Archive for the ‘Landlord Tips’ Category
Monday, January 30th, 2012
By Ashley Halligan, an analyst for a software comparison website
The average cost of a residential rental turnover is nearly four thousand dollars. By the time marketing, repairs and days lost to vacancy are calculated, the cost is a heavy one. Maintaining resident retention is a valuable effort that property managers can influence with both old-fashioned customer service and creative strategies. That said, more than 50 percent of turnovers are directly linked to reasons that are, in fact, avoidable. Conquering this avoidable turnover is the first step.
Read more here.
Monday, August 23rd, 2010
Any savvy real estate investor knows that keeping units rented is the first ingredient in the recipe for strong cash flow. It’s also no secret that some units rent faster than others, but why?
In a North American study, tenants ranked the importance of each of five factors in their leasing decision. Many landlords are surprised to see how these five factors rank in terms of impacting a tenant’s decision on which unit to rent.
How Tenants Choose a Rental Unit
There are 5 key factors which influence the leasing decision of a prospective tenant. Consider each of these items when purchasing and managing your own units and ask yourself a few questions from the perspective of the type of tenant you’d like to attract.
Source: Derek Lobo
- Curb appeal (28%) – What is the general visual impression of the property when you first drive up? Does it look well maintained or run down? Does it look like a place you’d be proud to call home?
- Common areas (28%) – In the case of an apartment building what condition are the common areas in? Is the lobby clean and well maintained? How about any hallways, stairways, laundry facilities and other shared elements?
- Security / parking (22%) – How secure does the building feel? Do you feel at ease or is there a constant need to look over your shoulder? Would you be comfortable leaving your car parked overnight?
- Apartment appeal (18%) – From the time you open the front door, what is your general impression of the unit? Is it clean and well maintained? Do doors, faucets and appliances work well? Does it look like the landlord cares?
- Amenities (4%) – What features does the building offer? How does this stack up to the competition? What great amenities exist outside of the building but in the nearby neighbourhood?
What Landlords Can Learn
While the results of this study apply directly to apartment buildings, there are some important lessons for both single family and multi-family investors.
First impressions count. Over 80% of a tenant’s decision is made before they even enter the unit. This means it is important to make sure curb appeal (and common elements in a multi-family building) are up to par before fussing over suite finishes. If the property looks like it is ready to be condemned, having a suite with granite counter tops, stainless steel appliances, oak flooring, and vaulted ceilings isn’t going to help as your prospect blows their showing appointment and speeds off to the next address on their list.
Once your curb appeal is up to snuff, focus on providing safe units your target tenants will be proud to call home and you’ll sleep well at night while the rents roll in month after month.
Monday, August 9th, 2010
Providing fire protection equipment for your tenants not only can save their lives but also save you some money in the long run. For example, what if there was a fire in one of your rental units and your tenants did not have any proper equipment such as CO2 fire extinguishers or working fire alarms. Say they lost all of their belongings and now wanted to sue you. Or perhaps there was just thousands of dollars worth of damage to the unit. Although you would probably be covered by your own insurance, it will take weeks if not months to repair the fire damage, thus resulting in a loss of income for rent you would have otherwise had.
In the following article, we offer some tips for finding the best and most reliable fire safety equipment which you should make available in every rental unit.
Reliable fire alarms with carbon monoxide detection
You can choose either a smoke alarm / carbon monoxide detector mix, or just a carbon monoxide detector as a standalone alarm. Depending on the type of unit you are renting, you may want a combination of both for the best protection when there are multiple floors your tenants are on. Combination alarms are affordable with prices ranging from $30 to $70 and well worth the investment to protect both lives and property.
There are many choices of fire extinguishers available on the market today. This can be a little confusing to those who do not know what they are looking for. Just as there are different classes of fires, there are also specific fire extinguishers for each type. For fires dealing with materials such as clothing, paper, and wood, water based extinguishers or Class A type extinguishers are the preferred choice. CO2 fire extinguishers are a popular choice for use against both electrical fires and Class A or B fires. They are just not a good fix for workplace fires that could include chemicals. The cost of fire extinguishers can range from $30 to thousands of dollars depending on the size and class type you decide to purchase.
Common area fire safety equipment
If you are the owner or landlord of a large apartment building, you may want to invest in a sprinkler system, or a large water hose in a cabinet on the walls of each floor. This may have a cost more significant than a few CO2 fire extinguishers in a rental home, but if you are dealing with many lives, belongings, and a larger space they can be critical. Being properly prepared for a fire and providing the best equipment will make your tenants feel safe in your property and encourage them to stay longer. If you are unsure of what the best equipment is, conduct a simple search online or talk to a professional in your municipality on what is required, and what is recommended.
