SMARTERLANDLORDING

ADVICE FROM EXPERIENCE

Kevin

Rents Are Up, But Can They Pay?

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There is some good news and some bad news out there for landlords recently.

Let’s look at the good news first.

The rent is going up. 

 

According to an article in USA Today

Rents will increase 3.1% nationally next year, about the same as this year, apartment market researcher Axiometrics says.

Meanwhile, researcher Reis sees rents rising an average of 3.3% in 2014.

Lots of folks are still looking to rent, while the supply of rental housing remains tight.  Look for more multi-family construction in 2014.

On the bad side, some tenants may not be able to pay these increased rents.  A recent study by Harvard University notes that:

the number of renters paying more than 30 percent of income for housing (the traditional measure of affordability)reached another high in 2012. Excessive housing costs strained the budgets of more than half of all renters, or 21.1 million households—a slight increase from the year before.

Lots of factors come into play here.  But look for a continued squeeze on renters in 2014.

 

The Best Gifts a Tenant Can Give

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When you read the title to this post, I bet you thought I was going to say “the rent.”  But “the rent” is not a gift.  Rent is simply a contractual obligation.  Rent is paid in return for a place to live.

Gifts on the other hand are given without any expectation of a return.  A gift is freely given.  No one forces you to give a gift and no one will evict you if you do not give a gift.

Since this is the season for giving, what are some of the best gifts that a tenant can give?

  • Their Continued Tenancy – There are a lot of choices out in the market place.  We know you have a lot of options.  You could move but you choose to keep renting from us.  Thanks!
  • A Good Reference –People still need to move sometimes.  When they do, we want to get those vacant units rented as quickly as possible and a good reference from a good tenant goes a long way.  Your recommendation to your friends means a lot to us and we do appreciate it.
  • Return Business – Every once in a while, we have a tenant move only to have the situation that caused the move not pan out.  More than once these tenants have wanted to come back and rent from us again.  That says a lot.  Again there are a lot of choices in the market place and we appreciate your repeat business.

Want to get more of these types of gifts?  Here are some tips.

  • Keep Your Properties Maintained – Nothing says “run away” or
    ”I don’t really care” more than a poorly maintained property.
  • Respond Quickly To Tenant Concerns – Be it noisy neighbors or a leaking roof, at least acknowledge the concern.  If something needs to be fixed, fix it.
  • Be Firm, But Fair – Have policies in place that treat everyone equally and do not play favorites.  Be sure to explain what is expected of your tenants and hold them to it.  Trust me, they like to know that that are a part of a tightly run ship.
  • You Can Catch More Flies With Honey – This old phrase is really true.  Sure you can yell and scream.  You may even be 100% correct, but where will yelling and screaming get you?  Will you really “win” the argument?  Remember a little kindness can go a long way.  We are all human and that brings ups and downs.  Try not to add to the downs.

Remember that landlording is ultimately a people business.  Take that extra step for your tenants and many will give you one in return.

Happy Holidays Everyone!

Online Rental Payment – A Must Have Tool

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I have a question for you.  What is the one thing we landlords want?  I’ll give you a hint. It usually comes on or about the first of the month.  Yep, you guessed it, the rent.  We want to collect the rent.

So here is another question.  Why do many of us in this day and age make it so difficult for the tenant to get us the rent?  Think about it.  How many of you still require your tenants to mail you a check?  Why do you make your tenants go through the process of finding an envelope, stamps and a check month after month?

There is an easier way.

Set up a system to allow your tenant to pay their rent online.

Almost nobody writes checks anymore.  In fact, your tenants are already paying most of their bills online anyway.  They do not have to find stamps for their utility bills or car payments.  They don’t write checks at the grocery store.  I’ll bet many of them do not even carry much cash and instead use electronic debit payments for almost everything.

Setting up a system for online rent payments is easy to do.

We used a system at clearnow.com for many years.  I highly recommend them.  We would still be using it today but our cloud based property management software has an electronic bill payment system included.

The clearnow.com system is a great tool all smarter landlords no matter what your level of experience or how many properties you have.  Using this system will save you, and your tenants, time and effort.  There are many other benefits as well.

  • It is a great marketing tool for the landlord.
  • Rent payments get directly deposited into your bank account.  No more running to the bank every time a check arrives in the mail.
  • Rent collection is much easier.
  • You get a heads up e-mail if a tenant cancels their automatic payment.
  • You can set up different debit days working with your tenant’s pay schedule.
  • Tenants can build their credit histories.

On the down side, there is a small fee charged for this service, but I believe the fee is well worth it for the amount of time you will save.  Plus, this service will not work in all markets or with all segments of the population.  Some tenants simply are not going to have checking accounts.  Tenants in those markets will still need to bring you a money order.

