SMARTERLANDLORDING

ADVICE FROM EXPERIENCE

Maintenance and Repairs

The Anatomy of a Rehab – Part 1 – Assessing Needs

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As I wrote previously, I am in the process of doing a major rehab on one of my properties.

The first step in any rehab process is to assess what you need to do. What needs to get fixed? Then you can get estimates and figure out costs to develop a rehab budget and hire contractors.

To assess rehab needs, I have a very simple Property Inspection Sheet that I use to make sure I do not over look anything. I use this sheet when I am looking at my own properties in need of rehab and properties I am thinking about purchasing.

My inspection sheet lists the major components of a property with columns labeled, Yes, No, Cost and Comments.  When looking at a property, I examine at each component and then check Yes or No regarding the rehab needs of the component. Then I estimate a cost, total it up and I have the beginnings of a budget.

Upon assessing my property, I determined that I needed the following:

  • A New Roof with some Decking
  • Exterior Painting with some Rotten Wood Replacement
  • Yard Cleanup
  • Interior Painting
  • Interior Wood Floors Refinished
  • Kitchen Remodel
  • Bath Remodel
  • HVAC Tune Up
  • Storm Windows.

This is a sizable and expensive list for any property. I talk more in future posts about costs, time tables and include some pictures of the process. Until then, feel free to download and use the Property Inspection Sheet I mentioned.

The Anatomy of a Rehab

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I have a property that I bought several years ago. When I bought it, the property came with tenants. Those tenants were happy to stay in the property and I was happy to let things ride for a while. I knew that whenever those tenants left, some major work would have to be done. Well, those tenants have just moved out and now we get to do a major rehab.

Here are some pictures showing the property’s current condition.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

It is a nice 2 bedroom, one bath home in a great rental area, but it has been neglected over the years.   As you can see from the pictures the property needs a new roof, paint inside and out, kitchen and bath upgrades and the hardwood floors refinished among other things.

I thought it would be interesting to go through this rehab here on my blog, talking about timelines, materials, expenses, complications, etc.

Work is now underway. So look for updates in the near future as we go along.  Stay tuned!

How Nextdoor.com Can Benefit You

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I’m a millennial. Naturally, I’m registered on at least 6 different social media sites—all for different reasons. Each social media site provides a unique platform. Facebook keeps me connected to family and friends. LinkedIn provides me with professional visibility, and Pinterest keeps track of products that appeal to me.

So, which social media platform is best suited for the real estate investor? Nextdoor.com

Nextdoor is a social media site that connects people within specific neighborhoods. In order to register on Nextdoor, you have to first verify your address to proving your residency in the neighborhood. You must use your real name.

The site allows for neighbors to exchange information about block parties and community clean-ups. Neighbors can buy and sell items between each other, and they can report break-ins and burglaries instantly. Good neighbors make good neighborhoods. I enjoy the camaraderie that this site provides.

While, those are my personal reasons for using Nextdoor, it has benefited me greatly as a new investor as well.

 

Example #1:

I marketed a vacant unit in the area on Nextdoor. Within 24 hours, I had an application submitted based on a neighbor referral. No multiple showings; no craigslist chaos. The applicant is now a wonderful tenant. I would rent to her a million times over.

 

Example #2:

I posted an inquiry about a property, stating that I was a real estate investor. Within minutes, I began receiving messages from other real estate investors in the area. These investors provided me valuable information about the property. Plus, I am now connected to other well established investors who farm in my area. This pool of investors are my competition—as well as potential mentors.

 

Example #3:

I was working in a unit when I discovered that I needed a reciprocating saw. I’m a new investor. I have yet to purchase a ladder, let alone a reciprocating saw. So, I posted on Nextdoor asking if anyone would lend me or rent me their saw. Within 30 minutes, a neighbor was at my doorstep, saw in hand. If that’s not neighborly love, I don’t know what is!

 

Example #4:

Many of my neighbors know of me, even if we haven’t met yet. They know which properties I own, and they appreciate my investment in the area. This neighborhood-wide recognition will undoubtedly add to my credibility as an investor. Recently, the neighborhood association newsletter editor asked me to participate in an interview, which I happily obliged. Companies are told to market their brand. As investors, we have to take advantage of opportunities that allow us to market ourselves!

 

I encourage all new investors to consider unlikely resources, like Nextdoor, when developing your RE portfolio. I also encourage me tenants to register on Nextdoor as well. If my tenants are grounded in the community, surely they won’t want to move. At least, I hope not.

Can I Paint My Apartment?

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We often have tenants ask us if they can paint or do other types of “improvements” to their apartments.  The short answer to that question is no. 

We have experimented in the past with letting tenants do some painting or other improvements and for the most part it has ended badly.  I have found walls painted black, purple and other garish colors, colors that take three coats of primer just to cover up.  What’s more is everyone thinks they are a really good painter.  I am here to tell you they are not.  Paint inevitably ends up on the trim, baseboards, carpet, tile hardwood floors, you know, everywhere!  And the paint job is usually so bad that it has to be redone anyway.

