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Not Everyone Likes Section 8

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If you missed it, the last Smarter Landlording Podcast featured longtime real estate investor Arnold Dormer discussing the Section 8 program. Arnold has been participating as a landlord in the Section 8 program for the past two decades and has done very well. “The rent is direct deposited in your account at the beginning of every month” said Arnold.

But Section 8 can be a controversial and unwanted program. Some homeowner associations in fact, like these around Boca Raton, Florida, are banning Section 8 recipients. Are these bans a result of discrimination or of communities simply trying to maintain their property values?

It could likely be argued either way, but these bans are likely to generate a storm of criticism to say the least.

The things to glean about the Section 8 program from the info posted above is that the program, while potentially profitable, is definitely complicated and may be controversial depending on the location.

Smarter Landlords should be fully aware of the pros and cons of the Section 8 program and proceed accordingly.

Stay tuned for the next episode of the Smarter Landlording Podcast, coming at you soon after a bit of a summer break.

How to Fund Your Rehab

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It takes money to make money, right? Yes and no.

So, I’ve proven that seller financing is out there. You can truly buy a home with no money out of pocket. After that, what do you do about repairs? We are way to new to real estate game for our private lender to trust us with any more than we needed. I’m still baffled that we were able to convince her at all!

So, we had to get creative in financing the rehab. Of course, that includes doing a good bit of work yourself. Elbow grease is hard on your back but easy on your pockets!

The first thing we did was went to Home Depot and applied for a consumer credit card. It was inevitable, right? Home Depot allows you to make interest free purchases for 6 months-24 months, depending on the dollar amount of your purchase. The minimum dollar amount is $299 (pre-tax). We decided to lump our purchases together so that we never fell below $299.

If we really only needed a shower rod to complete a unit, we would couple that with the purchase of a gift card, so that we met the $299 threshold. Couple this with a healthy practice of returning unused items and making sizable monthly payments, and it’s not too bad!

Just make sure that you pay off the balance before your 0% financing term expires. If you fail to do so, Home Depot charges you interest retroactively!!

Home Depot also has a project loan which allows you to finance large renovations with extended low-interest financing. Given our rapid growth though, we did not qualify for any more credit than we were already awarded. Waamp waamp.

I should note that Lowe’s has similar financing options. It just happens that Home Depot is incredibly close and convenient. Both retailers employ local contractors as well. So, if you need to finance a project but can’t do the work yourself, this might be an option. Please consider all of your options though; I’ve heard horror stories.

What are some of the creative ways that you have financed your rehab?

Include Utilities? No Way

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In Episode 4 of the Smarter Landlording Podcast, Arnold Dormer and I were talking about screening tenants and what we look for in a good tenant. One of the points that Arnold made was that the tenant had to be able to get the utilities turned on in their name. I could not agree with Arnold more.

Yes, I know some landlords keep the utilities in their names and then add the cost onto the rent. Or they charge a higher rent because the utilities are included. Personally and professionally, I do not prefer to keep the utilities in my name. Here is why.

  1. It Creates Extra Work – If you keep the utilities in your name and then bill the tenants you have just given yourself new jobs as a bill processer and collector. You now have extra paperwork, more phone calls and more hassle to deal with. I do not need this extra work. I already have enough to do.
  2. It Is Not Worth It – Instead of billing the tenant every month, you can just charge higher rent to cover the utility costs. Yes, you may cover your costs and you may even make a little money but I doubt it. Your tenants will have no incentive to save energy and will run the heat and air full blast, with the windows open and acting as a thermostat. This all acts to increase the wear and tear on your equipment and increase the costs. But the real reason it is not worth it is because the….
  3. Tenant Quality Seems To Be Lower – Tenants who cannot get utilities placed in their own names usually have had some sort of financial trouble and either have not paid their bills or are just hanging on. These types of tenants, in my experience, tend to be more trouble than they are worth. They are unstable and will generate more problems, more phone calls, be late in paying their rent more often and just be more trouble. And I do not want more trouble.

So do you include utilities? If you have, what has been your experience? Has it been similar to mine and Arnolds? Let me know with your comments.

The Worst Landlord/Tenant Law?

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Does Arkansas have the worst landlord/tenant laws in the country?

How should the eviction process work?

Check out a short video on the topic here.

The Smarter Landlording Podcast – Episode 4 – The Section 8 Landlord

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The Smarter Landlording Podcast – Episode 4 – The Section 8 Landlord

“I work for every penny in that check!”

 

 

 

 

 

 

 

 

 

 

 

Links and Forms We Mentioned

Requestfor Tenancy Approval (RTA) Form

Top Section 8 Inspection Fail Items

Sample Section 8 Voucher Form

MemphisInvestorsGroup.com – Stop by on the 2nd Thursday of every month and meet myself and Arnold.

Check out all the podcasts at iTunes on the Smarter Landlording Channel. 

Like the Intro Music?  Check out my good friends in the band Kitchens and Bathrooms (Kind of fits right!).  They write and play some awesome, original music from right here in Memphis, TN.

Is There A Rent Bubble?

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I saw this article the other day and I thought it asked a very good question considering the rise in rental rates we have witnessed over the past few years.  Are we witnessing a “Rental boom, or rental bubble?”

I tend to think we may be entering bubble territory.  Rising rents have been driving up the prices of rental properties.  I read about it across the country and am seeing it here in Memphis, TN.  Rising rents have also spurred a number of new apartment projects across the United States.  Here in Memphis, I can think of several new and planned apartment projects that will be hitting the market in the near future.

