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.
Blog Posts
Tips for DIY Painting
If you are new to real estate investing, I’m guessing you will be doing some work yourself. That’s great! This has truly been the biggest learning curve of my life. We have been rehabbing our triplex for 5 months now, and I can say with certainty that I’ve found the task that I would like to hire out, as soon as possible—painting.
Painting is the worst.
It is repetitive on your wrist and wearing on your back. You have to tape and lay down drop clothes. You need to designate an outfit for ruin. The worst part is how long it takes! This is especially true if the room requires multiple coats. One room we painted required 5 coats! Remember those custom colors?…
If you’re like me and you can’t quite afford to hire the job out yet, head this advice. I learned the hard way.
- Buy good paint brushes. Cheap brushes will shed. Better brushes are easier to clean.
- Buy one of those 14-in-1 paint tools. I’m not sure what all 14 functions are for but I use it a heck-of-a lot.
- Clean you brush after every use!
- Clean your paint rollers after every use. They are reusable. Seriously… I didn’t know this.
- Buy drop clothes, preferably the cloth kind. Do not use table clothes—despite how free they may be. The paint will leak through.
- Pick neutral paint colors and stick with it. This will save money and headache in the long run.
- Take a picture of your paint color, brand and sheen. Keep it on your smart phone until you’ve memorized it! This way, you know you’re buying the exact same paint each time.
- Buy paint in 5-gallon buckets instead of gallon cans. You’re going to go through more than you think. If you’re using the same paint colors, you know it will be used at some point. It’s cheaper in the long run, and you can use the empty buckets for so many things.
- Buy the cheap paint. It doesn’t matter how expensive it is, you are going to need at least 2 coats.
- Don’t leave the door open if it’s raining outside. It will cause paint blisters on your wall.
- It’s easier to scrape paint from finished floors than sand them from unfinished floors.
- Do not use painter’s tape on finished hardwood. It will take the top layer of polyurethane right off!
I’m sure this doesn’t cover all of the painting mishaps that I’m doomed to encounter. If you have other bits of advice, please enlighten us all.
Are You Prepared?
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!
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
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.
Real Estate Advice for Rookies
This past week made me reconsider if I should be blogging about real estate.
Aside from books, blogs, and conversations with investors, I don’t know much about what I’m doing.
I’m great with numbers. I can analyze, budget and prioritize like a pro. Despite my strengths, I have underestimated the time commitment every single time. If you are getting into real estate because you think that it’s easy, please turn back now.
This post is for the rookies.
I set a goal to have the vacant unit rented by November 1. So, I started showing it before it was even ready. I walked prospective tenants through the repairs. One woman bought into my vision and signed a lease. There was no turning back.
We stayed up past midnight all week to make sure that we met our deadline. We bought and installed appliances, hung blinds, built cabinet doors and changed out receptacles. We painted the entire apartment—two coats.
If you had given that list to me 2 weeks ago, I would have said, “no biggie,” with confidence. I had no idea how time consuming it would be. I can’t imagine what it would have been like if I had to do it ALL myself. Luckily, I have an awesome partner and helpful friends.
Truth be told, I’ve received ample advice to add a cushion to cost estimates. I just never knew to do the same thing when estimating time commitments for do-it-yourself repairs. Maybe I’m a too confident for my own good…
If I were to relate this new, hard-learned knowledge, I would recommend that estimated time commitments be multiplied by three for any first-time endeavor. That multiplier of three should not include the time you spend reading how-to articles and watching you-tube tutorials either.
Don’t feel overwhelmed before you start though. There is a learning curve. I’m confident that I could install a sink and faucet in half the time it took me before. I can vinyl tile a kitchen floor like nobody’s business. And, you should see my putty knife skills. It’s serious.
Top 10 Rental Lease Agreement Provisions
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:
- 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?
- 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.
- 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.
- 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.
- Security Deposits – How much are they? Where will they be held?
- 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.
- 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.
- 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.
- Eviction – You should spell out when you will begin the eviction process.
- 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
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
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.
Breaking Rule #1 – Update
Remember how positive I was about our experience with renting to a friend? Well, the old proverb proved to be true after all.
Our tenant friend told us last week that he will need to move out before his lease is up. He’s in nursing school and would like to devote more time to study and less time to work. We shouldn’t worry; he will do us a favor by staying until January 1st.
Grrrr. Thanks—but no thanks.
So, let me recap for you. We have one vacant unit that is rent ready November 1 (later than expected), and now an impending vacancy after a 3-month occupancy. If I don’t get these units occupied ASAP, I could be footing the mortgage with $0 cash flow for a couple of months. No. no. no….
It makes me anxious.
So, I told our tenant friend that we would start marketing the property immediately. He seems flexible enough to move mid-month if I find a tenant with the desire to, but he would need a couple of weeks’ notice to move his things.
Oh, and we have to prep the apartment of course. Remember those custom colors he requested for his living room? What a mistake!
Needless to say, we won’t be renting to friends again. I’ve found that I can’t be blunt or forthright about how this is not acceptable. I’m so friendly that I will most likely refund him part of his security deposit, which of course would be out of the question for the average tenant.
Where is that silver lining you ask?
It could have been a lot worse. He did give us ample notice, and he has taken care of the place. I don’t think I would say that it worked out to our benefit though. Even though we were able to gain cash flow earlier than we would have, we reorganized our work schedule to get that unit rent-ready first. That was probably a mistake—along with buying custom paint.
Commence face palm:
- Know where your palms are.
- Take your palm and move them towards your face. (Speed of contact varies from situation)
- Take 10 seconds to breathe and recuperate your thoughts.
- Slowly slide your palms down your face.
- Give evil glare.
