The Landlord Business – Managing Your Future With Investment Property
So, do you think it’s a bad time to get into the investment property business and become a landlord? After all, property values aren’t literally going through the roof anymore like they were during the real estate bonanza of the past several years. Instead, the opposite scenario is currently taking place – property values have dropped (and are predicted to drop even further) in many parts of the country.
The fact that the real estate market has cooled and is coming back to reality shouldn’t discourage anyone from acquiring rental property and becoming a landlord. The truth is some very attractive buying opportunities are being created for real estate investors who can (and are willing to) take advantage of them.
As of this writing, many of the top real estate experts believe that these opportunities will peak during the next six to twelve months before they begin to fade. They’re predicted to reach levels that haven’t existed for many years. The world’s greatest investor, Warren Buffett, has long practiced his famous philosophy: “Be fearful when others are greedy, and be greedy when others are fearful.” It’s the perfect investment acumen that also applies to real estate – buy low and sell high when the opportunities exist.
With that being said and with real estate prices currently on the decline, it’s hard to know just when prices will reach rock bottom before they level off and begin to rise again. However, no matter what the pundits may advise, trying to “time” and predict the future of the real estate market is impossible without having a crystal ball. Read more
Compassion and Cash Flow – Can They Mix?
It was a cold and rainy day when I walked into the apartment. The door was unlocked and ajar. And while I shouted “hellloooo” through the crack, I already knew no one was at home. My tenant had left in the middle of the night without paying his rent. Lucky for me I had a security deposit; I’d need it to clean up the mess.
I’m a compassionate person, always trying to believe the best about people, and while I continue that philosophy, there have been times (this being one) where I was taken advantage of. There are two schools of thought; one being the tough and tenacious one, always keeping a certain distance between you and your tenant. The flip side is the compassion one, where you get to know the renter and their family (that’s the one I’d practiced in this scenario). While one will rarely allow a social interaction, the other can cause its own set of headaches.
What I’ll aim for in the future is a blend between the two. I refuse to change my philosophy about life (its keep me sane and happy) still I realize there are those who would take advantage of anyone’s kindness. In other words (as heard in political circles) “trust but verify”.
No matter whom the person is; family, friend or stranger, always get references and a security deposit. In my case, if I hadn’t had the deposit, I’d have been out the money to get the carpets cleaned, not the end of the world, but not good business either.
Here’s the policy I’ve adapted and while sometimes difficult, it’s kept me out of financial trouble and it’s really pretty simply. Be upfront with the renter and tell them what you expect. Is the rent due on the 1st? Then make certain they know you expect payment on or before that date. Do you give grace periods? If you do, then expect them to be used. Do you charge late fees; again make that fact known in the beginning. If you’ll do this, then it will be you who sets the rules and there will be no misunderstandings later.
Now this next one is very important and probably (depending on your personality) the most difficult. Stand behind what you say; if you charge late fees, then charge them, don’t let it slide. No one likes to pay extra. For example, when you get your bill from the electric or gas company, have you noticed if you pay you bill on time it’s one number, and if you pay after a certain date, the figure is higher. They are letting you know, emphatically, exactly what you owe and what you’ll save by paying timely. Read more
Lessons From an Overfriendly Landlord
When I purchased my first property, a triplex row home in an outlying section of Harrisburg, I was very anxious to get to know my tenants on a personal level. I introduced myself and made myself available to them 24 hours a day. I listened to all their complaints about the previous landlord and his leftover maintenance.
When my father upgraded his computer, I reloaded his old one so the hard drive was clear and gave it to my one tenant’s teenage daughters so she could use it for school. It was the ‘caseworker’ in me that made me do it and from that gesture I felt good.
It seems that computer was a turning point for me in my career in property management. Not because of the incredible satisfaction I felt from helping someone less fortunate. Not because I gave a low income family a computer they could not have afforded otherwise. But it was a turning point because of the overwhelming sense that that teenage girl could not have cared one bit that her great landlord gave her a computer for free. This little teenage diva felt entitled to this hand out and in return didn’t have a thank you, or even a neck snap in return.
It was then I realized that I am a landlord first and “friend” comes somewhere down the list. I have to thank this teen diva for that awakening because it had made me aware of the line in the sand that I should never cross.
There are many tenants out there that feed off of landlords that want to be friends. Friends do friends favors… Like let them slide on the rent for a couple of days/weeks/months… They dismiss the hole in the wall from a frustrated fist. All this will lead you holding the bag when this pseudo friendship come to a halt and your nice little investment is looking very similar to a well partied college row home. Read more
Tenant Screening – The Process – How Does A Landlord Go About Screening For The Right Tenant?