Online rent payment is the wave of the future however.  Philly.com for example reports that rent payments made online have increased by over 66% in the last three years.

So do yourself and your tenants a favor.  Set up on online rent payment system today.  Once you do, you will never look back.

Which House Pays Me Rent?

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Wall Street once figured out a way to securitize mortgage payments.  That worked out well.   Now they have done it again using rent payments.  This horse is getting ready to leave the starting gate. Any thoughts on where it will end up?  Last time they did not know who owned what.  How will they be able to keep up with who pays rent whom?  Should be interesting to watch in the coming years.  It is not going to be as easy as they think.

Are You Prepared?

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So I am sitting here in Memphis the evening before a major ice storm is expected to hit.  We have been through one of these before, back in 94 an ice storm wrecked havoc in the city, shattering limbs, and knocking out power for days.

As a landlord, these winter events can cause another types of havoc.  We have to worry about our properties.  Limbs can fall on roofs or even worse utility lines.  If utilities go out, you then begin to worry about freezing pipes and bursting water lines.  Icy roads mean utility crews, work crews and other repair crews may not be able to get out very quickly.

So what is a landlord to do?  How do you prepare?

You can do several little things, but it all must be done beforehand.  Try to keep limbs trimmed.  Make sure pipes are insulated well.  Perhaps have a few water cutoff valves installed so problem areas can be isolated.

But for the most part, you just have to wait.  You have to wait to see how bad the storm gets.  You have to wait to see what breaks or busts.  You have to wait to see what damage is done.  You have to wait for conditions to improve so you, your workers and utility crews can get out and fix the problems.

Your tenants can be a really big help.  Asking them to prepare for potential bad weather and help protect the property through a simple e-mail or text is key.  No tenant wants to be without power and water.  So if they can help keep those services on, they generally will.  Ask tenants to keep faucets dripping and sink cabinet doors open because running water generally does not freeze, thus protecting pipes and keeping the water on.

When you tenants move in, you can begin to get their help then as well.  Showing tenants where their electrical circuit breakers are and how they work is important.  As is showing them how to turn on and off water and gas supplies.  They might just save you a trip out on an icy road.

No matter what happens, do your best to get things back to normal as quickly and as safely as possible.  Communicate with your tenants.  Let them know you are aware of issues and working on the problem and hope for the best.

Don’t Forget the Oops!

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Rehabbing properties and understanding what a rehab takes is a key part of almost any real estate investment strategy.  Distressed properties that need a lot of rehab are often where deals can be found.  Plus, rehabbing properties after a tenant moves is just a part of the landlording business.

Estimating a rehab job can be tough, especially when you are just starting out.  You want to make sure you estimate accurately so you can budget appropriately.  There is nothing like the felling you get when you are 80% through a job and realize you are out of money.

Newbies are often afraid of larger rehab jobs because they fear that they will miss something, and you know what, they likely will.  They also seriously underestimate the amount of time, labor and materials that will be needed on any job.  Costs overruns can add up quick.  But here is one way both newbies and more experienced landlords can protect themselves.  Factor in an oops into your rehab budget.

The oops budget is designed to make sure you have the money in case you miss something or underestimate.  Depending on the size of the rehab job, I usually will make an oops budget somewhere between 10% and 30% of my rehab estimate.

So for example, if I have a smaller job, consisting of mostly paint and some tile work totaling about $5,000, I will only budget about 10% or $500 for an oops.  I likely did not miss anything and if I did it is not going to break me.

But if I have a serious rehab job, where I might be taking a property down to the studs or doing some foundation work, I might budget as much as 30% for the oops.  I do this because there is simply much more to miss.  I do not know what will be found once we really get in there and tear something up.  An oops budget of $15,000 or more is not unheard of in larger more complicated jobs.

If you do not need the oops money, then you can save it for the next job.  I also sometimes think of extras that need to be done as we go along.  I added closets on one property since I had some money left over.  These closets allowed me to charge a higher rent.   I have done other things such as adding more exterior lighting or improving the landscaping to enhance appearances.

So use the oops, it is a great budget item and real budget saver.  You newbies out there should be cautious and budget for a higher oops.  Trust me you will need it until you get more experience.

They Can’t See Your Vision

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Recently, Jenna wrote a post describing her experiences showing an apartment and getting it in rent ready condition.  She mentioned that she was showing the property before she was finished with all of the repairs and that one person “shared her vision” and signed a lease for the unit.

First, let’s congratulate Jenna on getting a unit rented and then ready.  She deserves it.  This is her first property and I saw it not long after she bought it, so I know the amount of work and time that was put into it.

Now, let’s use this opportunity as a teaching opportunity.