If you are a landlord who would like to offer the best fire protection services for your tenants, making a small investment in fire alarms and CO2 fire extinguishers is a small expense when you think of all the money, lives and stress that could be saved in the event of a fire. Show your tenants that you care more about their well being than their rent checks by installing the right equipment today and helping your tenants feel safe and secure.
Photo credit: loop_oh
Wednesday, July 28th, 2010
Time and time again, we at The Rentables witness landlords saving a few dollars by buying 3 gallon buckets or drums of “beige” colored paint. Although you save a bit of money by buying paint in bulk, you are shooting yourself in the foot by deterring quality tenants when you slap on another coat of “renter beige”
Let’s face it, nobody really likes the stale generic look of renter beige, so do yourself and your new tenants a favor and paint your rental unit in a color that is more aligned with 2010 trends. To make it a little easier for you, here’s what’s hot these days in paint:
- Yellow has been the hottest color for the past two years and this trend is likely to continue. Paint several walls (or even just a single feature wall) in this color to give the unit a fresh, summer feel.
- Lavender is becoming very popular for bedroom paints, it’s elegant and luxurious, yet creates a feeling of comfort and warmth.
- Charcoal grey is a very neutral color, it can be paired with almost any other paint scheme and works great in a home-office.
- Aqua has been recommended by top decorators and is still in style for 2010.
If any of these colors are too bold for you, try doing just a feature wall which can add some interest to your unit without becoming overwhelming.
Baseboards & Ceilings
Paint baseboards and ceilings white to create a nice contrast and a clean look. This simple touch also creates the impression that the property has been cared for and is well maintained. We’ve all seen apartments with layers and layers of renter beige over top of just about every surface. Here’s an example of what not to do if you go with yellow:
Instead, use white to create some contrast:
Remember that by selecting modern colors and paying attention to the details like contrasting baseboards, you make your rental property more appealing. When you increase the appeal you can increase the rents, fill vacancies quickly, and keep quality tenants for longer periods as they are proud to call your unit “home”.
Tuesday, July 20th, 2010
There are only a handful of things a landlord dreads more than getting a call on a Sunday evening from a tenant asking them to come in and unclog the toilet. Prevent this problem by supplying all the tools and know-how a tenant might need to unclog their own mess.
There are a number of things that should not be flushed down the toilet. Educating your tenants with a good visual list will solve half of the problems. Here is a great list we at The Rentables made for you to tape to the wall in front of the toilet when new tenants move in:
Printable PDF version: Teach your tenants to unclog toilets | The Rentables
Preventing clogs is the best bet, but once they happen there are still a couple remedies any tenant should be able to try before making a call.
Every apartment should have it’s own plunger. The cost is minimal, and with proper instructions you may never have to hear from your tenants about this problem. I prefer plungers with a wooden handle instead of plastic. Make sure you get a flange plunger because it properly seals around the edges and doesn’t shift around.
Make sure you explain to your tenants how to use the plunger even though it may seem quite obvious. Some points to remember:
1. There must be some water in the toilet/sink before using the plunger – water is a lot more difficult to compress and it’s water pressure that will clear the clogs.
2. Pulling is just as important as pressing, make sure to press all the way and pull back for 15-20 seconds at a time.
3. You will know the clog is gone when the water starts draining rapidly on it’s own
If the plunger doesn’t work, provide them a simple off the shelf drain unclogging chemical. Explain that these chemicals are very bad for the environment and should only be used as a last resort. The chemicals used are harsh since they are are purposely designed to dissolve anything that is stuck in your drain. Remind your tenants to use gloves and be careful not to get these chemicals in their eyes.
Wednesday, July 7th, 2010
Recently, in preparation to being a landlord, I started paying attention to water faucets and reasons why tenants don’t close them all the way. When asked about it, people would normally respond: “Oh, I didn’t?” followed by a number of different excuses, such as “It’s too hard to turn the handles all the way” or “I’m not used to the two-valve style as opposed to one handle faucet”.
What can you as a landlord do to prevent this? Switch to one handle faucets. But why bother?
- It reduces number of moving parts. Therefore there are fewer seals to start leaking.
- It requires less force to shut off meaning it is more likely to happen.
- It is simpler to use so anyone can fully close the tap (even kids).
- It allows you to use back of your hand to operate when hands are dirty (e.g. in the kitchen).
Try to make your rental property fool proof and it will save you money in the long run.
