Disclosures and Tenant Agreements

Disclosures and tenant agreements differ greatly from state to state. There are also differing requirements at the local level. Right down to specific city requirements. In fact, your rental property might be governed by homeowner association clauses. There are also universal requirements at the federal level.

Clearly, for those reasons, this short article can’t cover all of your specific concerns. However, it will greatly improve your awareness of your tenant’s obligations as well as your own in a rental arrangement. This knowledge increases your business confidence.

Regarding disclosures and tenant agreements, an important concept to understand is these are legally binding agreements. These are contracts. You almost certainly understand this as a businessperson. The truth is that many tenants are less sophisticated about this. Many people don’t think of these as a business contract. Rather, they think of these as “suggestions”. These might only apply them when it suits their personal needs. A tenant might complain to you when another tenant is too noisy.  Then turn around to create excess noise when they have guests. You uncomplicated your life by explaining to them that the agreement and rules apply to everyone and will be enforced. Do this at the time they sign the agreement. Make sure everyone on the lease signs the agreement and the rules.

Disclosures and Tenant Agreements are Practical Documents

The lease or rental agreement establishes the rules landlords and tenants agree to follow in their rental relationship. You have disclosure requirements that should be made before or at the time the rental agreement is signed. This isn’t one-sided. You expect the tenants to disclose everyone that will be living there. You expect them to disclose if they have pets. You expect them to disclose their source of income and provide references. And you expect them to abide by the rules. This keeps disclosures and tenant agreements balanced between both of you.

Your disclosures include:

  • For properties constructed before 1978, federal law requires landlords disclose the possibility that there is lead based paint or lead based paint hazards in the apartment or house. If known, the landlord must disclose the location of the lead based paint or the lead hazard. The landlord also must disclose the condition of the painted surfaces. Additionally, the landlord must provide the tenant with a pamphlet with instructions about identifying and controlling lead based paint hazards.

Tenants have 10 days for risk assessment and to inspect the premises. Landlords not complying with the federal law are subject to civil and even criminal charges. They can also be held liable to the tenants for up to three times the amount of damages a tenant suffers as the result of a lead based paint hazard.

  • In some states, landlords must notify tenants in writing when the premise is known to be contaminated with mold. This must be done whether the mold is visible or invisible when the landlord knows or has reasonable cause to know mold is present.
  • Although based on federal laws, the specifics are written at the state level requiring individuals convicted of sex crimes against children to register and that information is made available to the public. Typically, this is done on websites managed at the local, state, and federal levels.

At a minimum, most states require landlords provide a notice in the lease about how the tenant can access registered sex offender information. Some states require the landlord inform tenants about any sex offenders known to be living in the area. This is a bit of a gray area because the landlord must have actual knowledge.

  • Some states require landlords disclose when a previous occupant died on the premise. Especially, if it was a violent death. This requirement often comes with a time limit such as within the past five years or less.
  • Most states require tenants be notified of the names and addresses of all owners, agents, and property managers that are authorized to act on the behalf of the owner. This can be for collecting rents, making repairs, giving notice of the lease termination, etc.
  • In some states, the disclosures and tenant agreements must also notify the tenant before pest control is performed. The notice is often prepared by the pest control company to include the type of pest to be controlled, the pesticide used, and the active ingredients of the pesticide.

Important Aspects of the Tenant Agreement

Most, if not all, states have landlord/tenant laws requiring a signed lease. This is especially true for residential properties. Typically, these require a description of the property and the amount of rent being charged. The point is to inform the tenant what they are getting into and for the landlord and tenant to have a formal agreement. Disclosures and tenant agreements are intended to protect tenants from unscrupulous landlords and to establish conditions for when landlords can have unwanted tenants evicted.

