SMARTERLANDLORDING

ADVICE FROM EXPERIENCE

The Business of Landlording

Rents To Outpace Inflation

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Rents are still going up, up, up!

According to this article, rents will outpace inflation as demand remains strong and supply remains low.

Builders are getting the message and trying to increase supply but that takes time and generally meets a lot of resistance from local residents.

It will be interesting to see how this shakes out in a few years. Will there be a glut of apartments that drive rents down? Will some of these renters be enticed back into the housing market? Seems unlikely right now but time will tell.

The Smarter Landlording Podcast – Episode 6 – Real Estate Titles and Closings What Investors Needs to Know

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The SmarterLandlording Podcast – Episode 6 – Real Estate Titles and Closings

What Investors Needs to Know

With Joe Kirkland of Tri-State Title and Escrow

 

 

 

 

 

 

 

 

 

 

Links We Mentioned

MemphisInvestorsGroup.com – Stop by on the 2nd Thursday of every month for informative real estate presentation and networking opportunities.

Tri State Title and Escrow – Need a real estate attorney in the Memphis area? Give Joe a call today!

Shelby County Register – Do your own title searches here for Memphis and Shelby County for free!

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.

Rents Have Risen For The Last 23 Quarters

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Nationwide, rents now average $1,111 per month according to this article in the Wall Street Journal. Rents are now over 15% higher than they were at the end of 2009. Renters continue to get squeezed by high demand and low supply. This trend shown in the graph below is expected to continue for at least the next year.

 

Questions on Ebola, Apartments and Landlords

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I have been watching the recent news about the ebola virus just like everyone else. Amongst all of the news I noticed that the two victims here in the US lived in apartments. Now, I understand the threat that Ebola is and I also understand the need to contain it. Nonetheless, as a landlord certain questions pop into my head when I read headlines like the following:

“Ebola decontamination begins at Dallas apartment of 2nd hospital worker”

Questions like:

Who pays for this hazmat cleanup?

How was the hazmat team allowed in to the apartment? Who gave them permission to remove all of the tenant’s belongings? Was it by court order? Did the family allow them in? Would I as the landlord have to get close to the place and let them in? Should I get one of these?

What about damages to the apartment caused by the hazmat team? Who is responsible for those?

Is the rent still being paid?

When and how does the landlord get possession of their property back? Do they even want it back?

What happens if one of my tenant’s gets ebola or a similar disease? What rights do I or my other tenants have?

These are all interesting and hopefully unique legal questions that I quite frankly do not have the answer to right now. But, I think it would be helpful to know what a landlord’s rights and responsibilities are on the front end of these things just in case.

I will try and get some answers and put them in another blog post.

If anyone out there has any related experience or expertise, please share it.

What other questions might you have as a landlord in a similar situation? Please share with your comments.

Watch Out For “Professional Tenants”

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I have run across a few “professional tenants” in my time as a landlord trying to rent from me and heard even more horror stories from others who have unfortunately let them into their properties. Trust me, the professional tenant is something you as a landlord want to avoid at all costs. An effective screening process is a good place to start. But also knowing what to look for goes a long way.

 

Richard D. Vetstein, Esq. writing in a real estate column at aol.com has some good advice on what to look for and tips for avoiding the “professional tenant.”

He notes:

“Most tenants are problem-free, yet there is a certain type who make even an experienced landlord cringe with fear: The Professional Tenant.

Let me give you the profile of what I mean by a typical Professional Tenant.”

Read the rest here.

Tenant Moving Out? Insist On A Written Notice

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Ever been told someone’s name and then instantly forget it a few minutes later? Have you forgotten to pick up something from the store because you did not need to make a grocery list? Of course you have, we all have. It is human nature. We are so busy that it is hard to remember everything we need to remember.

We landlords are no different. We have so much going on that sometimes it can be hard to keep track of what day it is. This is why you should never take a verbal notice from a tenant that they are moving out.

Most often, a tenant will call to tell us that they are moving out. They often think that is enough of a notice. But really it is not. It does not really protect them or us (plus it may not be legal in some states). As I said above, we are all busy and things can be easily forgotten.

Tenant move out’s are very important. You as the landlord need to get that property back as clean as possible and re-rented as quickly as possible. The tenant needs to protect their interests as well, making sure they conform to the provisions of their lease. That is why anytime we get a verbal notice from a tenant that they are moving we ask them to also send an e-mail, or at the very least a text message.

With a written record, there will be much less chance of the following:

  • I thought you were moving out today? No, I said Monday.
  • You did not give us 30 days notice as required in your lease.
  • I never received your move out notice.

Plus, once you receive a written notice, it should prompt you to send your move out kit to help you get your unit back in tip top shape.

So please insist on a written notice anytime a tenant wants to move out. Yes, your tenants will moan and groan but it is worth it to both you and your tenant.

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.

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.

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.

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.