All of this makes me wonder; how many more renters are out there to fill up these new projects and how much more can they afford?  Honestly, I don’t know and I do not think anyone else does either.  One thing I do know, the old adage is true, what goes up must come down.  When?  That is anyone’s guess.

What is a smarter landlord to do in potential bubble territory?  I can think of three things.

  1. Be conservative with your rent estimates when buying new properties.  Remember that cash flow is king.  If there is a bubble and it does burst it will drive down rents.  You do not want to be in a negative cash flow situation.  This strategy may make deals harder to find but it is better to have no deal than a bad deal.
  2. Sell!  Since the value of an investment property is based upon the income it generates then now may be the time to sell.  Several properties in my market have sold for what I thought were exceptional values.  Perhaps now is time to sell.
  3. Sit on the sidelines and wait.  I did this back in 2006/07.  Values had gone crazy high and out-of-state investors were willing to reap a 1% cap rate!  I cannot and will not compete with that so I just waited.  Waited for the bubble to pop.  I knew that when it did those out-of-state folks would be in bad shape.  When the bubble burst, they went belly up and I was ready to buy.  So you might want to wait, wait until there is blood in the streets.  That is when the best deals are made.

So what do you think?  Are you seeing the beginnings of a bubble in your market?  What is your strategy?  Let me know with your comments.

Coming Soon – All About Section 8

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Sorry for the lack of posts lately.  It has been a bit busy around here.  Sometimes real estate investing gets in the way of writing about it. 🙂  But that does not mean I have not been working to bring you quality material.

In fact, coming soon on Episode 4 of the Smarter Landording Podcast, I have an in depth interview with an expert Section 8 landlord.  If you do not know what Section 8 is, if you are thinking about joining the Section 8 program or want to learn how to better manage your properties already in the program you will not want to miss this podcast. 

Some Rents Are Actually Down

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Rents have been steadily increasing in most parts of the country for the past several years.  There are however a few places where rents have been on the decline as HuffPo reports here, but for the most part, increasing rents still rule the day.

Many have a hard time connecting the dots to explain these rent increases and decreases. Rent is nothing more than a price, subject to economic laws just like any other price.  Rents go up when demand is high and supply is short.  Rents decline when the opposite occurs.  Demand increases because more people are chasing the same number of rental units thus pushing rents up.  This can happen due to a foreclosure crisis which pushes people into the rental market or because of some strong attraction such as job growth.    Restrict the construction of new rental units to feed this demand and rents will rise even more.  Pump trillions of newly printed dollars into the economy and rents will rise even more.  

When Tenants Overstay Their Lease

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Tenants move.  It’s just a fact of a landlord’s life.  As much as we might like them to stay (well most of them), they rarely do.

When they move, vacancies become a major concern.  The cashflow stops but the bills remain.  So, getting the unit re-rented as quickly as possible becomes a priority.

The best case scenario is to have a tenant move out one day and another move in immediately the next day.  Think about how great that is.  It is almost perfect as there will be little if any interrupted cash flow.  We have had the good fortune to have this happen a few times over the years.

But wait a minute.  No matter how well you might think you have things lined up, Murphy and his darned law is always right around the corner.  Things can go wrong and can go wrong pretty quickly.  The movers might be a day late to move your tenant out.  A new job may be eliminated meaning the tenant no longer wants to move.   A car can break down and a whole host of other things can go wrong.  Other times the tenant just does not get it together and actually move out.

What happens then?  What happens if you have scheduled someone to move in the next day?  Things can get sticky real quick.

Imagine for a moment that you are your new tenant.  You are moving from out of state and have all of your belongings in a truck, a truck that has to be returned the next day.  You have scheduled movers, utility connections, satellite TV installation.  Are you supposed to rearrange all of this?  Are you supposed to sleep in the truck?  What about all of the added expenses, not to mention the aggravation.

Your new tenant is going to be looking right at you for answers.  After all, you are the one breaking a contract by not having a place for them to live.  They will want to be reimbursed and accommodated for their hassle.  They will have a strong case and they know it.

Here is what to do.

First, try to leave a day or so wiggle room from move out to move in.  A loss of one day’s cash flow is not that bad and it may just give you the time you need for when Murphy shows up and starts making things go wrong.

Secondly, place a clause in your lease that charges the tenant $100 per day for any time they (or their stuff) stays in the property past their move out date.  In this way you are somewhat protected if you incur expenses due to someone not moving when they said they would.  Plus it really provides incentive for them to get out when they said they would.

The key is to be very clear about this provision when they move in.  Let them know you will charge it.  Get that motivation started the first day they move in.

Finally, apply the pressure to your old tenant.  Let them know they cannot stay and keep on them.  You may have to literally push them out the door.

Honestly, this scenario is hardly ever a problem, but it can and has come up.  So be a smarter landlord and be prepared for it.

 

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The Squeeze Continues

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The bottom 20% in this country continue to get squeezed more and more.  I recently wrote about the increasing cost of everything and how some were cutting back in other areas to be able to afford the rent.

No we see, as demonstrated by the attached chart, that rent and food make up over 50% of the bottom 20%’s expenditures. 

Expect this trend to continue and be on the lookout for calls for “rent reform.”

 

h/t: www.economicpolicyjournal.com/