There are many reasons why a person might want to know who the owner of a property is, but did you know that the owner of a property is a matter of public record? Every county in the United States has a property tax assessor whose job it is to establish a value for every single piece of property in their counties. The assessment will include assigning a value to the land and all of the structures on that land. If deemed appropriate by the county and the state in which that assessor is located, it is also the job of the assessor to collect the property taxes for the properties in that county for the county and also for the state.
As a result of the meticulous job assessors are charged with to both identify properties, assign value, assess taxes and collect the taxes, assessors must keep thorough records regarding who owns each parcel of property within a county. In some states, there are both county and city tax assessors. Cities collect taxes for their local government purposes, including police and fire departments, park upkeep and other infrastructure, etc. In order for assessors to know who is responsible for paying the property taxes on the parcels of property within their jurisdiction, it is imperative they know who owns the property.
So, if you want to know who owns a property, the local assessor in the city or county where that property is located will have that information and since this is tax collection information, it is a matter of public record. This means that anyone can have access to that information upon request.
These days, most assessors’ offices have interactive websites that make obtaining the information regarding the name of the owner of a property easy to achieve. In areas where the assessor does not have an official website with the information readily available, an interested person can either visit the assessor’s office and request the information in person, or can mail a request for the information. In some instances there is a charge for the assessor to provide the information, but in many cases information obtained via the internet is free.
Tenants should know what a landlord is not responsible for, and should act accordingly.
Local regulations differ widely nationwide, but there are some basic requirements of a landlord and there are some areas that leave a tenant vulnerable. Tenants should plan for, and cover themselves, for those things a landlord will not be responsible for, or they risk having losses that they will have to pay for out of their own funds.
1. Theft of a vehicle. A recent article on Heraldnet.com covers one such instance. A landlord is not responsible for a car stolen from the property. As a driver, you are required to carry insurance to cover accidents. In most states it is not necessary to carry vehicle loss insurance. However, if you do not cover your vehicle for theft and it is stolen from the property, you are personally responsible for that loss. Such a theft loss is not the responsibility of the landlord.
2. Theft of personal property inside the home. A landlord is not responsible for a tenant’s personal property, stolen from the home. Renters are wisely advised to purchase a renter’s policy to cover a theft of personal property. These policies are, generally speaking, affordable and they will give a tenant peace of mind. One of my properties has an alarm system that I installed when I was living there. I have had a number of subsequent tenants in that property, all of whom have elected not to activate the alarm system. While this is clearly a choice my tenants make voluntarily, since I have provided access to an alarm and it has not been activated by a tenant, my responsibility for any thefts at the home is greatly diminished. Tenants should especially consider purchasing renter’s insurance that includes valuables, if the renter intends to keep jewelry or collectibles on the premises. A landlord will only be responsible for a theft loss if the landlord is directly responsible for the theft, for example: When giving workers access to the property for repairs and failure to lock the door when leaving the property.
3. Flood damage of personal contents. A landlord is not responsible for damage caused by a flood to the personal contents of a tenant. This means that even if the landlord carries content coverage on a flood policy, that coverage will not cover a tenant’s possessions, should those be lost in a flood. Renters who purchase renter’s insurance will also be able to purchase flood damage coverage to cover their personal belongings, should there be a flood in the home.
4. A guest who experiences a personal injury. While most landlords carry personal liability coverage that covers losses in the case of the personal injury of a tenant or a guest at the property, this does not eliminate the liability of a tenant from being also named in a lawsuit or a claim for personal injury, especially if it can be shown that the tenant negligently contributed to the injury. For example, if the tenant personally places a large rock in a pathway where it can be tripped over. Renters should exercise caution when inviting guests to the home, but should also cover themselves in the event that a guest is injured on the property as a result of an act of theirs and not the landlord’s. Sadly, we currently live in a litigious society and forethought and protection from money judgments and lawsuits must be a part of what we consider when we make decisions about what we need.
These are just four reasons why a renter should consider purchasing renter’s insurance when renting a property. A landlord’s policy will simply not cover areas that a landlord is not responsible for and a renter must decide what losses he or she can comfortably afford and what losses to protect against.
Why what you buy is as important as where you buy.
So you’ve decided to buy a rental property and you are working with an agent to find that “right” property to purchase as a rental for others to live in. What makes a good rental? A lot of real estate agents appear to believe that distressed properties that they are not having much luck selling to others make good rental properties. Even when I worked as a licensed realtor in California, I would never have encouraged an investor to invest in distressed property for a rental, unless that investor was willing to restore the property to pristine condition after a thorough home inspection that identified all of the issues with the property and a commitment to restore and repair those as new.
