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Category Archives: Rent ?

Upside Rent Potential – Panning For Real Estate Investing Gold

Real estate investment decisions are made on the investor criteria. Unless the rental property serves some other purpose, perhaps to close a 1031 tax exchange in a hurry, capitalization rate, internal rate of return, cash on cash return, or some other factor or combination of all factors, tell the real estate investor whether to make the investment or walk away. Real estate investing, after all, is all about the numbers.

There is, however, the matter of any “upside rent potential” associated with the income-producing property that prudent real estate investors should consider before making investment decisions. This is not always the case, though. Remarkably, there are times real estate investors pass on good investment property opportunities because they fail to consider the potential of a property’s upside in rental income adequately.

An income property with “upside rent potential” simply implies that its rents are lower then what the market will bear and the “potential” to collect higher rents and generate more income are a real possibility. To the real estate investor analyzing the income property it means, “hold on, and don’t make any decision to pass on the property until you’ve reevaluated the cash flow based on several other rent scenarios”.

Believe it or not, sellers (or their agents) sometimes, whether by neglect or faulty research, do fail to consider the property’s true income potential when setting a price. If so, then any APOD, Proforma, Marketing Package, or other income and expense statement presented you, at the very least, distorts the income and every key rate of return guiding your investment decision. If unchallenged, and you rely on those numbers, and deem them unfavorable, you could pass up a good investment opportunity. It happens.

Always conduct your own rent survey. Know what comparable rental properties in the area are getting for rents and then make your own evaluation of what the market will bear. You might uncover something the seller overlooked, or perhaps discover that the seller set the price for the property with no consideration for upside rent potential at all.

Then run your own numbers. Using the rents you regard more in line with the market, recalculate the investment property’s cash flow, cap rate, cash on cash, internal rate of return and other financial measures. Who knows, you could discover a nugget of a deal you might otherwise have missed. It happens.

Ecuador Laws: 4 Important Details About Rental Properties and Real Estate in Ecuador

Ecuador Real Estate laws should be part of the information that you will research before you move into this country. It is important for you to understand the specific laws that apply to Real Estate in Ecuador and that you will adhere to once you live in a new country. Regardless of where you plan to retire or relocate, you need to be a law-abiding resident to avoid any unfortunate incident with the local government.

Foreigners typically have to understand the rental laws in their host country because most of them like the flexibility that comes with this type of living arrangement. It is important to be aware of this so that you can avoid any untoward incident with your future landlord or landlady or maybe even a purchase of Real Estate in Ecuador. You want to keep yourself from violating any of the local laws and at the same time, you want to know your rights as a tenant and as an owner of Real Estate in Ecuador.

4 clauses in the Ecuador rental law that you should be aware of & how it affects Real Estate in Ecuador

You should be happy to know as a renter that Ecuador Real Estate laws about rental homes are tenant friendly.

To give you a brief understanding of your rental rights in Ecuador, here are the 4 important details that you have to know.

On the lease period.

Most of the rental contracts, according to Ecuador Real Estate laws, are good for one year. However, the tenant has the right to request for a two year contract. During this time, the landlord or landlady is not allowed to raise the rent. So, if you know that you can stay in a home for at least 2 years, then you may want to request for a two year contract from the landlord. If they agree but they still raised the rent on you in your second year, then you can file a complaint with the rental court (Juez de Inquilinato). Should the court rule against the landlord, they will be fined for violating the law of Real Estate in Ecuador.

On contract termination.

In case of an early termination, a notice is expected from the party that initiated the end of the contract for the Real Estate. If initiated by the landlord or landlady, the tenant should be given at least 3 months’ notice so they have ample time to look for another home to move into. If the tenant or renter initiated it, they need to give the landlord at least one month’s notice before the date they will move out. There may be some landlords who will force tenants to pay the remaining months in the contract but the latter is not obligated to comply.

On the rental price.

The Ecuador laws on renting homes and Real Estate in Ecuador, the landlord or landlady is only allowed to charge rent based on the value and current condition of the home. The law cites a formula that determines the percentage of the rent. That means if you are renting in a great home and in an affluent neighborhood, expect to pay more in rent as opposed to the homes in more modest communities. In case the landlord wants to raise his rate further than what is allowed, they have to file a petition in a rental court. You also have to know that the current law does not permit landlords to make automatic annual raises in the rent.

On the legality of the rental contract.

It is also specified in the law that the rental contract is only valid if it is duly notarized. If the contract you signed is not, then the landlord or landlady cannot take legal action against you. But if they have a copy of a notarized rental contract, then that can be presented as a valid document in court.

Important amendments to the rental law in 2012 for Real Estate in Ecuador

There had been amendments to this law and you may want to keep abreast about all of them. In 2012, the Ecuador President vetoed the Reformas a la Ley de Inquilinato and sent it over to the National Assembly for a second debate. On February 2013, the approved text of the reformed law (Law Amending the Codified Leasehold Law) was send to the President for approval, veto or disapproval.

The main amendments are as follows:

    • Municipalities are mandated to have a Leasehold Registration Office of the Real Estate in Ecuador that has renters and that will help keep records of rental contracts. The landlord has to get a registration within 30 days from the date of the rental contract. They have to present proof of a security deposit and rent certificate. Failure to comply by landlord and late registrations will be fined by up to 10% of the rental price. This office is also responsible for determining the highest rental price of a property and looking after the deposit of the tenant.

    • The rental price of any property should not be greater than 1/12 of 10% of its commercial appraisal. The landlord or landlady will be fined for any violation of this clause. They are also not allowed to ask the tenant to pay for any expense involving horizontal property regimes (or areas co-owned and used by other people). They are also not allowed to suspend the utilities of the tenant even if they failed to pay their rent.

    • Security deposits are allowed but it should not exceed the worth of two monthly rents. This amount is not to be kept by the landlord or landlady but should be deposited with the Leasehold Registration Office.

    • The landlord or landlady is allowed to terminate a rental contract if the tenant failed to make two complete monthly payments on the rent. This is true even if the payment is merely incomplete. Failure to pay the utilities for more than three months is also a valid ground for the termination of the rental contract.

  • In case of a dispute, the amendment indicates that it can be done before a leasehold judge through a verbal proceeding.