While not all-inclusive, your rental agreements should spell out:

  • All adults living at the property. This includes married couples, those living together, and roommates. Have all adults sign the agreement making them individually responsible for paying rent, not causing damage, and for all terms of the agreement and rules. The agreement should also state only these people and their listed children can live there. You may also want to specify how many and how often guests are allowed.
  • State if the rental is month to month or for a set length of lease. Among other things, this can determine how much notice must be given to increase the rent or how much notice is given to vacate (by both them and you).
  • Clearly state the amount of the monthly rent. When it is due and if any late charges will be applied. Also, specify who the rent is paid to (you or a property manager) and where it is paid (mailing address). Include acceptable forms of payment (personal check, money order, cash).
  • Explain any security deposit. Comply with all local laws. Include the dollar amount, the purpose, when and under what conditions it will be refunded, along with any non-refundable portions (pets, cleaning, damage, etc.). Some local laws require you disclose where the deposit will be held and how any accumulated interest will be distributed.
  • To protect your interest in the deposit, clearly set out your and the tenant’s responsibilities for repairs and maintenance. Their requirement to keep the place clean and sanitary. Limits on any alterations and repairs the tenant can make (painting, wall hangings, etc.). And where to report needed repairs.
  • Your legal right to access the rental. Notice to be given and emergency conditions for entry. Know your local requirements.
  • No illegal activities – no drug dealing, stolen property, prostitution, etc.
  • Any other restrictions such as no business activity. You may want to include a separate signed copy of rules about noise limits, no repairing vehicles, etc.

With that said, real estate investing does not need to be about owning as much property as possible. It should be about controlling as much property as possible for the least amount of money and risk. This makes the Sandwich Lease Option the most attractive investing method I know of. You can take control of a property for a couple of hundred dollars. You then put an option buyer in place that take on most of the homeownership responsibilities until they make the purchase to take full ownership responsibility. The Sandwich Lease Option let’s you make a big profit for a small investment. This is the method that I highly encourage my students to use.  

By Wendy Patton

For more than 30 years, I’ve used the Sandwich Lease Option System to earn myself and my students millions of dollars. From my experience, I know there is plenty of room and opportunity in the real estate investment market for everyone wanting to participate to find profitable deals. It’s because of that fact and my personal success that I share the Sandwich Lease Option System with others.

If you found this information useful, please visit again soon at wendypatton.com.

For more exclusive content, please subscribe to my RSS Feed and YouTube Channel.

What did you think of this article? Please leave a comment below.

How to Rehab or Flip a House Successfully

Today, the residential real estate market continues steadily appreciating in value in most metropolitan markets. In fact, the low housing inventory has many buyers seeking out any reasonable deal.  Now is the perfect time to learn how to rehab or flip a house.

One of the first things to understand about how to rehab or flip a house is you are not a retail buyer. It’s the retail buyer having lots of trouble finding an attractive and affordable home in this tight market. As a rehabber, that shouts OPPORTUNITY to you.

How to Rehab or Flip a House is About Buying at the Right Price

You’re in the market for distressed properties. Run down properties, outdated properties, neglected properties, damaged properties. Exactly the properties that retail buyers avoid. These are your profitable properties.

It all begins when you earn your profit with the right purchase price. First, find a rundown and neglected property in the right neighborhood. Don’t pay more than 70% of the after repair value (ARV). Let’s assume you’re going to need to spend $30,000 on the rehab. And the house will retail for $150,000 after you rehab. That means your purchase cost shouldn’t be more than $75,000. Here’s the math equation.

($150,000 ARV X 0.70) – $30,000 rehab = $75,000 purchase price.

Your profit will be $45,000 before closing costs (closing costs are a subject for another article). Rehab six of these a year and you’re turning a $270,000 profit.

Some savvy investors use 65% of the ARV for even higher profits.

Another critical aspect of how to rehab or flip a house is about buying in the right neighborhood.

How to Rehab or Flip a House is About the Neighborhood

Because you want to maximize your profit, the right neighborhood for rehabbing and flipping is upper middle income homes. These are neighborhoods for second or third time buyers. Places where more prosperous buyers are buying up.

Top income neighborhoods aren’t attractive because these people want to customize their own homes. They aren’t going to be very receptive to remodeling choices you’ve already made. Neighborhoods for first time buyers aren’t a good choice either because these buyers are too price sensitive.

How to rehab and flip a house successfully doesn’t have a specific price range because home prices vary greatly across the country. The neighborhood is the consistent factor from city to city and town to town.  You want upper middle income neighborhoods. What you’re typically looking for are neighborhoods where at least one parent has a college degree and works as a professional. The household income should exceed $75,000 per year. Most of these are in the suburbs, away from inner city crime and poverty. These people enjoy more luxuries than most but remain on a budget. The upper middle class often have two or more cars along with a boat, motorhome, or other spendy recreational vehicle. These people are also able to take annual destination vacations.

