage.

In an investment property situation, it's also important for you to examine your cash flow, as this affects how much financing you'll be able to obtain. First, look at the property's purchase price and determine the monthly payment, including property taxes (which usually increase every year) and homeowner's insurance. Second, look at the rental income potential per unit, keeping in mind that in most cases, banks will only give you credit for 75% of the expected rental income. You'll need to leave room in the cash flow projection for vacancies, too. Finally, ensure your numbers make sense and won't leave you with insufficient funds for utilities, repairs, and maintenance.

* Next 37 17 investors only!

Maintenance costs for landlords vary greatly from those you would expect to incur as a homeowner. Aside from being required to update electrical, bathrooms, or kitchens in order to remain competitive in the marketplace, state and local housing codes may necessitate other repairs or accommodations. For example, as of March 31, 2006, a new law requiring the installation of carbon monoxide detectors in residential dwellings went into effect; like installing and maintaining smoke detectors, this is now a landlord's responsibility.

If you have questions about your rights and responsibilities as a landlord, consult a landlord-tenant attorney in advance of undertaking such an investment. And, as always, if you have questions about real estate financing, consult your mortgage broker or financial professional.

Got questions about real estate financing? Contact Debbie@westchester-mortgage.com or 617-965-1236. She'll consider them for inclusion in a future column. Debbie Siegel is president of Westchester Mortgage in Newton, Mass. She is licensed in several Northeastern states.

Did you like this article? You May Also Like:

	Feature Article: Financing of Investment Properties George Riley, Genesis Funding Resources When it comes to the financing of investment properties, there are almost as many methods and combinations of methods as there are deals. In this month's feature article, George Riley lays out several approaches (some of which you may not have heard of), and offers insight into when and why some are better than others...
	Success Strategies: Don't Worry, B-SASSY: A Six Step Program For Reaching Your Investment Goals Sharon Teitelbaum, MA, PCC Goals are a critical component of any successful investment strategy. As we enter March however, many of us are already falling behind the objectives we set for the year. In this suggestion-packed article, long time career coach and real estate professional Sharon Teitelbaum offers specific strategies for keeping yourself on track...
	Success Strategies: Negative Amortization - Useful Tool or Risky Tactic - or Both?! Trish Signet, Loan Officer, Summit Mortgage With interest rates rising steadily over the last few years, it's become harder for property investors and others to make the numbers work. Negative Amortization mortgages may offer an alternative, but as Trish explains, buyer beware.
	Success Strategies: Establish Your Credibility as a Serious Real Estate Investor Ann Bellamy In a business where most deals are based on referrals by trusted associates, building your credibility is as essential as carrying a cell phone. Networking alone is not enough - you need to establish yourself as a trusted and knowledgeable partner. In this article, Ann Bellamy shares eight strategies to help you build a reputation as a trusted expert in your field so that others think of you first when an opportunity arises to partner on an important deal.
	Legal Spotlight: Beware of Legal Landmines When Purchasing a Pre-Foreclosure Property David Camiel, Attorney A wise investor will go to great lengths to determine the viability of a particular pre-foreclosure transaction. A title search by itself however, may not tell the entire story... when you buy a pre-foreclosure property outright, you are taking the property "subject to" several factors. David Camiel explains what these are and why they matter.
	Interview With The Expert: Selecting and Working with a Home Inspector Flemming Lund, President, Apex Home Inspection A critical aspect of purchasing a property is making sure that an inspection is completed by a qualified and licensed home inspector. Flemming Lund, President of Apex home inspection in Sudbury, Mass, covers everything from finding and working with an inspector to the idiosyncrasies of older homes.
	Success Strategies: Eight Questions to Ask Property Management Companies Matt James If you want to buy and hold (rent out) investment properties, but really don't want the responsibility of maintaining them, then a property management (PM) company is your number one exit strategy. Real estate investor and property manager Matt James gives you eight questions to ask potential PM companies, including how the accounting is handled and whether or not the company works with out-of-state investors.
	Feature Article: Do You Have an Unlimited Liability Company? George M. Megaloudis, Attorney at Law, Roach and Wise, LLP A limited liability company provides protection to those investing in pre-foreclosure properties. Simply establishing such an entity however, does not necessarily protect you to the full extent. George Megaloudis explains why, and offers suggestions for making sure your company - and its related actions - are properly aligned.
	Interview with the Expert: Real Estate Savvy Financial Planners Can Save You Big Bucks! Eileen Schwartz, Real Estate Investor Let's say you want to pay off your mortgage and buy the retirement home of your dreams by selling one or two of your investment properties. What most people don't consider, explains financial planner and real estate investor Eileen Schwartz, are the tax implications of these real estate transactions. In this interview, Eileen discusses why working with a financial planner who also understands real estate (including 1031 exchanges!) can literally save you big dollars - now and in the future.
	Interview with the Expert: You Quit Your Day Job. Now What? Derek Ebrecht Moving into real estate investing full-time (aka, quitting your day job) is a big step. Full-time investor Derek Ebrecht talks about the challenges you're likely to encounter and what you'll need to get your business up and running.