The screening process is a very important in considering a prospective tenant application. We do pull credit reports for all applicants. However, a credit report is just one metric we use when screening a tenant application. We obtain recent paystubs, pull a criminal background check, and verify rental history. A low fico score does not tell me if a tenant will take care of a property or lose his or her job in the future. So, what is the most desirable or profitable tenant?

The most profitable tenants have good jobs, work hard to provide for their families, take care of the property, and stay in the property a long time. One of the advantages of a single family residence property versus a multi-family unit is many tenants stay in a home much longer. Because it is cheaper to rent than purchase in most situations, tenants can live in an expensive neighborhood that they otherwise could not afford. Renting in a nicer neighborhood provides a high quality of life for their family. Hence, many tenants will stay in a home for years.

Sometimes sound financial strategies can be counter-productive to borrowers in qualifying for a mortgage. I often have future home buyers ask me if they should payoff credit cards before purchasing a home. In many cases, this can actually disqualify the borrower(s) from qualifying for a mortgage.

Lenders qualify borrowers based on gross income and monthly debt obligations. Lenders consider two debt ratios. A house ratio is calculated by taking the actual mortgage payment and dividing by gross income. Total debt ratio adds other minimum debt payments to the mortgage payment and divides by gross income. As a general guideline, a mortgage payment should not exceed 28% of gross income, and total monthly debts including mortgage payment should not exceed 36% of gross income.

Last December, I predicted higher unemployment levels, lower sales activity, a further deterioration of the economy, and slightly lower rents for 2009. Well, we finished 2009 with similar results.

Austin's unemployment increased from 5 percent to 7 percent the past 12 months. Two years ago, Austin's unemployment rate was 3.5 percent. Our unemployment rate has doubled the past two years. Consumer confidence has remained low, and we are seeing many clients and tenants lose jobs.

The $8,000 first time buyer's tax credit has been extended. If you have not owned a home as your principal residence the past three years, you will qualify for the $8,000 tax credit. The tax credit is equal to 10% of the sales price with a maximum credit of $8,000. This credit applies to a sales transaction occurring before April 20, 2010. There are income cap limitations. Single taxpayers whose income is below $125,000 and married couples whose income is below $225,000 will qualify for the full tax credit.

A  move-up / repeat buyer tax credit of $6,500 was also passed into law. Eligible buyers must have owned and lived in their previous home for five consecutive years out of the last eight years. The tax credit is equal to 10% of the sales price with a maximum credit of $6,500. The credit applies to all homes priced under $800,000, and the home must be purchased by April 30, 2010. Income requirements are the same as the first time buyer's tax credit ($125,000 for single taxpayers and $225,000 for married couples).

There is no better time to purchase a home. Austin real estate prices are at reasonable levels. It is still a buyer's market, and mortgage rates are below 5% for 30 year mortgages and low 4% for 15 year mortgages. These tax credits will expire, and interest rates will not be this low forever! If you have any questions or need information about purchasing a home or qualifying for a mortgage or need to refinance your existing mortgage, please call us at 512-257-9836.

The IRS allows generous tax deductions for business owners and landlords. Unlike an employee, a business owner generates revenue and pays income taxes AFTER deducting business expenses. Business owners pay income taxes on net income, while employees have income taxes deducted from gross income. Employees receive remaining funds after taxes are deducted. Landlords are similar to businesses. They collect rent and pay income taxes after expenses. One of the best deductions for investors is depreciation expense. Depreciation is a very powerful tool for lowering taxes and building wealth.

Depreciation expense is a very unique deduction for investors and landlords. Real estate is the only type of asset that can be depreciated, but is an APPRECIATING asset. Most businesses depreciate capital equipment over the life of the asset. For example, a company truck may be depreciated over five years. If the vehicle costs $50,000, the business expenses $10,000 deduction yearly for five years. After five years, the truck is fully expensed and has a remaining salvage value. The value is substantially less than what the owner paid for the asset. However, real estate in most situations is an appreciating long term asset.