Any work not done on a distressed property, has the potential to create a habitability problem for a renter which will cause a landlord numerous headaches. Habitability includes heat, ability to cook, hot water for showers and a leak-free, safe shelter, though most local municipalities add substantially to this list and a rental owner must know what the local regulations are before proceeding to list a home for rent. It has been my experience that one of the first major items that is neglected in a distressed home is the roof. Roofs run in the tens of thousands to replace and most owners of distressed homes find that they are unable to pay for the basic repairs and maintenance to a home, let alone a several thousand dollar roof. If a roof is leaking at all, a home is uninhabitable and the roof must be water tight in order for it to meet the habitability requirements of a rental.
Another neglected area of a distressed home is the electrical wiring. As homes age, the electrical wiring often needs updating and repair. Many distressed homeowners neglect the wiring in their homes or can be unaware that there is even an issue with wiring. I purchased a three-floor, Victorian home where the third floor had not been used or lived in for decades. In fact, it had been sealed off to preserve the heat on the bottom two floors. When I opened it up to reveal the most beautiful rooms with authentic, Victorian wood details, I had to remove the old knob and tube wiring in order to make the third floor safe for habitability. The wiring problems were only apparent when we removed the old lathe and plaster (which was falling off the walls in chunks). The rest of the house had been rewired, but since the previous owners had no intention of using the third floor, they had not bothered to remove the old wiring and rewire that floor. Had I not engaged in the renovation of the third floor and left it sealed up, I may never have become aware of the old wiring issues on that floor of the home. Even though it may have been attractive to have tenants on that floor, without engaging in a proper restoration and removal of potentially dangerous conditions, it would have been irresponsible to have anyone residing in that portion of the house, even a family member.
These are just two examples of why purchasing a distressed home for a rental may actually be inadvisable. I sympathize with real estate agents who struggle to sell distressed homes, but they do not make suitable rentals unless the investor is willing to invest all of the money necessary to make the home completely habitable. It should also be a concern for an investor that even if a home is brought to code for habitability according to local regulations, parts of the home may become uninhabitable within a very short period of time after the tenant is permitted to move into the home, simply because of the age of the home and the lower urgency of those particular repairs. While the local government has regulations describing what constitutes a habitable home and those do protect tenants, rental income real estate investors should make sure that they always have the financial ability to maintain and repair a home within those regulations. That financial ability can become more challenging when a home is purchased with existing repair needs.
So, here is my list of what to do to make it easier for you to purchase a great rental property:
Enlist the services of a real estate agent who understands what your financial ability to pay for repairs now and in the near future truly is.
Be very clear about what repairs you are willing to make and what repairs you are not willing to make. While a distressed home may seem like a great deal, the longer it takes to repair the longer it will be before you can generate income and, even after the home is generating income, it is more likely that a larger percentage of that income will have to be set aside each month in order for an owner to anticipate and pay for repairs that will need to be made.
If you cannot afford a home in your “preferred” neighborhood, try the neighborhood next door (assuming it also meets the “best places to invest” criteria, of course). A great real estate agent will never allow you to be narrow-mindedly specific about a neighborhood in which you should purchase a rental property, but will go over the pros and cons of investing in a general geographic area. This will help you find the best rental home your money can buy for the best rental return you can expect to achieve and without the headaches associated with major repair costs.
If you are not a contractor, a lack of contractor knowledge can make a distressed home a money pit, rather than an income-generating investment. So, if you are still determined to purchase a distressed property, engage the services of a trusted contractor who can give you realistic and practical estimates for the necessary repair work to the property. Don’t allow the contractor to suggest cutting corners. Most reputable contractors will not allow you to do this, but investors are sometimes so concerned with the cost of repairs that they will ask a contractor if there are short-cuts to the repair issues. Don’t ask. In fact, someone without a construction background of any kind is well-advised to avoid a “fixer-upper,” in the first place.
Buy the most house you can for the dollars you have and be willing to make minor repairs to bring the home up to code and fully habitable. Your tenants will appreciate a clean and safe home. One of the biggest errors a landlord can make is assuming that if the rent is low, a tenant will be willing to live in less-than-favorable conditions. This is not only short-sighted, it is illegal and can lead to a landlord being cited by the local authorities. If a home is cited by local authorities, the tenant may be asked to vacate the property, engage in repairs to the property at the cost of the rental income, or be due monies from the landlord. None of these situations is consistent with rental income property investment goals and should be avoided at all costs.
Always keep in mind that your rental property is your tenant’s home. Yes, it is true that some tenants abuse rental homes and damage them without concern for the cost to the landlord, but if a landlord or property manager has done his or her due diligence with regard to tenant screening, then it is safe to assume that most tenants want a comfortable, clean and safe home for themselves and their families. We tend to have an emotional attachment to that place we call home and we deserve that place to be safe and secure. Great landlords can achieve long-term, tenant retention and timely rent payments by providing a home for a tenant, rather than simply a roof overhead (especially if that roof is leaky!)