Friday, April 16th, 2010
When you purchase a property, one of the simplest ways to make income from it is to rent it out. You’ll want this rent revenue to cover the mortgage payments and any of the maintenance on the property itself. Ideally, you’ll have some profit left over on top of that.
But what are other ways you can have your property work for you? What many folks don’t realize is that they can leverage the equity of their home to generate more income.
Now, there are some people who are completely against using home equity and their number one goal is to pay off their mortgage. They either find it too risky or don’t know where to start. Yes, it can be risky if you don’t know what you’re doing, but if you do, you can wisely wield the double edged sword known as leverage.
When you want to tap into the value of your house, you can use it as collateral and get a home equity line of credit (HELOC). A HELOC basically translates your home equity into funds you can use.
Now that you have funds that you can work with, how can you get that money to work for you? There are several things you may want to consider:
Other Real Estate Investments
If you’re an avid real estate investor, you can use the funds from your HELOC as a down payment on other properties. Wisely selected properties can generate more income and appreciation in return and can allow you to keep on expanding your property portfolio.
Unless you’re knowledgeable in stocks, you’ll want to forego on this option because it’s too much of a gamble. While you can make an investment in a company like Apple and double your money in a few years, your stock picks may tank and your equity could vanish. The problem is – if you lose the money from you home equity line, it’ll take longer for you to finish paying down your mortgage (assuming that is even your goal).
Index Funds, ETFs and Mutual Funds
This option is less risky for those who are not familiar with investments and financial products. You can usually find an index or a mutual fund that averages a return of 3-8% a year. If you can beat the interest rate paid on your line of credit, your will end up ahead of the game. Your gain in this case may not be a lot, but it’s better than nothing and the interest on this loan, since it is for investment purposes, is tax deductable.
Life Insurance with Cash Growth Component
While a lot of life insurance products are scams, there are some decent ones out there. What you want to look for is a policy that has a cash growth component, meaning that the money you pay generates a return. There are also tax advantages to this option where you can defer taxes. With a good insurance company, you can generate a double digit annual return on your money (not including taxes), which could translate to about 7% including taxes.
How to calculate available equity:
Here’s how you can get a rough idea of how much equity you have available to you:
If you have a $100,000 house and $50,000 of it has been paid off, you have that $50,000 of equity to work with. A bank will typically lend you up to 80% of the value of your home. So with a home valued at $100,000 at 80% loan-to-value you’d be able to borrow $80,000. If your mortgage balance is only $50,000 you would be able to get a HELOC for the remaining $30,000. Some lenders also provide options to exceed 80% LTV allowing you to take out even more equity. With the basic scenario above, you’ve got $30,000 to work with.
How much will a line of equity cost you? The interest rate will depend on your credit history, for the most part as well as the loan to value ratio of the loan. The more equity you want to take out, the higher your rate. A 5% interest rate is a realistic number.
A word of CAUTION:
Remember, whatever you do, you’ll have to pay that money back to the bank. So make sure that your investments are either very safe or you really know what you’re doing. Otherwise, if you can’t make your mortgage and HELOC payments, the bank will come after you and your other assets.
Be smart and put your equity to work to earn a greater return.
Friday, April 9th, 2010
Tax season is here and the deadline is fast approaching. If you’re a landlord, there are several tax deductions you may qualify for. Nolo.com has a great article on how you can keep some cash in your pocket this tax season.
Here’s a list of 10 deductions landlords should take a look at:
1. Loan interest
4. Local travel
5. Long distance travel
6. Home office
7. Employees and independent contractors
8. Casualty and theft losses
10. Legal and professional services
I am sure you’ll agree it’s better to keep your hard earned money in your pocket than let it go to the IRS. To learn more about each of these deductions, take a look at the original article:
NOLO: Top Ten Deductions for Landlords
Wednesday, March 31st, 2010
Ever wonder what would happen if you were to double a penny each day for a month? By the end of the month, you’d be a multi-millionaire with $5,368,709 in your pocket. That’s the power of compounding.
I got into the topic of compounding in the Amortization Schedule article, which talked about how much interest you’re really paying on your loans. This article will focus on difference between APR (annual percentage rate) and APY (annual percentage yield).
The main different between the two is compounding. APR stand for annual percentage rate and does not include compounding. APY stand for annual percentage yield, and does include compounding.
A Simple Example
If you pay 1% interest every month on a loan or a credit card, your annual percentage rate (APR) will be:
- Tnumber of periods per year multiplied by the rate, so 12 x 1% = 12%.
Calculating APR is pretty straight forward. However, this does not include the fact that you’re paying interest on top of previous interest after the initial month. That’s where the annual percentage yield (APY) comes in.