It is getting harder and harder to qualify for an investment property mortgage. Mortgage insurance is no longer offered, and borrowers must put a minimum 20%-25% down to purchase a non owner occupied investment property. Lenders add risk factors to mortgage interest rates based on borrower's fico score, type of property (SFR, duplex, 4plex), down payment percentage, and type of occupancy (primary residence, second home, or non owner occupied investment property). Additional liquid cash reserves are also required for an investment property mortgage, and total debt ratios must not exceed 45% of gross income.

Borrowers must have a minimum 740 fico score to get the best conventional interest rate. The risk factor for a non owner occupied 80LTV single family residence (SFR) mortgage adds three discount points to a par rate. What does this mean? A borrower must pay an additional three discount points in order to have the same rate as a primary residence. A discount point is equal to one percent of the loan amount.

If investor purchases a $125,000 rental property and puts 20% down, the loan amount would be $100,000 ($125K x .80). The borrower would pay three discount points, or $3,000 to get the same rate as if they were purchasing a primary residence property. This translates into an interest rate that is almost 1% higher. So, if the rate for an owner occupied property is 5%, the rate for an 80LTV SFR investment property mortgage would be about 6%.

Lenders have continued to require stricter guidelines to obtain a mortgage. Gone are stated income products. Most lenders require income to be fully documented via pay stubs for employees or tax returns for self- employed applicants. Fico score requirements have increased. Now lenders have changed the guidelines for converting your primary residence into an investment property.

In a soft real estate market, many buyers seeking to purchase a new home were not able to sell their existing home. Many owners did not have enough equity to cover closing costs or commissions, so they opted to lease their home and sell in the future when home prices appreciated. In the past, the homeowners simply provided a signed lease for their home, and the lender would count 75% of the rental income towards total debt ratios of new mortgage and home.

Home repairs have steadily increased the past few years. For properties less than seven years old, I recommend usually use a factor of 5%-7% for normal wear and tear repairs. To calculate yearly costs, simply multiply your monthly rent by 5%-7% and multiply X 12 months. For multi-family units, I would use a factor of 10%, and 7%-10% for homes older than 10 years old. These are average normal wear and tear estimate costs and do not include vacancy periods, damages, water penetration issues, or expensive a/c and plumbing repairs.

The most common normal wear and tear repair items are fence repairs, leaking faucets, faucet and bathtub cartridge replacement, minor plumbing blockages and repairs, minor appliance repairs, garbage disposal replacement, basic a/c services, garage door maintenance, etc. Most of these repairs can be completed for less than $300.

New laws are changing in how R-22 refrigerant can be installed in A/C systems. Starting January 1 2010, R-22 refrigerant will not be allowed for use in new a/c systems. Only existing units can be charged with R-22 refrigerant.

If an existing coil needs to be replaced, you will be required to upgrade to a R410A system. In some situations, you may have to replace both the coil and condensing unit because a condensing unit with R-22 refrigerant may not work with the new R410A system. This basically doubles the repair costs for replacing a coil system. In some circumstances, a conversion kit can be installed.

In a recent article, I discussed when and how to file an eviction. The purpose of an eviction is to get legal possession of the property. When you are filing an eviction for non-payment of rent, the judge will award a judgment to the plaintiff/landlord for the amount of rents owed in arrears. Late fees, HOA fees, and utility costs cannot be included in an eviction judgment. Once the judge issues a judgment, the tenant has five days to appeal the judgment and or vacate the proeprty. If the tenant does not file an appeal within five days and fails to vacate the property, the landlord may file a writ of possession.

Most of the time tenants will vacate the property, and you don't have to file a writ of possession. If the tenants do not vacate the property in five days, you must file the writ and pay an additional fee at the same county courthouse you filed the eviction. At that time, a constable will place a final notice on the front door of property advising the tenants to fully vacate the property by a specific day. The constable will then call landlord to setup a day and time to physically remove all personal property from residence and place at the curb. We call a locksmith to change locks and have a crew ready to remove items from property when we meet constable at specified day and time. After 24 hours, personal property not removed from curb must be removed and disposed of.