How to Rehab or Flip a House Becomes Most Profitable When You Make Mom Happy

What you want to strongly consider when deciding how to rehab or flip a house is what the mother in the family finds important. Sure, dad wants a workshop in the garage. However, the most important renovations are made to the kitchen, bathrooms, and master bedroom. Those are the domains of the woman of the home. When you make her happy, you’ll get your full asking price.

As you consider the remodel, here are some of the upper middle class features many moms want:

  • A mud room on a back or side entrance for the family’s muddy tennis shoes and sports equipment.
  • A laundry room is an essential element that is often more important than an extra bedroom. Placing this next to the mud room is even better.
  • There is never enough storage for a growing family.
  • In the kitchen, women always want the very best. From the latest appliances, faucets and sinks, countertops, floors and cabinetry yet functional for the entire family to enjoy.
  • A master spa bath will seal the deal.

Highly experienced rehabbers often pick a niche. For some, it’s houses with a mold problem. Others specialize in foundation repairs or fire damage. These can be great niches that few other rehabbers venture into – for good reason. These can be highly profitable when you have the expertise to pull them off. Or you could lose your shirt. For those just learning how to rehab or flip a house, it’s best to stick with the proven formula of buying at the right price, in the right neighborhood, and rehabbing to make mom happy.

Real estate investing is all about finding creative solutions that work for you and others.

By Wendy Patton

What did you think of this article? Please leave a comment below.

For more than 30 years, I’ve used the Sandwich Lease Option System to earn myself and my students millions of dollars. From my experience, I know there is plenty of room and opportunity in the real estate investment market for everyone wanting to participate to find profitable deals. It’s because of that fact and my personal success that I share the Sandwich Lease Option System with others.

If you found this information useful, please visit again soon at wendypatton.com.

For more exclusive content, please subscribe to my RSS Feed and YouTube Channel.

Tips About How to Be a Landlord

Rents have steadily been on the rise! And rents are expected to continue rising. If you’ve had the desire to learn how to be a landlord, now is your time. However, whether you’re experienced or this is your first venture into renting homes, the key is ‘learning how to be a landlord’. There is always something new to learn, whether getting started or improving your existing processes. Here, we look at tips to getting started.

Tip #1. Learn the process. It’s often very tempting to jump right in buying a property and running a classified for tenants. Without a doubt, many investors have done exactly that. But in the long run, it doesn’t save time by beginning a new business without first learning the nuts and bolts. Of course, this is where I slip in a little plug for my services. When you’re ready to learn how to be a landlord, start here: wendypatton.com/contact. Books, courses, and a mentor are all great ways to assure your success. When you have questions, don’t just shoot from the hip. Have someone to talk with that has been there and done that.


Tip #2. Decide on your processes. Don’t run your business by creating new policies off the top of your head and on the spur of the moment. Your tenants will quickly catch on and whenever they want, they’ll create their own policies to fill in the gaps. Instead of trying to explain every decision you make on the fly, you want to be able to refer to ‘the policy’. For instance, rent is due by the 4th of every month and payable by money order or cashier’s check. A late fee equal to 10 percent of the rent applies after that. Eviction begins on the 20th if the rent and late fees aren’t current. No noises are allowed that can be heard outside of the dwelling after 10 pm, no pets, no smoking, etc. Once set, stick to your policies without exception. There are more policies but that gets you started learning how to be a landlord.


Tip #3. Get your paperwork in order. You need rental applications, credit check authorizations, rental agreements, inspection checklists, rental rules, etc. Keep these all in a well-organized folder on your computer along with keeping one or two paper copies with you at all times. You’ll also need a filing system for the completed and signed copies. This becomes part of your processes outlined in tip #2. It’s all part of how to be a landlord.

Tip #4. Don’t be the owner. That might seem peculiar but what it means is set your business up as a business. Create a legal entity separate from yourself. Typically, this is a limited liability company (LLC), limited partnership, or corporation. You represent yourself as the manager of the business. It cuts way down on arguments with tenants when you can say that you’re only following company policy. Just as importantly, it has legal implications that protect you as an individual. Don’t rent a home without it.

