SMARTERLANDLORDING

ADVICE FROM EXPERIENCE

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Should You Wait On Real Estate?

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Talking with Richard Scarbrough last month while recording Episode 19 of the Smarter Landlording Podcast brought out an interesting idea.

We have all heard about, if not actually felt, the increased amount of tightening going on against landlords these days as a result of the covid pandemic.

The courts are closed.

Eviction moratoriums go on and on.

There are calls for rent strikes and rent forgiveness.

New regulations and restrictions are passed almost every week.

It seems landlords just will not be able to win making real estate a terrible investment to get into right now.

Or is it?

And this is the point that Richard made. Perhaps all of these new regulations, moratoriums and tightening against landlords will create opportunities. Opportunities for those who have the knowledge and are persistent enough to push forward. Those willing to be in it for the long haul. Those who do not wait for things to get better or loosen.

Think about it. The increased stresses of being a landlord brought on by governments during this pandemic will cause some to say “To heck with it!” and get out of the market. Those folks will leave opportunities for those of us who stick with it. Those opportunities could be the properties that they decide to sell, or the reduced amount of competition for the properties already out there that they decide not to pursue.

Yes, there is a lot of doom and gloom out there regarding the pandemic, the economy, politics and where things are going in general. But to be successful one has to be optimistic even when it looks like everything may be coming down around you. You have to look for the opportunities and stick with it. All of the doom and gloom may in fact make real estate an even better investment.

Remember, as I say in my book, Advice From Experience To New Real Estate Investors:

Anytime is a great time to buy. Sure, there can be real estate bubbles and times you should not follow the crowd. Bubble or not, the trick is knowing what to buy and what not to buy no matter what the market conditions are.

Real estate is a great investment. It is solid and tangible. You can see it.  You can go stand on it. Most of it is not going anywhere, nor is much more being made. Real estate, no matter where we are in the business cycle, is always wise to buy. But, you have to buy wisely.

And buying wisely is always the key. Don’t go along with the crowd and remember your cashflow fundamentals. There may have never been a time where real estate was a more wise but difficult investment to make.

Kevin Perk is the founder and publisher of Smarterlandlording.com. He is the author of Advice From Experience To New Real Estate Investors.  Subscribe to Smarterlandlording here. Contact Kevin here.

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Look Who Made…

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The cover of the Winter 2020/2021 cover of Real Estate Journal published by National Reia. Yours truly. Check it out.

The Tightening Against Landlords Continues

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Back in July, I wrote that the slew of new regulations and restrictions against landlords would likely never go away. History shows that once the ratchet is tightened, it is never loosened completely. Some of the headlines from Maine to California seem to be proving my predictions correct.

Landlord-tenant laws in Virginia spurred on by covid could be come permanent.

Minneapolis to consider rent control.

Rent control pushed in Maine.

Eviction bans in San Jose.

Eviction bans state wide in California.

Learning how to screen your tenants and work with them is going to be more important than ever in the coming months and years. It is going to get ugly in some places. Stay tuned and seek out folks with common ground.

Kevin Perk is the founder and publisher of Smarterlandlording.com. He is the author of Advice From Experience To New Real Estate Investors.  Subscribe to Smarterlandlording here. Contact Kevin here.

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The Smarter Landlording Podcast Episode 19 – Looking Back At 2020 and Ahead In 2021 – Challenges and Opportunities

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Episode 19 of the Smarter Landlording Podcast is a continuation of the series “Conversations With Real Estate Investors.” Sit in and listen as Richard and I look back at turbulent 2020 and ahead to 2021. Will there be more turbulence? Probably. But there will also be opportunities for the focused and persistent investor. Pull of chair and listen close as there are numerous nuggets for you to mine out of this episode.

And do not forget to order your copy of Advice From Experience today.

2020 Is Over. Now What? Caution, That’s What.

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Wow! What a year. I’m glad to get that behind us. But now what? Where do we real estate investors go from here? To me, it seems that caution is the word to use. 2020 brought a whirlwind of challenges and changes and I’m not so sure we will see them end in 2021.

Here are some thoughts about going forward in 2021.

Covid19 is going to be here for a while longer. That will mean that ours, and everyone else’s businesses will still be affected. Some folks are doing okay. Some are actually doing well. But many any more are hurting. Going forward I expect that things, such as rehabs and repairs, are going to take longer to do. Parts and appliances will be harder to find. People are still going to need some slack. Try to plan accordingly.

Covid19 has also generated a lot of economic uncertainty. People are nervous about the future and unsure of what to do. You can include myself in that category. Remember that in uncertain time cash is always king! Best to have some cash reserves on hand. The more the better.