The Basics
* All applicants over eighteen should fill out and sign and date an application
* All applicants should provide current photo ID such as a drivers license
* Spouses should be considered as separate applicants for the rental process
* Be aware of fair housing and local discrimination laws. Do not write on the application or make any notes that could be interpreted as code words or marks used to differentiate protected classes.
* Time and date stamp all applications. Process them in the time/date order received to remain objective.
* Be sure that it is signed, that is where your permission to run a credit check and to check into backgrounds is given by the applicant.
* Have the application signed in your presence. Verify the signature against a drivers license.
* Use the same screening criteria for everyone
* Don’t accept incomplete applications
Verification
* Check the application signature against the photo ID
* Do a credit check and we suggest you buy the FICO score, the eviction report and the social security check. Any discrepancies or negative reports here are a red flag. Remember, you will have to deal with this person for a long time. OFAC or screening for terrorists is now mandatory.
* If you are renting a commercial space you may want to consider a business to business report as well as a credit report on the owners.
* Many applicants do not have a social security number or credit history. It will be difficult to get a credit report without this and you may have a legitimate reason to reject this applicant with no reflection on the character of the applicant, if you require credit reports of all applicants. You may also try to solve this problem by asking for an in-state guarantor. Read more
Landlord Tools for Organization
Along with a strong work ethic and a lot of patience, the most important trait for a landlord is organization. You have a tremendous amount of detail to keep track of and you never know when you’ll need any particular piece of paper or record. You need an organizational system that you can update quickly, get information from easily, and keep all your records secure.
Here’s a cautionary tale that will make my point clear. I knew a landlord who needed to evict a tenant. The only trouble was, he couldn’t find his copy of the tenant’s lease! He didn’t remember exactly what the lease terms were and certainly didn’t have the tenant’s signature on a document that spelled out the house rules. With no other options left, this landlord did something dangerous, unethical and even illegal – he entered the tenant’s apartment, poked around until he found the tenant’s copy of the lease, ran out, made a copy for himself, and snuck the tenant’s copy back in.
It’s easy to imagine what this landlord risked. If the tenant found out, he could have had the landlord arrested. Even if the tenant didn’t press criminal charges, a housing court judge would certainly have dismissed any eviction complaint. By using, and sticking with, a system of organizing his records, the landlord could have avoided all this.
I recommend using property management software to keep all of your records organized. At the same time, you should have a paper filing system so that original documents are available when you need them.
The most important part of my system is the landlord software. It keeps all of your documents organized automatically by tenant, building and owner; this means that you can find everything related to one tenant, for example, by simply searching on that tenant. When you go to a tenant record, you can click on tabs to see the tenant’s rent status, incidents, maintenance issues, lease document and so on. Read more
Must Read for Future Property Owners/Managers of Apartment Buildings
Owning/managing the property.
Now you have the property. Next step is to decide if you want to manage the property your self, or hire a property management company. If you want to manage the property your self, you should get training from your local apartment association. They have classes to help you. Also, you should read on property management. Don’t just jump in and start being a land lord and not know what you are getting your self into, and what demands/requirements are needed.
If you decide the you would like to get a property management they will take 5-10% leasing commission of annual rents. I suggest that you go to http://www.irem.org and find a property management company in your area. Once you have selected a group to call, ask them the following questions (or you can go to their web site and find answers to the questions below):
• How long have you been in business?
• What professional designations do you hold?
• What continuing education programs do you offer your employees?
• Can you call existing clients of theirs? Read more
Personal Finance and Home Improvement Projects
Improving your home does not have to be pricey if you research the possibilities. Proper financial planning and understanding personal finance will help. Whether you want to repaint or do more advanced improvements, hiring outside help can be avoided if you know how to read simple instructions and have access to all the tools and needed materials. You can save a fortune if you plan your project carefully by assessing what is needed to complete it. You should consult with home improvement centers that give out free advice and written project guides. Most importantly, you need to shop around for the best deals, research tool rentals, and read as much as you can about the pitfalls and mistakes to avoid.
Unfortunately, many homeowners don’t properly plan ahead, don’t have the budget to cover the costs and remortgage their homes or take out other home improvement loans to help. However, as the interest accrues on these loans, personal circumstances and finances change, and the unplanned projects run out of funding or mistakes are made during the work, resulting in some homeowners find themselves in serious debt, or even facing bankruptcy. Read more
Vacation Property Letting Via The Web – Is It Worth It?