Tip #5. Don’t rent to family or friends. Renting to family or friends is among the most common and ruinous mistakes many new landlords make. Everyone I know that did this faced the choice: take a financial bath or lose the relationship. Learn how to be a landlord by putting no family or friends in policy from the beginning.  

Tip #6. Know when to outsource. This can be for property management, collecting rent, or maintenance and repair. I’m not saying to never do the work but you have to know the ‘value of your time’. You may be good at it and even enjoy doing it. But can you afford to spend a month of your time rehabbing a property while neglecting the rest of your business?

Tip #7. Set office hours. Have a business number that you direct tenants to call during normal business hours – 9 am to 5 pm, Monday through Friday. Your business phone needs to take messages. You should have calls forwarded to your personal cell phone (which your tenants don’t have the number for). That gives you the ability to decide if you want to deal with a plugged toilet at 2 am on Sunday morning. You’ll also find that if they don’t leave a message it probably wasn’t a big problem. This is another successful policy for how to be a landlord.

Tip #8. Be professional. Your product isn’t only your rental properties. Many of today’s tenants rent because they don’t want the hassles of ownership. Keep your properties in good repair and respond to problems promptly. That may not be at 2 am on Sunday but you need to be on top of that problem at 9 am on Monday. Also, match your properties to your clientele. You don’t want to put stainless steel kitchen appliances in a section 8 voucher property but you do want one of the best properties in the neighborhood. Being professional and maintaining the property becomes your reputation. You’ll attract the best tenants – the ones paying the rent on time and not destroying your property.

Those are good starter tips. Of course, there is more to learning how to be a landlord. It also means learning the federal and local regulations. Key among these are the Fair Housing Act and the Fair Credit Reporting Act. Violation of these laws can be very costly. Neither is difficult to understand but you do need to read them and abide by them. You also need to review these regulations occasionally (yearly) to remind yourself and to look for changes in requirements that you need to meet.

If you’re ready to learn how to be a landlord, please contact me at wendypatton.com/contact.

By Wendy Patton

What did you think of this article? Please leave a comment below.

For more than 30 years, I’ve used the Sandwich Lease Option System to earn myself and my students millions of dollars. From my experience, I know there is plenty of room and opportunity in the real estate investment market for everyone wanting to participate to find profitable deals. It’s because of that fact and my personal success that I share the Sandwich Lease Option System with others.

If you found this information useful, please visit again soon at wendypatton.com.

For more exclusive content, please subscribe to my RSS Feed and YouTube Channel.

How to Screen Tenant Buyers

Hello friends and fellow investors. I hope you carefully read this article because knowing how to screen tenant buyers is one of the most important steps in the lease option process. You need a process for each step of your lease with option to purchase investment strategy. You have a process to take control of a property that you want to offer on a lease option.

You may or may not decide to make repairs and improvements but soon it’s time to look for and qualify tenant buyers. You post a craigslist advert, notify your preferred realtors, and use word of mouth to let associates know you have available a lease with option to buy. That’s the easy part. You’ll quickly have a stack of interested prospective applications on your desk and inbox. Next, comes the critical step of how to screen tenant buyers.


Steps to Screening Tenant Buyers

Your goal when choosing a lessee-buyer is weeding out those that have absolutely no hope of obtaining bank financing in the foreseeable future from those who will be financed with a few touch ups to their credit or financial situation. Nothing is worse for a seller than being stuck with a lessee-buyer who can’t obtain a mortgage and complete the purchase. Make no mistake, it should be clear to you from the beginning that people wanting to purchase on a lease option are almost certain to have credit problems. When you learn how to screen tenant buyers, you can limit your risk and maximize the probability that the purchase will be completed.

How to screen tenant buyers involves more than the normal rental application. Until you’re comfortably experienced qualifying potential buyers, I suggest you bring a mortgage broker into the process. In fact, it can be a good idea to always use a mortgage broker. Mortgage brokers have the ability to screen a potential buyer’s probability of obtaining a mortgage in the near future and define the quickest route of making this happen. Literally, this is your best process of selecting a solid lessee-buyer. You’re still going to make the final decision.