The recent Hurricane Irene flooded one of my rental properties. Despite our best efforts to prepare, and all of the efforts of my tenants, the Sandy Hook Bay rose approximately one foot into the home. There was plenty of despair to go around. My tenants have lost their home (temporarily) and I have investment losses. The losses do not compare to the relationships I have come to learn are really important.
As a property manager, during the years, I have had the opportunity to foster good relationships with various contractors. The obviously necessary ones: a great plumber named Al Quackenbush, a great electrician, named Steve Douglas; a super dependable and fair demolition and hauling company called Jersey Shore Hauling; and, my buddy at AT Heating and Cooling. I also have worked to foster a level of trust and honesty with my tenants. My tenants know that if there are issues with the home, I can be depended upon to rectify them and see to them promptly.
Have you ever walked into a flooded home? It’s pretty depressing. The city where the home was located was under evacuation orders, so our tenants were safely removed from the home before the flood. I was in constant communication with them and told them that if evacuation orders were given, I urged them to comply. After the flooding receded we went over to the home to assess the damage. Some furniture losses for my tenant and some more significant losses to the home. I was faced with how to rectify the issues to give my tenants back their home, or face losing a two-year lease tenant. We had to wait till the power was turned back on to evaluate what could be recovered and what was lost.
Not being all that familiar with flood issues, I called a company who stakes its reputation on a slogan of making restorations to the home “as though it never even happened.” Mine was not the only home affected in this way. The company was very backed up and wouldn’t make it out to even take a look for several days. Concerns over mold and bacteria growth began to nag at me. I needed to get action on the home immediately. I made a few more phone calls. All the dry-out, restoration companies were swamped with appointments several days out. I’m simply not that easily defeated.
I called Jersey Shore Hauling. We’ve had a positive, ongoing relationship for several years. Frank told me that he could see the home right away and start demolition the next day…and he did. Even though there were a few surprises, he and his crew worked liked crazy and got the damaged drywall, wet insulation and all the damaged cabinetry out of the home in a single day. It was two dumpster’s worth. The same day, Juan of AT Heating and Cooling was out at the home looking at the air-conditioning unit, which sadly could not be recovered, but together we figured out a strategy to raise the new condenser by two feet and a day when the old one would be removed so that I could begin building a raised slab.
Al Quackenbush, my plumber, not only replaced a lost water heater in the basement of my own home when the power went out during the Hurricane, rendering the sump pump useless, but the same day he went over to the rental property and assessed the boiler and the water heater. Thankfully, they are fine.
While out at the property, I ran into a neighbor who is also a licensed contractor. I offered him to bid on the property repairs and he was pleased to work with me. He sees my vision and is practical. He will have a crew there the day after Labor Day to start the washing and cleaning process and then we will fully dry the house out, make framing repairs and replacements, install the new insulation and then start putting back up the new drywall. The big advantage to using this contractor is that he lives two doors down. He can monitor the job and be very “hands on.”
Today, I ordered replacement kitchen cabinets made of solid wood from www.greendemolitions.com. They recycle entire kitchens when homeowners decide they want a change or kitchen displays are renewed by kitchen remodeling companies. I also ordered waterproof, mold and mildew resistant insulation called Prodex, the best product I know of for insulation, which I get from www.insulation4less.com. It’s cost effective, has a high R-rating for its insulating properties and if the home should ever flood again, it can be dried, rather than removed, but should it need to be replaced, its reasonable cost makes even replacement affordable.
As things stand now, my tenants are extremely happy with my prompt response and are complimenting me as a landlord They are excited to move back into their home as soon as it is once again habitable. Compliments aside, this is what I do and this is what makes me a first-class property manager. I problem solve and I am relentless until the job is complete. I never lose sight of the fact that the house I am renting out is my tenants’ home a well as an owner’s investment; both aspects are vitally important to the success of my business.
In a crisis, the relationships you have fostered with real people, be they tenants, contractors or owners, will serve to ensure that your company’s property management reputation shines. Taking the time to build those relationships in a positive and productive way in ordinary times will serve your company really well when it really matters.
Do your tenants know how to operate the dishwasher? Do your tenants know where the circuit breakers are? Do your tenants know who to call in an emergency? Do your tenants know what days to put the trash out?