Regardless of whether you own 1 or 100 properties you let out for vacations and holidays the key to your success is getting rentals in. Typically many property owners use letting agents, whilst others adopt a more DIY approach using in the main the WWW, but which method is best and why?
Before you decide on a route to let your properties begin by classifying it on the following rules;
A) location – is there a lot of competition from other agents and property owners which may make your task harder – price and quality of property inc those vital “extras” such as pool, closeness to the sea and beach are all important in the eyes of the tourist seeking rental accommodation.
B) price – are you charging too much, or even too little? Ask high and the amount of rentals you get can be reduced, too little and you may be fully booked but the real profit may be much reduced as “wear and tear” and servicing costs can erode real-time profits.
C) condition – discerning tourists demand only the best, so avoid skimping on quality – a great let will increase the chance of a returning tourist and referrals to friends and relatives. Each let has the potential to introduce repeat business or new renters.
D) registered or accredited tourist awards? Does the property have any form of rating of quality? – if not get one and try and improve on the standard, this will improve rents and demand more income.
Self let or Agent? Read more
So You Want to be a Landlord?
The residual income from owning rental properties may bring more money into your life than the fast flip in the long term. If nothing else, the stress is reduced because a well-chosen investment will pay for itself until you the market is ready for you to sell. In order to make this idea work, you must plan carefully. Choose your property, choose your management approach, and choose your tenants carefully to make the most of your investment.
Choose your property.
Not every house is going to bring in the money you need each month. Some considerations:
Will you be financing? How much you finance is going to have to be factored in to how much you need to cover the monthly expenses. Up to four units is considered a residential loan by most banks; beyond that is commercial, which means that the lender may factor in the rent more easily as income, but other, more stringent requirements must be fulfilled to secure a loan. The more equity you have now, the more able you are to weather periods of vacancy.
How many units? Not only is the number of units a factor in lending, it’s also very important for income. More units means less drain when you have a vacancy (a two-family house loses half the income when one tenant leaves!), it’s also just plain easier to get enough rent to at least cover your expenses.
What rents can you charge? Find out how much the rents for the current tenants are, if any. If you don’t know the rental market well enough, consult with your real estate broker or a professional property manager to determine what fair market rent for each apartment is. The monthly rent should be at least one percent of the value of the building for it to be a profitable investment.
Will major work be needed? If you’re getting a place cheap, you probably are expecting to do some renovations. This has to be budgeted in, because you’re spending money and not getting rent for that period of time. Contractors often break both deadlines and budgets, because hidden problems become apparent as you dig in to the project. Make sure you have a cushion to cover your mortgage, insurance, taxes and other expenses.
Choose your management approach.
Once you’ve found a winner of a property, it’s possible to just sit back and let the money roll in . . . or you could make a part- or full-time job out of being a landlord.
If you’re handy, enjoy paperwork, like working with people, and don’t mind being available pretty much all the time, you should be a landlord. Many people have left their old jobs behind to manage their own rental properties full-time. Read more
Inspect Your Tenants’ Apartment Before You Re-Finance
Low interest rates continue to encourage homeowners to re-finance their property. Owners use the extra cash to pay off credit card debt, complete outside repairs, replace porches, upgrade electrical wiring, install a new roof, de-lead the house, renovate kitchens and bathroom in their apartment, and similar large maintenance work.
When or if you have a large sum of money to invest in your real estate, you need to think about upgrading your tenant’s apartment, as well as your vacancies. The condition of your tenant’s unit is part of the market value of your house or building. If it’s in bad shape, it could lower the potential sale price. If it is good condition, it adds to the stability of your financial investment.
You also do not want to be in the position of having to do a complete renovation of the tenant’s apartment after a move-out. When you have the money, consider upgrading key areas of the apartment building.
When was the last time you saw the inside of your tenant’s apartment? Do you know what condition it is in? How long has the tenant lived there? The answers could impact how much money you will need to request to the bank.
Homeowners have an obligation to review and maintain the upkeep of their occupied and vacant units. Doing an annual apartment inspection helps you stay abreast of the condition of your investment. Once you give advance written notice to your tenant, go in with a pen and notebook, and write down what repairs need to be made. Also write down large replacement work needed. For example:
Are there illegal bars on your tenant’s windows that need to be removed or replaced?
Do you have an elderly or disabled tenant who could benefit from hold bars in the bathroom by the toilet and tub?
Are the ceilings and walls cracked from building settling? Does the apartment need any patch and paintwork?
Are there a lot of extension cords, indicating a need for additional electrical plugs? Is there a GFI electrical (safety) switch in the bathroom and kitchen, which may be a part of your state’s housing or building code? Read more
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