Repainting an apartment is not cheap in the first place.  Having to paint over a terrible paint job or use three times the amount of paint normally required because I have to cover “Deep Purple” is not something I want to spend my hard earned money on.

So no, you cannot paint your apartment.  You are going to have to live with the two colors that I use in every apartment I have, Navajo white and pure white.

“But I will leave you the left over paint so you can touch up and get more if you need it after I leave,” they often say.  Nope!  I have been down that road too.  I do not have time to remember which paint color and which finish goes where. 

My two standard colors make my life easy.  I know exactly what color and what finish is used in every apartment I have.  No longer do I have to search for or remember which color goes with which apartment.  I or my maintenance people can simply pull out any can of Navajo White if a place needs a bit of touch up.  It is simple and easy.

Smarter landlords want more “easy” in their lives.  This business is hard enough. So go to your local paint store and pick out a couple of colors for your apartments.  I would suggest a nice off-white for the walls and stick with white for the trim.  Use them every time.  In the coming years you will be glad you did.

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.

Working With Contractors: How to Pay Them

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Having a good contractor that you can trust and rely on makes any real estate investor’s job easier.  It is a big comfort to know that you have someone you can depend on to do the job, big or small, right the first time.

I have already written about how you should go about finding good contractors.  In this post I want to talk a bit about another just as important aspect, and that is how you should pay your contractors.

Let me start off by telling you the last thing you want to do.  That is to pay them up front in full.  Anyone worth their weight in salt is not going to ask for full payment up front.  If they do it is a huge RED FLAG.  Run away and start the process to find another contractor.

Smarter landlords want to pay as little upfront as is possible.  Actually, it is best if you can pay nothing upfront and the balance of the bill upon completion.  On small jobs, say less than $500 to $1,000 that may actually work.  But it does not always work so well with larger jobs.  The contractor is likely going to need some money to get supplies.

Until I get to know a contractor, and even later on, I like to give as little as possible upfront.  See if they will agree to 10% or 20% of the quoted job price (you got a quote right?).  As you work with the contractor more and more and as the relationship builds, you can increase this a little, but I never go over 1/3 of the price on big jobs.

So how does the remainder get paid?  The best way is to pay it upon completion of the job and for smaller and midsize jobs that can work.  Major jobs though are often going to require draws so the contractor can pay his crews and purchase more materials.

Usually there will be three or four draws totaling a 1/4 or a 1/3 of the total job price.  These draws are often paid at agreed upon steps as work gets completed.  For example, you might permit a draw once all drywall is hung, sanded and primed.  Or, you might allow a draw once a kitchen floor is tiled and cabinets are installed.  It is up to you and the contractor to work these details out in your contract (you are using a contract right?).

The last draw should be upon completion of the job.  This is your last chance to go through the property and make sure everything was done up to your standards.  Walk through the property, make a punchlist of items needing to be fixed or completed.  Once that list is completed, pay your contractor.

Here are some other smarter tips.

  • Always use a contract.  Specify in that contract who gets paid, how much, when, how and upon completion of what specific work.
  • Pay your contractors promptly and in full according to your contract.  Don not jerk them around.  They have done the work, so pay them promptly.
  • Consider giving them a bonus if they do a great job, that is on budget and finished early.  After all time is money to you and them and you should reward them for finishing quickly.
  • Be fair and respectful.  Kind words and understanding can go a long way.  Remember you are trying to build business relationships here.  You want to use these contractors again if they do a good job.  Treat them right so they will answer the phone the next time you call.
  • Sometimes no matter what things go south.  If they do, cut your ties quickly and move on.  Don’t hold a grudge, just move on and find someone else.

How to Find Good Contractors

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Working with contractors is a routine part of the real estate investing business.  Something is always breaking or in need of rehab.  Plumbers, electricians, painters, HVAC, and general contractors are all folks who you will need in your investing career.

To the newbie, finding and hiring these contractors can seem daunting.  You have heard the horror stories.  You don’t want to get ripped off.  You don’t want to appear stupid.  So what to do?

First think about what you need.  You need a variety of people with various skills that can solve your repair and rehab problems quickly, at a reasonable price and without hassle.  You want someone who is reliable, because you are going to go to them again and again as problems arise.  You want to know that the job will be done and furthermore, you want it done right.

Next, follow these tips to find the people you are looking for.