You see, I think it is a waste of time to show the property before it is rent ready because in my experience, most folks cannot or will not see “your vision.”

Yes, Jenna did find someone who saw through the unpainted walls, the missing appliances, the unfinished floors, the wet paint, the drop cloths, the extension cords, the tools lying around everywhere, etc, etc.  So again, let’s give kudos to her.  But I think her experience was the exception rather than the rule and it would have been a better use of her time to focus on getting the unit ready.

Why can’t potential tenants “see your vision?”  I think for several reasons.

  • They have never touched a paint brush much less done a major rehab so they just cannot conceive of “your vision.”  All they see is the mess which screams “RUN AWAY!”
  • They can’t see past the mess.  The mess prevents them from seeing where their TV, bed, sofa, computer, etc. will go.  In their minds, they cannot see this as their “home” because it is not put together.
  • The unfinished nature of the unit will highlight the imperfections rather than the benefits and charm of the property.
  • They do not want to worry about whether or not you will be finished when they are ready to move in.  Will they have time to finish?  Will they run out of money?  They don’t need to worry about that when there is another unit ready to go just down the street.
  • They want to move and be done.  Moving is stressful.  They do not need the landlord coming in to “finish up a few things.”
  • They are afraid you will not do what you say you will do.  They have been burned by other landlords before.  Why go through that again?

Obviously there are exceptions as Jenna has demonstrated.  Some will “see your vision” or will really like the location or some other factor.  But most will not be able to see through the mess.  Why watch them cringe and frown?  Save your time.  Save your energy.  Focus on getting it done, then show.  Your pool of applicants will likely be larger, giving you the added benefit of being choosy.

Top 10 Rental Lease Agreement Provisions

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The lease is perhaps the most important landlording document.  It is the legal document granting possession of a property from you, the landlord, to a tenant for a specified price and a specified period of time.

Smarter Landlords take care when drafting their lease.  They have it reviewed by a local attorney familiar with the local landlord/tenant laws.  Be aware that not all laws are the same.  Every jurisdiction has their particular quirks.  Even here in Tennessee the laws change drastically if I drive just 30 miles or so east to the next county.

Despite these local differences, most leases will say essentially the same thing.  So what basics should you have in your lease?  Here are my top ten rental lease agreement clauses:

  1. Amount of Rent and When it is Due – Remember this is a legal document and you have to spell out even the most basic of information especially when rent is due.  After all, how else can you determine if the rent is late?
  2. Lease Term – How long will the lease run?  One year?  Two?  A month?  Will it be renewable?  Will it run month to month?  All items to consider and spell out.
  3. Address of the Property – Seems simple, but simple things are easily forgotten.  Be sure you include where the tenant is going to live.  If you get in front of a judge with a lease without an address you may just be out of luck.
  4. Late Fees – How much are they?  When are they due?  Be sure to check you local laws here.  Most states will regulate how much and when you can charge.
  5. Security Deposits – How much are they?  Where will they be held?
  6. Occupants – You need to list the names of all occupants over the age of 18.  These are the folks who are legally entitled to be in your property.  Anyone else can be accused of trespassing if necessary.
  7. No Alterations – Unless you want your walls pink, black or purple (yes they will paint them black) you need to specify that the tenants are not allowed to do any alterations of any kind.
  8. Quiet Enjoyment – This is a legal terms that means the tenant has a right not to be bothered by you and other tenants.  It also states that the tenant has a duty not to bother other tenants with their loud music, late night parties, etc.
  9. Eviction – You should spell out when you will begin the eviction process.
  10. Attorney’s Fees – Be sure you have a provision that all attorney’s fees incurred to enforce the lease (to evict or otherwise) will be paid by the tenant.  If you do not have such a clause you will not be able to recoup these costs later on.

So there you have it, my top 10 residential lease provisions.  You can use these to form the basis of your lease, but again be sure to have any legal document reviewed by a professional.  A lease can of course contain many other provisions as well. But I will save those for another post.

Top and Bottom Markets for September Rent Growth

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At least Memphis is in a growth market.  The tech sector seems to be booming.

What is your market doing?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Source:  Multi-Family Executive

Read more here.

Ordinary Americans Priced Out Of Housing

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I wonder where all of this “Institutional Buying” of single family properties is eventually going to end up?

“If there was any doubt that the US housing “recovery” is anything but the latest speculative play by deep-pocketed (namely those who already have access to cheap funding) investors, who are now engaged in rotating cash gains out of capital markets and into real estate, on their way hoping to flip newly-acquired properties to other wealthy investors, then the most recent, September, RealtyTrac report will put that to rest.”

Are we creating a nation of renters?  Is that a good thing?

Read the rest here.