These and many other questions can be answered by referring to a Home Handbook that you maintain on the home, and which is given to a tenant upon move-in. Newly acquired tenants generally have lots of questions when they move into a property and property managers must answer many of the same questions, repeatedly, with each new tenant. Not all of these questions come up during the walk-through and property managers tend to field a lot of new tenant questions about “how to” and “what if” more than actual service, maintenance and rent payment issues.
In order to alleviate this, a few years ago I prepared a Home Handbook for each rental property. If you have been a diligent manager or home owner, you likely already have most of the items that will go into this handbook. My handbooks are large binders with plastic sleeves inside so that I can easily change the contents as the information changes. These are the items I place into the binder:
Appliance Manuals. Appliance manuals fit neatly into the plastic sleeves. If the manuals are only available online (a practice being followed by some appliance manufacturers) I print it out so that I have a hard copy. If you rely upon your tenant to refer to an online manual, you might be erring. Giving your tenants access to the operation manuals for each of the appliances in the rental unit will likely save a service call or the need for you to demonstrate how to use the appliance. It will also help to alleviate any misuse damage, for example: if you have a high-efficiency washing machine and it requires the use of high-efficiency detergent. If any of the appliances are still under warranty, a copy of the warranty information should be in the handbook. This will be useful when the appliance needs to be repaired under warranty. Having a copy of the warranty at the home means that the tenant has it on hand when the repair professional makes an appointment to undertake the repair or when the property manager needs to meet the repair professional at the property to supervise the repair.
Emergency Phone Numbers. I generally place a list of emergency phone numbers in the very front of the home handbook. Besides the obvious 911, the list includes the local police department phone number, the fire department, the nearest hospital and of course, my 24 hour phone number.
City Policies. If there is a curfew policy in your city, it’s a good idea to tell the tenant. Other policies that may require your tenant to behave in particular ways should be written in the home handbook, for example: if there is a policy regarding noise after certain hours; parking restrictions; traffic ordinances peculiar to your city, etc.
City Council Information. Even tenant residents of a city are entitled to representation by their local city council and a voice in what happens in their community. Knowing who is who in the local city council and when meetings are held is information a tenant should have. People who feel that their issues are of concern to their local legislators feel more connected to the community in which they live and become positive partners for the betterment of neighborhoods. Encouraging your tenants to become involved in the local community is a good idea.
Rent Payment Options. I always add a page into the handbook with the rent payment options available to my tenants. This includes: a way they can pay their rent directly into the bank account by walking a payment into the bank; the address to where payments can be mailed, and the forms of payment that I will take.
Trash Pick Up Procedures and Policies. Does the city recycle? Do they use separating bins? What is the pickup schedule? What is the policy with regards to bulk pickup and yard waste? The answer to all of these questions should be in the home handbook. Even if you go over this as part of your move-in/getting acquainted walk-through, expecting a tenant to remember all of these policies is unrealistic and having the information handy is one less phone call a tenant has to make.
Approved vendors for repairs and maintenance. If you have a policy that tenants can call service or maintenance companies directly, the numbers of those approved service people should be in the handbook. If you prefer the tenant call you first, then add a page in the handbook that directs a tenant to call you if there are maintenance or repair issues that need to be taken care of. I also add the same text that is in my lease which says that the tenant may not repair or engage the services of any repair professionals without my prior consent.
There are lots of useful items you can put into your home handbook, but do not forget to have your tenants sign for their receipt of the book. Also, do not forget to make sure that a tenant who is moving does not accidentally pack it with other belongings when moving out. The book should always stay with the home and be updated on a regular basis.
Finally, make the first page your welcome page. Welcome your new tenant to the property and let the tenant know you are happy the tenant decided to rent your home or the home you mange. There is nothing more heartwarming than moving into a new home, sitting down to read the home manual and being greeted with a warm welcome when you turn to the first page.
Yes, I have used them. As to whether or not they have actually worked. I am not so sure. If you are going to use move-in incentives, here is my best advice:
Move-in rent reductions. A lot of property owners and managers reduce the first month’s rent as a move-in incentive. I don’t think this is a wise idea. I do not care for the rent reduction incentive, especially if it occurs at the beginning of the lease period. It can send an unintended message to a tenant that you can afford to not receive the full amount of rent under a lease. By sending that message, a tenant may be more likely to approach you for a reduction or release from rental amounts owing later in the lease period. A wiser strategy might be to offer a final rent payment reduction, but this is not likely to encourage a tenant to move into a home.
Gift Certificates. I have used this strategy with limited success. Instead of a rent reduction of say $100, I have given a local grocery supermarket gift certificate, in that amount, as a move-in incentive. I am not convinced it made my property more attractive to move into. I still firmly believe that renting a home, like buying a home, is an emotional decision, based less on price than on how one feels about the layout and offerings of the home. Nevertheless, in a rental market where there are an abundance of available and vacant properties, a move-in grocery gift certificate could tip the scales in favor of your home. I would also consider offering a Home Depot or Lowe’s certificate, or a Bed Bath and Beyond one. Even a restaurant certificate would work in this instance, but I still do not truly believe a move-in incentive, even this one, would cinch the deal if the property is not appealing in the first place.
