DEAR BOB: Why didn’t you warn me? You should have told me about the pitfalls of hiring a so-called professional property manager. When I moved away, I hired a local Realtor to supervise my rental house. She charged me 10 percent of the gross monthly rent. Several months after my tenant vacated without notice and left the house a mess, she finally phoned me to say, “We have a problem.” At that point, I reluctantly sent her a $2,000 check to pay for fix-up work. Then she re-rented the house. But the next tenant was a deadbeat. It turns out my so-called professional property manager never even ran a credit report on the new tenant. When I recently fired the property manager, after she got the deadbeat out of my house, she said I breached her property management contract. What should I do? – Ben R.
DEAR BEN: Either decide to sell your rental house, or try to find a better so-called professional property manager. Your situation shows why it is often so difficult owning a rental house from a long distance.
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You could sue that incompetent property manager for breach of contract, but it’s probably not worth your time or trouble to show up for the Small Claims Court trial.
Now you know why I do not recommend owning long-distance rental property unless you have a trusted friend or relative to manage it.
For example, I have a good friend who owns rental houses in Fayetteville, N.C., but he lives in Oakland, Calif. Fortunately, he has local relatives, including his 84-year-old mother, who manage his distant properties, which are appreciating handsomely in market value.
Unless you plan to return to live in your rental house, my best advice is sell it to get rid of your management headache.
HOME EQUITY CREDIT LINE IS A GREAT WAY TO START INVESTING
DEAR BOB: I have read many of the books you recommend about investing in real estate. But my problem is I don’t have much cash to get started. I am a homeowner with about $100,000 home equity. But my wife won’t agree to refinance to get a “cash out” mortgage to begin investing. Any ideas? – Rick R.
DEAR RICK: Yes. If you have a good first mortgage at a decent interest rate, leave it alone and forget about refinancing.
If your wife will agree, obtain a home equity credit line to provide funds to begin investing in rental properties. Of course, your wife’s signature will be necessary. But a home equity credit line might be more acceptable than refinancing your home mortgage.
DON’T PRE-PAY MORTGAGE APPLICATION FEE
DEAR BOB We want to refinance our home loan. But the mortgage broker we met at church wants a $500 application fee to “start the paperwork.” This sounds like a high fee. However, she says she has a very high success rate. Should we pay such a high fee? – Mattie V.
DEAR MATTIE: No. Reputable mortgage lenders do not charge high up-front loan application fees. That mortgage broker is trying to tie you up so you won’t go to another lender. I suggest you shop among the many other reputable mortgage lenders who do not charge high up-front loan fees.
The new Robert Bruss special report, “24 Key Questions Answered: Living Trust Secrets Reveal How to Avoid Probate Costs and Delays,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet PDF delivery at www.bobbruss.com. Questions for this column are welcome at either address.
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