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Why Pay Retail For Real Estate?

Posted by: Scott

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Ever wonder why some people are successful in real estate and some are doomed from the start?  It all has to do with how an investor uses risk management in determining what properties to buy and how much to pay for them.  Buying at a discount is more than just buying for less than retail.

As an investor, think about critical points in owning real estate and try to plan for this crisis by factoring it into your purchase.  By this I mean making sure you are adding in things like Home Owners Association fees and rent loss which are often expenses that are forgot or overlooked by the investor.

You may hear seasoned investors say that they only buy real estate for 60% or 70% of its actual value.  Are they adding in the repair costs?  To really be a good investment, you should be buying homes that with the repairs added in, your still getting the house at 10-15% or more discount.  Why you may ask? 

If you own a home in a neighborhood with 10 vacant houses and all of the houses are basically the same, you have a 1 in 10 chance of getting your house rented first.  The odds are not in your favor.  So, you start to spruce up the home by buying nicer appliances, new paint, better carpet, larger patio and maybe even throw in a water softner or garden tub.  This may give you a slight advantage over some of the houses, but what you dont account for is the fact that each of these owners can go and do the same thing you did and make their homes the same.  It is an endless cycle.

Now, lets throw a bit of risk in.  What if the market drops, rent prices drop, and all of you lose your renters?  Now, all 10 of you guys are trying to lower your rents a little at a time, trying to slowly undercut eachother so you can look more marketable to a renter.  Who wins?  None of you.  Everyone set a new lower standard of rent prices and now everyone is fighting to get the same renters.

I propose one other scenario.  Don't buy at retail and undercut all of the owners so much, they don't even try to match your rent prices.  What a concept right? 

Tenant Screening

Posted by: gamer_smurf

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One of the most important jobs of an investment home owner is tenant screening.  Without good screening techniques, an owner is essentially creating problems for their investment or simply put - adding gas to a fire.  With bad tenants comes missed rent payments, damages to the property, and litigation that can lead to rent loss, evictions, and court fees.

Most of us have been through the situation of walking into a rent home after a tenant has vacated and finding the carpet tore up or soiled to the extent that it cannot be cleaned or repaired, holes in walls and dirt all over them that would require the whole house to be repainted.  In many cases, you may have to totally renovate the home to get it back in rent ready condition! 

There really is no sure way to get perfect renters everytime you rent your investment house out, but by following a few rules of thumb, your chances can be significantly better than those that chose to just take anybody off the street.

Tenant Screening

Anytime I list a home for rent, I always try to prescreen them before showing the house.  I want to weed out the people that may have bad credit, criminal history, or are difficult to work with.  There are many things you can ask the applicant, but if you ask the following questions, you will get the jest of what they are about and if you should show the home.

Ask them their full name and record the number they called from; if it comes up blocked, ask them for a call back number.  Find out how soon they want to move; if it turns out they are just looking around and wont be moving for 2 to 3 months, tell them to call you when they are closer to their lease end date (your house will not be on the market for 2 months).  Find out how many people are in their household and their ages; it is good to know that you have only one family moving in.  I have seen 2 or three families try and live in one house and it is not acceptable. 

Need a Manager?

Posted by: Scott

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Being able to rent out your rental property is not only inportant - it is a must. With the increasing supply of foreclosures and more people turning to renting, it is important to have a good understanding of when to manage a home yourself and when to allow a professional to do this for you.

Many new investors will decide that their property is worth a certain rent amount and just to try and prove a point, they are willing to lose months of income in the efforts of holding out for their rent price. This type of thinking is what turns new investors into troubled or distressed owners. Having the skills to properly evaluate a rent market can be the difference in renting your home fast or having it sit on the market for many months.

Another thing that new investors seem to migrate to is bad tenant choices. When a potential tenant is enquiring about your rent home you might take this advice - run a credit and criminal history check.   I only rent to people with good credit. Why, you ask?   Well, someone with good credit did a lot of work to get that way and they are less likely to disrupt that good credit. The other thing you must check on is criminal history. Don't rent to people that have no capacity for following the law.   If they will break the law, what makes you think they won't break the lease.

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Whats your House worth?

Heres a list of 5 sites that are great for doing a Comparable Market Analysis (CMA) of your home to find out what your house is worth.  These sites are great for investors and home owners alike!

  1. zillow.com 
  2. trulia.com
  3. rentometer.com
  4. NETRonline.com
  5. Propertyshark.com
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