Rental Negotiation. Being wiling to negotiate the rental rate to lower than is advertised in the listing is probably the most effective move-in incentive. In a market where most rents are priced approximately the same, offering a small, negotiated reduction in order to close the deal makes sense. To renters, $25 to $50 per month represents a large annual savings. Being willing to negotiate can lead to a completed application on the spot, rather than the experience of the tenant leaving to look at other properties, sometimes never returning.
Upgrades to the property. If you were planning to upgrade anyway, this is a good strategy to let a prospective tenant know that you care about the property and that you will be responsible when it comes to maintaining it. It also lets the tenant know that you expect the tenant to take care of the upkeep of the property. If other properties in the area are being updated, you may not attract as many tenants to your property if it is looking outdated and in need of sprucing up. Letting a tenant know that you will be charging the same rent, but would like to upgrade various items while the tenant is occupying the property can help to keep the rental income flowing as you make the repairs. Never promise to make repairs or upgrades you have no intention of making. Make a list of what you will be doing to the property and ask the tenant to sign a copy of the list. This does not apply to items that you are obligated to repair for habitability of the property. Those are legally required before a tenant can move in, or as soon as possible when you become aware of them, after the property is occupied, so check your local ordinances carefully.
Lease Renewal Incentive. This is probably the best tool for property owners, landlords and property managers. Offering a lease renewal incentive ensures an ongoing tenant and a lower risk of vacancy. Any one of the above incentives can work to encourage a lease renewal. Offering a lease renewal bonus of $50 or $100 is common. Again, I don’t care for the rent reduction incentive, but a refund check after the first rent payment under the new lease, or a gift certificate, are great ways to avoid giving the appearance of not requiring full rent payments, while rewarding the tenants you want to keep.
Despite the tools available and the popularity of move-in incentives, I personally have had mixed results when using them. For the most part, they are neither expected, nor required by tenants and occasionally, have had the effect of making a landlord seem somewhat cavalier about rent collection. So, if you are considering this approach, use it carefully and wisely and really get to know the market in which you are renting out properties.
When considering any rental property for purchase, part of that consideration is how soon you can start generating income, and how much of a return on the money you put into the property are you going to get. Short sales often appear to be bargains. The bank or mortgagor is willing to walk away from the property for less than what is owed and the owner of the property needs to get out from under the mortgage. Besides the bargain price, there are a number of considerations that go into the decision to purchase a short-sale property for a rental income:
How much time do you have? Typically, short sales can take three to six months from acceptance of the offer price to closing of the sale. Hiring a realtor who is experienced in short sales is important, because often the mortgagor on the property will have a tendency to move the file on the property through different departments for review. An experienced realtor who has dealt with short sales knows that it is important to establish at each stage which department the file has been transferred to, and who to contact for a follow up. Nevertheless, these transactions usually move very slowly and file review takes months. A buyer cannot expect to own the property for several months and therefore cannot expect to be able to move a tenant in during that time.
Do you want a move-in ready property? Many short sales properties suffer from the reality that not only did the owner not have sufficient money to pay the mortgage, but the owner also did not have any extra money for maintenance, repairs and upkeep on the property. I once represented a buyer of a short sale property where the owner had begun extensive remodeling of the property and then lost her job. She was unable to complete the remodeling projects and thus any offer my buyer made had to take into account that the remodeling projects left undone would need to be completed before she could move in. The same would go for a property one intends to rent to a tenant. Landlords have a legal obligation to provide a habitable property as defined by local and state ordinances. Any issues with the property will be the responsibility of the buyer as short sales are generally sold “as is” without a single credit for repairs, nor are any made prior to the closing of the sale, regardless of habitability. Short sales are typically not move-in ready, so added to the time considerations of how long it will take to own the property, one has to consider the additional time it will take to undertake the repairs to the property, before it can be rented. Between the time it takes to own the property and the time it takes to undertake necessary repairs, it could be close to twelve months, or more, before a buyer can realize any rental income on the property.
Are you willing to pay the original amount of property taxes? Even though a short sale property sells for less than the market value, most property tax rates are based on the market value of the property. So, once you close on the property and you have undertaken the necessary repairs to make it habitable, you will pay the market value of the property in property taxes as determined by the local assessor’s agency. Once you get that first property tax bill, the bargain of the purchase price may not seem like such a bargain if the property is located in a high property tax, or high property value area.