APY’s calculation is a bit more complicated:
- APY = (1 + interest rate) # of periods - 1
You can use Excel spreadsheet or a financial calculator to calculate the APY. There are also websites that will help you convert one rate into the other.
For the above example, the APY would come out to 12.68% when calculated, which is 0.68% higher than the APR. The higher the rate or number of compounding periods per year, the greater the difference between APR and APY.
Borrower vs. Lender
As a borrower, you are looking for the lowest interest rate possible, whether it is for a credit card or a mortgage. When you do look around for interest rates, you need to be looking at the right one. APR will be the lower interest rate out of the two, however, it is the APY that you’ll really be paying. Some financial institutions may advertise the lower APR rate to get you interested, and then mention the APY in their fine print. This is something you need to be on the lookout for.
As a lender, you want just the opposite – a higher interest rate on your investment. Here is where the bank may quote you the APY instead of the APR since it works in their favor when you are the lender. With interest bearing investments such as GICs, the compounding period plays a role in the actual return you’ll earn on your money.
The Bottom Line
While the difference between these two terms may not be drastic, it can add up over time, especially if you’re talking about large sums of money. Remember that by law, US banks and financial institutions are required to disclose both of APR and APY when you do any type business with them. But, it’s up to you to know the difference between the two.
Monday, March 15th, 2010
Renting out properties can be exciting. Not only can you get an additional revenue stream, but you can also build up a solid rental portfolio, just like in the good old game of monopoly.
While there are many aspects to becoming a successful landlord, today I’d like to focus on legal protection and why you should consider setting up your rental properties as a Limited Liability Company (LLC) if you operate in the United States.
Your rental property is a business and should be treated as such. It has customers (your tenants), revenue (monthly rents) and expenses (insurance, taxes, utilities, etc). You, the landlord, are the CEO of your business.
Let’s do a brief overview of terminology. There are four main ways to set up a business: sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). For the first two, you are your business. It is in your name and any liability falls on you and your personal assets (your house, your car, etc). The latter two separate you from your business, and set it up as a separate entity.
The reason why you should consider the LLC structure is because it’s a hybrid between a corporation and a sole proprietorship. It gives you the best of both worlds, so to say.
When it comes to managing your rentals, using an LLC is better than a corporation because it limits the amount of paperwork and hassle. With corporation, you must have a board of directors, hold shareholder meetings, and file minute meetings. With an LLC, you can have just one owner but still receive the limited liability benefit of a corporation.
With an LLC, you get to choose whether you want to be taxed as a proprietorship or a corporation. This gives you the benefit of pass-through taxation. A corporation gets taxed on two levels. It has to pay taxes on its revenues, and then when it pays dividends to its shareholders, those dividends are taxed at the personal level as well. With an LLC, you can avoid this double-taxation.
A Limited Liability Company is better than a sole proprietorship because it limits clams to assets owned by the LLC in case of litigation. This protects your personal assets in the case you are sued in relation to your property. This protection is not perfect, though. Heatherman Law mentions, “If you were personally responsible for doing something, such as snow removal, and you didn’t do it, and that omission lead to an injury, you would still potentially be on the hook as the person responsible for that job, and not merely as the land owner.” So in some cases, your own assets may be at stake. However, having LLC protection is certainly better than having nothing at all.
Some things to consider:
- When you set up an LLC, it can own one or several properties, which is up to you. You may want to put each rental property under its own LLC. Then, in case of litigation, any damages will be limited to that property alone.
- Another important point brought up by Heatherman Law: most mortgages have a “due on sale” provision, which requires the mortgage to be paid off in full when the property is sold. You transferring ownership of your rental from yourself to the LLC is considered a sale. In this case, your mortgage holder has the right to ask you to pay off whatever was owed on the mortgage or you lose the property. It’s best to renegotiate with your mortgage broker if moving your property to an LLC structure to avoid any issues later on.
- Treat each of your LLCs as its own entity. Set up a separate bank account for each.
- If you’re the sole owner of the LLC, you don’t have to file separate tax returns for the LLC. It can be done via Schedule C on your personal tax returns.
- You may wish to have additional owners for each LLC which may further diversify any potential liability.
As you see, setting up your rental properties under a Limited Liability Company is a great way to go despite its flaws. The setup process is fairly quick and easy. It’s also relatively inexpensive. According to CostHelper, fees can range anywhere from $60-800. LegalZoom.com has some basic LLC packages for as low as $169.
When dealing with legal structures like an LLC, it is advisable to consult a lawyer who is knowledgeable in real estate. You want to make sure that you structure your LLC properly to ensure there are no problems which could come back to bite you later on.