Newly printed cash is flowing into the economy. This cash is in part, making its way into the real estate market because people are uncertain about where else to put it. Real estate prices are frothy and supply is low as people move to what they perceive are greener pastures. Buy cautiously right now. Remember that cash flow is especially important in frothy times. When the music stops, and it will at some point, you do not want to be the one left standing. Cash flow will help you to remain standing.

That said, it is a seller’s market. If you have been considering selling any of your real estate holdings now is the time. Prices are high and as long as the newly printed cash keeps flowing, they will likely go higher. How much higher? Who knows. Do not be greedy and try to time the top. You can’t. If you want to sell, just put it on the market now.

Furthermore, if you want to keep holding, money is cheap now and every attempt will be made to keep it cheap. Try to lock in some long term debt at these these decades low rates. Convert short term debt into long term debt now if you can, while the money is flowing.

Or, just get rid of the debt, perhaps by selling some properties and paying off others. The future is uncertain and how all of this money pumping and debt forbearance is going to unwind is anybody’s guess. It may not be pretty. Why not be the one who is holding hard assets free and clear?

Increasing amounts of landlord regulations are here to stay. The eviction moratoriums and other measures put in place due to covid19 may be rolled back some. But history shows when regulations are ratcheted up, they rarely if ever go back to where they were before. Again, how does all of this unwind politically? Will there be rent strikes? Are no-fault evictions a thing of the past? Who knows. But I bet it will be to the smaller landlord’s disadvantage.

The multi-family market is being over built. There are so many apartments going up around me here in Memphis and I simply do not know who is going to absorb all of that supply. The supply of new units is going to put pressure on rents and even with all of the money being pumped into the economy they could begin to slip down. Keep that in mind when looking at the future performance of your existing holdings or anything you are considering for purchase.

I guess the buzzword from me for the beginning of 2021 for landlords is caution. The market is high and the future is uncertain. The money pumping can’t last forever without consequences, and there will be consequences when the pumping stops. I sat on the sidelines watching during the last frothy period in 2008, maybe that is the right place to be in 2021.

Kevin Perk is the founder and publisher of Smarterlandlording.com. He is the author of Advice From Experience To New Real Estate Investors.  Subscribe to Smarterlandlording here. Contact Kevin here.

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Tightening The Ratchet

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Headlines around the world are currently predicting another covid related crisis. This time it is an evictions crisis. As courts reopen and landlords are once again allowed to enforce their leases and property rights, evictions, it is said are going to throw hundreds of thousands into the streets. The homeless will be everywhere, from New York and across America, to London and Toronto.

Will hundreds of thousands of evictions be filed? Maybe. Will every single one of them proceed to an actual set out? Doubtful. In our company’s experience, most eviction cases are worked out before they ever get to court. Tenants start paying again work outs are made or tenants move on to somewhere else.

Yes, some folks are having a hard time paying the rent these days, we have seen it in our business. We have had to work with some tenants and let others move on because they simply could not afford their apartment after a job loss. But most tenants are keeping up with their side of the deal. In fact, stats from around the country show that above 85% are paying their rent and that number is only slightly below what was collected a year ago before all of this covid mess began. These states and my own anecdotal evidence make an eviction crisis appear to be far from imminent.

Nevertheless, the press is touting that a crisis of evictions is looming. As a result, my guess is that politicians are going to use this as an opportunity to respond. How? They will respond in two ways. First, where they can they will extend eviction moratoriums. Just keep the courts closed and problem solved.

Landlords, knowing that they do not have the courts to aid them, will in response elevate their screening methods and techniques. Landlords will work harder to keep potential deadbeat tenants out so that the need to go to eviction court declines.

This increased scrutiny by landlords toward potential tenants will lead the politicians to their second response, they will go after screening techniques. They will make the connection between lack of court enforcement and the increased screening done as a result. Politicians will then claim that landlords are denying people adequate housing. They will move to solve a problem which they created in the first place by closing the courts. They will make it harder for you to screen by expanding the scope of protected classes for example. Or they will work to ban screening techniques such as criminal background checks with “Ban the Box” initiatives.

The covid crisis has and will allow politicians to turn the ratchet tighter on landlords. Even when the crisis subsides, do not expect things to be completely loosened and returned to where they were. History shows that once tightened, things are never again loosened completely.

Kevin Perk is the founder and publisher of Smarterlandlording.com. He is the author of Advice From Experience To New Real Estate Investors.  Subscribe to Smarterlandlording here. Contact Kevin here.