Can you set aside enough money to make necessary repairs? As mentioned above, if the property is not move-in ready (and most short sales are not), you will need to set aside enough money to make necessary repairs. When considering the cost of the short sale, you must also add in the cost of repairs to the property. For the purposes of a rental property, adding in the cost of currently necessary repairs may not be sufficient. A property inspection may reveal future, necessary repairs. As I have previously stated, I believe that the purchase of real estate for rental income purposes (and many other purposes) should be undertaken with a ten-year plan to hold the property. So, apart from the immediate repair issues, one should also consider long-term repair projects like roof replacement, furnace and water heater replacements and appliance replacements. Painting of the exterior should also be considered in this plan. When calculating what the rental income will be, one should consider what portion of collected rents should be set aside in a capital improvement account for the long-term repairs of the property. Short sales with deferred maintenance may need sooner capital improvements, due to long-term, general neglect.
Are you willing to defend a legal action? In the current climate, some banks have been accused of acting improperly in their short sales and foreclosures. This could expose a buyer of these properties to legal action. A very careful review of all the paperwork in a short sale is critical to protect the buyer from legal action. It is a good idea to hire an experienced real estate attorney to review the legal paperwork, if an attorney for a real estate transaction is not required in your jurisdiction. Legal fees charged by such an attorney should be considered in your calculations of the cost of the property. Nevertheless, even if you do not have legal exposure, this does not mean that you cannot be sued and that you will not be required to defend your purchase. It may merely mean that you will prevail, but you will still likely have to hire an attorney to defend your position and that can be costly. The potential for this should be weighed against the savings you will be realizing in the short sale purchase. Purchasing a short-sale from a mortgagor who has a solid and dependable reputation for legally reliable transactions is important. So, take some time to research the mortgagor’s reputation in these types of transactions, before making your offer.
Some bargains truly are bargains. Some bargains have the potential to become money pits. Taking a little time to thoroughly research the parties and the real costs involved in a short sale, before committing to the purchase, can ensure that your purchase choice is the right one for you.
A recent online article by CNN Money lists their pick for the 10 best cities to buy a rental income property. As I read through the list I was astounded by the cities listed. I, personally, would not even consider purchasing rental income properties in most of the listed cities. I wondered if I was alone in my very strong reaction to the article, so I read the comments and found myself agreeing with the many who had taken the time to comment. I believe that the cities listed pose glaring risks for me.
Reconsidering what I said in an earlier article about what is possibly the single most important driving factor for my own purchases of rental income property, I stated: “Buy in neighborhoods where there are opportunities for jobs.” Astoundingly, CNN Money lists several cities with rampant unemployment and few near-term job growth prospects for those who are unemployed. In the article, CNN Money also shows the projected home price for 2014, and in most of the areas listed there is also an expected projected further decline in property values.
I want the properties I buy to increase in value, over time. I want my rentals to rise with inflation. I want people to have the ability to rent my homes. I want renters to choose my homes because of the neighborhoods in which they are located. The availability of jobs is more likely to drive people to move into an area; whereas the lack of jobs is likely to drive people to move out in droves. Growth areas, even if the growth is positive but small, yet constantly rising, are preferable to me than depressed areas that are stagnating or on the decline. Though properties in declining areas are attractive for their lower prices, they are unattractive to me for a host of other reasons besides that the rents are generally lower too.
And what does it mean for a landlord or a property manager who is hired to manage properties in distressed areas?
1. Difficulty collecting rents. Sometimes. It has been my experience that even tenants with less than stellar credit pay their rent first. Most people desperately desire a roof over their heads and do not want to be homeless. Despite a tenant being very motivated to pay the rent, rents are more likely to be late or partial when the tenant falls on hard times. A tenant who pays the rent, even if it is received a few days or even a week late is often preferable to a vacant house in a depressed area. Sometimes, this leads to tenants availing themselves of the opportunity to stay just inside the law, which can be an administrative headache for a landlord or manager. Owners would prefer occupied properties without vacancies of any time at all and a paying (even late paying) tenant is usually better than even a single month’s vacancy. This can lead to some extended hand holding of a tenant and a lot of frustration for the property manager.
2. Difficulty attracting good tenants to the area. Depressed areas are more likely to have longer vacancies and extended vacant homes pending foreclosure. Many banks who own vacant foreclosed properties, fail to maintain them as a result of the additional costs involved and they are often easy to spot in a neighborhood by the fact that the lawn has not been mowed in a while, the trash has not been removed, exterior repairs have not been made, etc. For managers who are managing in a depressed area, showing people an available rental home becomes challenging. Even if the home itself is impeccable, if the properties around it are unattractive, good tenants will simply not want to move there. In areas where unemployment is rising and there are continued job losses, tenants may struggle to pay rents.