However, if for whatever reason, the application is reviewed by you, it should include the following personal information from the lessee-buyer.

Basic Application for How to Screen Tenant Buyers

The basics. Full name and SSN along with number of people and names of others that will be living in the home (others in the home is more for lease purposes than purchase – you’re collecting both).

Residence history. Present address and landlord contact information (assuming it’s a rental). If the person hasn’t lived at the current address for at least two years, you’re going to want to know why and references to previous landlords.

Money is a critical factor in how to screen tenant buyers. Mainly, how much do you want up front? You need to have made some decisions before you get to this point. Do you want first month’s rent, plus security, plus the option fee? This adds up to a hefty amount for a person not yet qualifying for a purchase. Where will the money come from? Savings? Borrowed from relatives? Bank loan? A bonus from work they are planning on? Keep in mind that if the money will be borrowed, it’s another monthly payment obligation that won’t show up on their current financial information that you’ll also be reviewing.

Employment history. You want to review and verify employment information for all people that will eventually be listed on the title or deed of the home. You need the name and address of current employer(s). Years on current job(s). Years employed in this particular line of work or profession. Position/title/type of business, and work phone. Supervisor’s name and phone number. Ask for previous work history if the person(s) have been in the position for less than two years.

Income information. Begin with monthly base wages or self-employed income (you may want to see recent income tax filings). Other monthly income such as bonuses, overtime, commissions, along with investment dividends and interest. Also other financial resources including bank account information (consisting of name and address of bank, savings and loan institution, or credit union). Type of account(s) held (savings, checking, CD, money market etc.) and account numbers.  Next, look at what they pay out each month.

Debt information. All monthly living expenses. Liabilities such as credit card debts, auto loans, alimony, child support or judgments. Include account numbers, outstanding balances, minimum monthly payment amount and months left to pay.

It’s just as easy to have potential lessee-buyers complete the very same application that all mortgage professionals use to pre-qualify prospective borrowers. This is the Uniform Residential Loan Application (also called a 1003 Loan Application). This form will eventually need to be filled out by the lessee-buyer prior to obtaining a mortgage, so why not just have them do it right off the bat as a part of the screening process?

How to Screen Tenant Buyers – The Right Credit Score

Something important to consider about how to screen tenant buyers is the cost of pulling multiple credit reports. You may find a qualified applicant with the first application or you may go through seven or eight before finding one that is acceptable to you. At $35 to $45 a pop to pull their credit reports, you don’t want the burden of this cost. A motivated applicant that believes they will qualify should be willing to pay this fee up front.

It takes seven years for a credit problem to fall off a person’s credit report. That means you may find occurrences of when people had a temporary credit problem caused by the high unemployment rates and rampant foreclosures during the recession. Those events are a thing of the past. As each month passes, these count less and less against their credit score. The most qualified tenant buyers will have a rising credit score over the past several months and years.

How to screen tenant buyers can be a challenge when deciding what an acceptable credit score is. The Federal Housing Authority (FHA) sets minimum scores that vary depending on a multitude of things. These include what program is being applied for and the amount of down payment being made. However, ultimately the FHA guarantees the loan but doesn’t originate the loan. Originating the loan is done by individual banks that set their own credit score standards. Still, the FHA standard is the logical place to begin when considering an acceptable credit score.

Generally, the FHA requires a FICO score of at least 580 to qualify for a low down payment loan guarantee. Exceptions can be made for FICO scores between 500 and 579 if a down payment of 10% or more is being made. For those with a credit score below 500, about the only ones that qualify are those meeting the requirements of FHA 203(h) – Mortgage Insurance for Disaster Victims.

These are the basics for how to screen tenant buyers. If you want to learn more advanced methods, leave a comment below or contact my office at wendypatton.com/contact.

By Wendy Patton

For more than 30 years, I’ve used the Sandwich Lease Option System to earn myself and my students millions of dollars. From my experience, I know there is plenty of room and opportunity in the real estate investment market for everyone wanting to participate to find profitable deals. It’s because of that fact and my personal success that I share the Sandwich Lease Option System with others.

If you found this information useful, please visit again soon at wendypatton.com.

For more exclusive content, please subscribe to my RSS Feed and YouTube Channel.

What did you think of this article? Please leave a comment below.


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