Subscribe to Smarterlandlording and receive a Free Report: 21 Tenant Screening Red Flags

Where Do I Put My Money?

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With all of the uncertainty in the country and the economy right now, “Where do I put my money?” is a question that I am hearing more frequently. People are nervous and are looking for a safe and stable place to park their hard earned funds. As a real estate investor you should strive to be that “safe and stable” place.

If you want to increase the size of your real estate portfolio, and are not independently wealthy, you will need funds. Funds from commonly known sources such as a mortgage broker or commercial bank can quickly dry up, be pulled, or come with too many strings attached. Borrowing funds from everyday people like you and me can and should be a key tool in your real estate investing tool box.

The thing is however many people do not realize nor understand that they can lend their money to individuals and have it backed by the security of real estate. They believe that the stock market, bonds or a money market account are the only options available. A stock broker is where they will turn for advice and you can rest assured that the broker will not tell them about the private lending option.

You have to be ready to tell them about the safe and stable private lending option. But how? You can potentially run afoul of securities law if you advertise or actively solicit private funds. So that option is out. You best bet is to be ready when you sense an opportunity. Be ready when someone asks the question “Where do I put my money?”

When you hear that question, answer with “Why not invest with me, earn a nice return and be secured by real estate?” Most will be intrigued but skeptical. You will most likely have to overcome that skepticism and honestly, that can be difficult to do.

Start overcoming it by sounding and acting confident about what you do. Have a succinct elevator speech rehearsed. If you get a bite, be ready with examples and numbers. Of course this all will take some homework on your part. You have to understand your market, your needs, your business and how financing works.

You also have to practice what you intend to say. Do not try to sound pushy, overbearing or too sales like. You want the conversation to flow naturally. You want you potential lender to feel at ease.

Then be ready to follow up with documentation. Be prepared to demonstrate the safety and stability of investing with you, because very few are simply going to take your word for it. If they do you likely do not want them as investors anyway. Be prepared to show actual property examples if you can. Be prepared with an electronic bank book, already prepared and uploaded into Dropbox so that all you need for them to do is click on a link.. Be prepared with sample documents that demonstrate how their money will be secured. Have a sample note and deed of trust, drawn by an attorney, for them to review.

Finally, give them time to make a decision. They will likely have questions. Do your best to answer them and be honest if you do not know something. And never underestimate who has money. Remember Sam Walton, the founder of Wal-Mart, drove a beat up, old pick-up truck. Do not feel too upset if your offer is not accepted. Some simply cannot wrap their heads around private lending. Move on. Others will give you a test run. Use that test run wisely as it could turn into something really great for your business growth.

Kevin Perk is the founder and publisher of Smarterlandlording.com. He is the author of Advice From Experience To New Real Estate Investors.  Subscribe to Smarterlandlording here. Contact Kevin here.

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Adjusting To Covid

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There were hopes just a few weeks ago that the worst of the covid-19 pandemic were behind us. Now, as of early July it appears that the virus is going to stick around for a while longer. While no one seems sure what the future holds, I can say that our landlording business has been adjusting to covid and that many of those adjustments may be here to stay.

Social Distancing Is The New Way To Conduct Business

We are all being advised from multiple sources to keep our social distance, especially between people that you do not know. For our business (and many others) social distancing has meant shutting our office down and going as remote as possible. Having actual daily contact with employees or contractors is simply not advised. Tenants are no longer provided the option of dropping off rent checks or asking for a repair in person. All of that is now handled online without contact. We work from home. Our employee works from home. Rents are collected electronically (mostly) and repair orders are handled through our property management software. Face to face office contact has been cut to signing a few checks.

Taking Precautions

We have instituted many covid precautions. Our contractors are now required to wear masks when going in a tenant’s home, no exceptions. They are also required to social distance as much as possible and wash their hands frequently as well as thoroughly clean up after themselves. We have not stopped making repairs or attending to our tenant’s needs, but we are prioritizing repairs based on a perceived risk and trying our best to mitigate that risk for both our tenants and contractors. I’m sure new policies and procedures will evolve as we all learn more about the virus.

Business Does Go On

Business does however have to go on some how. Showings to perspective tenants, lease signings, move ins and move outs still happen. Some contact is just going to be unavoidable. However, the risk of contact can be reduced. Before showing a property these days, perspective tenants are screened a bit more than they were pre-covid. We are making sure that they really do need to move in the near future (and are not just being lookie lous) and that they have the means to afford the property before we will show it to them. These days we pre-qualify applicants, open the property up for them, step back, let them look, ask them not to touch anything, wipe it down when they are finished and conduct further discussions outside.