  • Network With Other Landlords – This has consistently been my best source to find quality people.  Other landlords know who will do a good job at a fair price.  Plus, references will open doors.  You can meet other landlords at your local reia club.
  • Ask at Contractor Stores – Ask for references from stores frequented by contractors such as paint, lumber and home improvement stores.  Ask who is reputable.  Ask who pays their bills on time.  Most of the time someone at these stores will point you in the right direction.
  • Hang Out at Contractor Stores – Yep! Get there early when contractors are picking up materials.  Talk with folks.  Tell them what you do and what you are looking for.  Soon you will have a catalogue of business cards to call upon.
  • Talk with Friends and Family – Ask your friends and family who they have used in the past and if they liked the work.  This can be a great place to start.
  • Get Several Estimates – If you can, get several estimates on any project.  Listen to what the contractors say.  How will they do the job?  What materials will they use?  How quickly can they be completed?
  • Get References – Good contractors will be able to provide you with references.  Follow up on these.  If you can, go see some of their work.
  • Use Online Sources – Angie’s list and others rate contractors as well as many other businesses.  Make a post on Facebook asking for references.  Online sources are only going to grow in the future.  Just be careful with the reviews and don’t be attracted to the biggest ad.
  • They Purchase Their Own Materials – Remember you are an investor, not a chauffeur for contractor supplies.  If they cannot afford to get or cannot transport their own supplies, move on.  It is not worth your time.

Here are some more thoughts.

  • Do not always use the cheapest one.  Cheap is not always worth it.
  • If they do not return your call in a timely manner, don’t follow up or do what they say they will do, move on.
  • Don’t worry if they drive a nice truck.  That means they likely do a good job.
  • Realize there is trial and error involved.  You are going to have to try some to find the right one.  Do not be afraid to fire and move on.
  • Some contractors may be good today and tomorrow they flake out.  This just seems to be part of the business.  I have been through many contractors over the years.
  • What ever you do, when you are new to this or working with a contractor for the first time, use a carefully worded contract that spells out who, what, when, where, and especially how they get paid.  I will talk more about that in future posts.
  • Listen to your gut!  If something feels wrong or you are unsure about something, get more info or move on.

Finally, remember contractors are human too.  Most are out there hustling trying to do an honest days work.  They want and need your business!  They will be happy to talk and see if they can meet your needs.  Remembering this little fact can go a long way.

Spring Break

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Spring has sprung here in Memphis, TN.  It came a little early this year after a very mild winter.  I’m sure a lot of people now have spring fever and want to get outdoors or to the beach for spring break.  For me however spring break has another meaning, spring means repairs, a lot of them.

It seems that whenever the seasons change, things start to break.  In the spring with the March winds and April showers it is missing shingles and roof leaks.  With the rising temps, people start up their air conditioners and some will need recharging while others may not work at all.  All of the landscaping and trees turn green again and need cutting, pruning and trimming.  In short, it seems every seasonal change, with spring being one of the most drastic, brings a clump of repairs.

It is uncanny.   As soon as the temperature changes, the phone calls start coming in.  “My AC is out.”  “There is a leak in the kitchen ceiling.”   So far this spring I have replaced a condenser, a fan motor, recharged several AC units, fixed three roofs with two more to go and removed two trees that blew over.  And it is not even April yet!  So what does a smarter landlord do about all of this?

  • First, just know it is coming and accept it.  Things break and spring is a deluge.  In the winter it is the heat and frozen pipes.  This is just the way it is.
  • Second, save up some funds.  In a previous post I have stressed the importance of budgeting 10% of gross rents for repairs and putting away a little bit more each month for major expenses in reserves.  Trust me, spring break it going to make you (and your tenants) glad you did.  Understand that you will not have 10% worth of repairs every month.  Some months may have no repairs, but averaged out over the year 10% is a good number.  My repairs for all of 2011 totaled 10.14% of gross income.  Almost right on the money.
  • Third, have some skilled contractors on your team that you can call to fix the problem quickly.  You will need a roofer, a plumber, a good HVAC person and a landscaper/tree person.  By having these people on your team you can handle repair problems quickly and thus cut down on an even bigger expense, tenant turnover because you did not fix stuff in a timely manner.  Where do you find these team members?  Your local reia is a great place to start.
  • Fourth, take the opportunity to be proactive and do a little “spring cleaning.”  Now is a perfect time to inspect your properties, both inside and out, for damages and other problems.  Contact your tenants and let them know that you will be conducting an inspection.  Then, check their HVAC units and change the filters (tenants never do it), check their smoke detector batteries, check the plumbing for leaks and check around the outside for other general repairs such as fallen limbs, rotten wood, etc.

A smarter landlord has to be proactive and routinely check on their properties.  I would recommend that you conduct an inspection at least twice a year.  Perhaps once in the spring to check their AC, clean the condensers, etc., and once in the fall to check their heat.  Always look at the plumbing under sinks, around toilets, etc.  I can’t tell you how many leaks I have found that had obviously been going on for months and the tenant says “Oh yeah, I was going to call you about that.”

So there you have it: spring break, accept it, prepare for it and be proactive.

Until next time work smarter not harder.

Top 5 Real Estate Investing Books

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Give a quick listen as I talk about my top 5 Real Estate Investing books.  These 5 books really helped (and still do help) me in my real estate investing career.  Then stop by the Smarter Library and order a copy for yourself.

Don’t see your favorite on the list?  Drop me a comment and let me know what your favorites are.