3. Difficulty collecting sufficient rent to cover the property expenses. With depressed areas usually come reduced rents, at least for the near term while things begin to stabilize, even if they stabilize at the bottom of a downtrend. This can sometimes mean that the amount of rent a property manager is able to collect may be lower than what is needed for upkeep and repairs to the rental property and to cover other expenses, such as insurance (please tell me you insure your rental income properties), taxes and utilities. This will mean an out of pocket expense for the owner. Managers who are working diligently to meet their owners’ needs may find themselves caught between the frustration of the owner and a general market rent that is unsatisfying to the owner’s investment goals.
Professional and experienced property managers are able to overcome the obstacles presented by managing properties in distressed areas and are honest and forthright with their property owner clients when explaining the challenges and setting realistic expectations for what is is possible to collect in rents. Great property managers also remember that economic circumstances beyond their control can make for stressed tenants and stressed owners, both of whom may need their sound advice with respect to what is possible, over what might be unrealistically expected.
Why landlords should consider hiring property managers.
By: Eveline H. Brownstein (c)
In a previous article I wrote about how to decide what rental homes to buy, I said:
Don’t be afraid to buy in affordable areas outside of the state you live in. Conventional wisdom has always been that if you are going to buy property for rental income, you should live nearby. This does not take into account the fact that the best places to buy may not be in your neighborhood, or even in your county. They may indeed be in another state. Of course it is unrealistic to expect you to manage a property from a distance, but that’s where really good property managers can be your best tool for getting the most out of your rental.
Despite the sound advice in this writing, problems can arise when those who buy rental income real estate elect to follow the first piece of this advice and dismiss the second. It is important that anyone who follows the advice to look for lucrative rental income opportunities outside of the area in which they live, also follows my advice to hire a local property manager to manage the property.
The first critical part is, that if you are considering an out-of-area rental income property and after running the numbers you realize that you will not have sufficient income from it to hire a property manager, then I believe it is unwise to purchase the property. Property managers typically charge around 10% of the rental income as a management fee, though there are areas of the country where a flat fee is charged after a certain maximum rental is reached, and others where managers will work with you to give you a “bulk break” if you have more than one property. In a prior writing I emphasized the need to carefully calculate what your costs will be. Factoring in the cost of property management for a property when it is unwise for you to manage it yourself, such as in the case of an out of area property, is an essential part of those calculations.
There are significant risks to a property owner if that property is not carefully managed and the greatest is with those properties where the landlord is absent. Here are some of the more common risks:
Never meeting the prospective tenant. Despite all of the best background checks that might be done, there are risks when a landlord is unable to meet a prospective tenant face-to-face. Many people can look great on paper, but how do you know for certain that the paperwork they give you indeed belongs to them? Being able to check some things in person, like drivers’ licenses or other identity documents, is a more reliable way to know that the person who is renting your property is who they say they are. Landlords who manage from a distance risk not knowing the veracity of the person who has applied for tenancy and is more limited in their ability to verify the information presented. Additionally, it is more difficult for landlords who are absent from the area to conduct in-person tours of the property, or do a move-in checklist of the property’s condition, so that damages to which the security deposit can be applied are noted. A landlord will not know that damages were done by a tenant, if the landlord is not certain of the condition of the property when the tenant moved in.
Lawsuits. A poorly managed property that does not meet the legal standards of being fit for tenancy, or one that is managed without careful regard for the legal rights of the tenant, can cause the property owner to be sued. A lawsuit such as the one filed by Montrose, Texas tenant, Mark Kaufman against Harvey Horowitz of California can have devastating financial consequences for a property owner and could easily equal more than the sum total of any property management fees that the landlord would have had to pay to have the property managed by a local, competent management company.
Destruction of property. Some comfort resides in tenants who know an owner is not going to just drive by and check on their property. In one case in Asia, the “trusted” tenants removed the entire house, brick-by-brick and the landlord was left with nothing but an empty lot. The neighbors were apparently not concerned, figuring that the tenant had the landlord’s permission to remove the house. This is clearly an extreme case of property destruction, but nevertheless, a landlord cannot rely on the vigilance of neighbors to ensure that a property is being properly cared for by a tenant.
Failure to maintain the home. Those areas of the home that are the tenants’ responsibility to maintain could be neglected if a landlord is not present to ensure that they are undertaken responsibly. Simple matters like mowing the lawn or removing snow, which are designated in the lease as responsibilities of the tenant, may be neglected or not undertaken properly. An absentee landlord will not know that these issues are not being taken care of, if the landlord is unaware of them because the landlord is not able to inspect the property.