We have also stopped showing occupied properties. If a tenant has not yet moved, we do not want to have strangers tromping through their home. We have videos of most of our properties that can be reviewed online.  Otherwise applicants just have to wait until the property is vacant. Again it is all about keeping contact between people to a minimum. This does hurt our property turnaround time a bit, but it is a necessary caution.

What About The Numbers?

Rents have not really declined and have instead been holding fairly steady. After a relatively calm period during the first few months of the covid pandemic we have seen a small uptick in tenant turnover. Some tenants are telling us they simply cannot afford it anymore and are moving back home. However, we have generally been able to re-rent these properties without too much hassle and without discounting the price. Over all, despite the social distancing and economic slowdown, business has been steady.

What About Evictions?

The eviction courts have reopened here in Tennessee but we have not had to go that route as of yet. As I have written before, eviction is something we try to avoid with screening and we are screening even harder as I mentioned previously. We have had to make a couple of workouts with some tenants who were struggling with income losses due to the virus and I think until the economy further adjusts, those types of things are going to continue. The majority of our tenants have been honest with us if they are running into problems and we have worked with them to find a solution that works best for everyone.

All in all the major adjustment is simply not seeing folks as often as we did in the past. Today it is all about keeping contact to a minimum. I’m not sure how easy all of this would have been a couple of decades ago before zoom, Hello Sign and other websites. Thankfully these sites make getting through this pandemic much easier. Yes, we have had to make adjustments and as a small company we have been able to do that. Will, things ever go back to the way they were? I doubt it. In fact, I think our business may be better off in some ways. Time will tell.

What are some changes you have had to make to your business as a landlord? Please share with a comment.

Kevin Perk is the founder and publisher of Smarterlandlording.com. He is the author of Advice From Experience To New Real Estate Investors.  Subscribe to Smarterlandlording here. Contact Kevin here.

Subscribe to Smarterlandlording and receive a Free Report: 21 Tenant Screening Red Flags

Will Rental Standards Change?

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During these unsettled times with covid making the rounds and social issues taking center stage, the criteria and standards we landlords use to qualify our tenants may change. These changes may be dictated by the local government as in St. Paul, or we as individual business owners may determine change is needed due to shifting market and social conditions.

When rents are climbing and the market is tight, we landlords can almost pick and choose who we want to live in our properties. As the market loosens, and I think it very well might do so in the near future, we have to become more flexible. We are also not immune to social pressures. Housing is in fact a growing concern for many across the country and legislation forcing changes to our business models is a distinct possibility right now.

Even with all of these changes that are and could possibly occur, we still want to find tenants who will pay, stay and respect our properties. These three criteria are what we should always be aiming for. There are many ways to achieve this goal and what works in one area or market may not necessarily be what works in another.

Of course, every landlord has to begin their rental standards with the federal fair housing laws. These laws protect certain classes from housing discrimination. These classes are race, religion, color, national origin, familial status, age and gender. Disability, military/veteran status and sexual orientation are others that often (and should) make the list. From there however things change with location and market.

For example, in our business we rely heavily on credit history. We operate in a market where using that criteria works well. There are markets however where that criteria will not. There are markets where most applicants will have poor credit histories. Thus, other criteria should and can be utilized. What sorts of criteria could you use instead? Perhaps job and residential stability. Seek stability in terms of employment and living arrangements. Examine if your applicant changes jobs and addresses frequently. If so, than they may not be right for you even with the best of credit reports.

Evictions are another criteria that are often used and which is currently under attack for being used in many jurisdictions. But in some markets many of the applicants will have evictions on their records. It just comes with the territory. Should you ban people with any eviction in their past? Maybe. But perhaps a better strategy is to set a time limit and look for positive change in the applicant. When was their last eviction? Last week? Last year? Ten years ago? When can make a difference.

Whatever criteria or rental standards you use and however you decide to change them due to changing market and political conditions make sure you follow the law and make sure you WRITE THEM DOWN. Keep a list of your criteria and standards on a sheet of paper in your desk so you can do to things.

1. Follow them with every applicant.

2.Show them to anyone who asks.

Trust me, doing so will save you much future grief.

Are your rental standards changing these days? Please share with a comment.

Kevin Perk is the founder and publisher of Smarterlandlording.com. He is the author of Advice From Experience To New Real Estate Investors.  Subscribe to Smarterlandlording here. Contact Kevin here.

Subscribe to Smarterlandlording and receive a Free Report: 21 Tenant Screening Red Flags