Failure to hire competent repair professionals. Absentee landlords are less likely to know who might be the best local professionals to handle repairs and maintenance on their properties. Local managers, who are diligent about how they conduct their business on your behalf, make it their business to know who to hire for repairs and who can be trusted to make proper and guaranteed repairs to your rental home, so that your investment in it is secure.
Delays in making repairs or taking care of maintenance. Landlords who are not nearby the property they own may necessarily delay needed repairs or maintenance as they investigate who they might hire, get referrals and quotes, and make arrangements for the repair person to meet the tenant at the property. Successful property management companies make sure they keep copies of the keys to the property and make legal arrangements to enter it so that the repairs can be made, even if the tenant is not available to facilitate access to the property.
Lease Violations. Landlords who are not able to regularly inspect or drive by the properties that they own will likely not become aware of some rather serious lease violations, for example: if the tenant acquires a pet that is not permitted in the terms of the lease; if the tenant moves additional people into the home or sublets it without permission; or, if the tenant engages in a business out of the premises which is not permitted under the terms of the lease.
Delayed necessary evictions. A landlord who manages from a distance will find it difficult, if not impossible, to evict a tenant who is not in legal compliance with the lease. Finding a local attorney to take care of the situation will likely cost more than if a local manager handled the process, because the attorney will be required to hire people to undertake the more simple tasks, like serving the paperwork and monitoring the eviction. While an attorney is generally necessary for the filing of the paperwork and for making sure that all aspects of the eviction are in compliance with applicable law, there are, nevertheless, certain aspects of the eviction process that a manager can handle. These aspects vary from state-to-state, but may include: serving the initial paperwork to let the tenant know that the tenant is not in compliance with the lease; ensuring that all deadlines for compliance are met, and in some cases even taking care of removing an evicted tenants belongings from the property timely, so that it can be rented out promptly. It is usually financially impractical for an absentee landlord to make the many trips that may be required to complete the eviction process timely and with minimal delay. Delayed necessary evictions not only cost money as a result of the process involved, but generally also come with a loss of rents that could have been minimized had they been carried out timely.
These represent just a few of the risks that landlords who choose to manage properties from a distance may be confronted with, and why it makes sense for any out-of-area landlord to rather spend the time more wisely, that is: in pursuit of a competent property manager who is properly qualified to manage residential properties, and who diligently monitors the actions of any tenants who are permitted to rent the property.
The property owner is, of course. It is the responsibility of the Property Management Company to always make decisions in the best interest of the owner of the managed property. A critical part of this is to ensure that the property is legally compliant with all local tenant/landlord laws. Tenants have rights and property managers must protect their property owners by ensuring that they comply with those legal rights at all times. A property manager should engage in ongoing real estate education to keep up to date with changing legislation.
A good property management company will be helpful to the tenants wherever it can, but it must beware of letting go of its business goals in favor of its manager/tenant relationship. Renters are not your customers. Renters are the customers of the property owner and you are obligated to secure good tenant-customers for your owner-customers. Sometimes, in an admirable effort to reduce vacancies and keep tenants happy, property managers inadvertently closely guard their friendly relationship with a tenant and become hesitant to protect the property owner. On those occasions these undesirable situations may occur:
Violations of lease provisions (sometimes because the manager mistakenly believes it is minor in a bigger picture)
Delaying rent collection
Delaying enforcing lease provisions relating to tenant upkeep of the property
Delaying beginning a necessary eviction process
Overspending on repairs
Undertaking unnecessary repairs or items of a merely cosmetic nature
Permitting a tenant to choose a repair professional
Permitting a tenant to undertake repairs to the property
Trusting a prospective tenant’s statements about their background or credit, over proper checks of their credit and background
Property managers owe a legal and fiduciary duty to their property owner clients. Property owners owe a legal obligation to their tenants. Property managers are the agents entrusted with that legal obligation, and if they are diligent in their legal and fiduciary duty to their property owners, they will also be effective in helping to manage their owners’ legal obligations to the tenants.
Owners should hire well-qualified property managers so as to minimize their legal exposure. Property managers should always know and follow local regulations and laws regarding tenants, and regarding their legal, fiduciary duty to their property owners. Owners are paying property managers for their services. Therefore, property owners are the clients of the property manager. Tenants are paying the owners. Therefore, tenants are the clients of the property owner.
person might want to know who the owner of a property is, but did you know that the owner of a property is a matter of public record? Every county in the United States has a property tax assessor whose job it is to establish a value for every single piece of property in their counties. The assessment will include assigning a value to the land and all of the structures on that land. If deemed appropriate by the county and the state in which that assessor is located, it is also the job of the assessor to collect the property taxes for the properties in that county for the county and also for the state.
