property manager

Looking for a Property Manager ? 16 Questions to Ask, Final Installment13-16

When do you typically pay landlords the rents collected?

Why is this important? Remember that the property manager has a fiduciary duty to manage your money. Knowing how long the manager waits between collecting rents and giving them over to you helps with your own business budgeting (because owning rental income properties is a business). Don’t schedule to pay a bill on the 5^th of the month if the collected rents will only be available in your account on the 10^th. Also, beware any manager who holds onto the rents longer than is truly necessary. Typically rents should be paid to you before the 10^th business day of the month.

How do you pay rents collected?

Why is this important? It is infinitely more efficient and faster to have rents direct deposited into your bank account, than it is to have to wait for a check. However, the answer to this question will let you know if the method you wish to conduct your business is even available to you. Some managers may not send out checks, doing everything electronically and you may prefer a check. In addition, some methods of payment may incur a “service fee” which you will need to budget for and which you will definitely want to know, up front when you are still comparing your property manager options.

How do you handle tenant emergencies?

Why is this important? Income property owners need the dependability of long-term tenants in their properties. Each time a property is vacant, that represents lost income for the duration of the vacancy. Property managers who handle tenant emergencies well and who have access to repair people who can make emergency repairs as well as normally occurring ones timely and pleasantly are more likely to attract and keep the types of tenants an income property owner needs. It is important that any property manager you hire knows that there is a correlation between how responsive the manager is to the tenant when there are issues at the property and how likely the tenant is to renew a lease.

What is the eviction process in this state for tenants who don’t pay their rent and how long does it take to evict a non-paying tenant?

Why is this important. No matter how great your property manager is, or even how great you are as an income property owner, evictions will happen. They are greatly minimized with an excellent property manager, but even the best of managers cannot predict life events that sadly may put a tenant into a situation where rental payments are not made. It is good for your business planning to know the eviction process occurs and how long it might take from the date eviction proceedings are started, till the property is returned to you so it can be rented out again. Unfortunately, in some states, the eviction process is very lengthy and a tenant can stay in a property for up to a year, without making a single rent payment. Knowing this, lets you plan for perhaps needing to make mortgage payments and property tax payments from your own funds, instead of rental income funds, for the duration of the eviction process.

Knowing the eviction process and in particular how your property manager handles that process also lets you know if the property manager is willing to both file an unlawful detainer action on your behalf and appear in court on the matter, or if you need to do that. This is particularly important to know if you have an out-of-state income property that is being managed, because if your property manager will not file the matter for you, or appear in court on your behalf, you will need to travel to that state for each hearing. There are often several hearings on an unlawful detainer action after it has been filed.

Photo Credit: Copyright, Michaeljung

Looking for a Property Manager ? 16 Questions to Ask, Cont. 10-12

10. Do you charge a leasing fee?

Why is this important? Many managers simply charge the percentage of rents as their fee regardless of whether or not they have to secure new tenants during the term of their management agreement. Many other managers are willing to charge a lower percentage of collected rents but will add a leasing fee to their agreements. Leasing fees can add up to a substantial amount of money, effectively more than the difference between 8% with a leasing fee and 10% without a leasing fee, so it must be considered in any financially-based decision to hire a manager. Some leasing fees are charged with every new lease written while others are charged once in the same calendar year for the same property. Don’t assume you are getting a great deal because a property manager has agreed to manage your properties for a lower percentage than others you have spoken to. Ask about the leasing fee.

11. Do you require that I give you a deposit to hold for property repairs?

Why is this important? Some property managers require that you allow them to hold additional monies for “future” repairs as they may arise. This repair deposit is generally between $200 and $500 dollars (often more for a high-end property) and will be used by the manager to pay repair people who perform general wear and tear repairs on the property during the tenancy of the tenant. This provides some funds for the property manager to pay repair bills on your behalf if the collected rents will not cover them completely, or if there is a delay between when the rents are collected and repair invoices are due to be paid. If you have more than a single rental property, or if that single property has a high income rental rate, then it is generally unnecessary for you to provide a repair deposit to the property manager.

Remember, also that it is generally considered fair and reasonable to ask that a tenant pay a deposit that is equivalent to a month’s rent. Often a smaller additional deposit is required if the tenant has a pet, in the event that the pet causes additional damage to the property. Your property manager will generally hold these deposits in trust for you and will act according to local law and regulation to deduct repair and damage costs from it upon the tenant vacating the property. Carefully consider the reasons why a property manager says that a repair deposit from you is necessary because that will be income that will be unavailable to you for the duration of the property management contract.

12. Will you please send me a copy of your typical property management agreement?

Why is this important? Even my list of tips is not exhaustive. There may be clauses in the property management agreement that you don’t like. Never hire a manager without first looking at the type of agreement you will be required to sign. Also, and people forget this constantly, if the property manager (or the property manager’s legal advisor) wrote the agreement, it is definitely going to be written in a way that fully protects the property manager, not you. You can ask that clauses be added to protect your interests as well. So secure a copy of the contract and get some legal input on where your risks are and how to guard against them by adding additional language to the contract. Getting a copy of the property management agreement in the interview stage allows you to compare the contracts of the managers on your short list and can help you make your decision.

Stay tuned for Questions 13 through 16, up next…!

An Important Holiday Safety Conversation You Should Have With Your Tenants

Holiday time is a wonderful time of year, but it does not come without risks for homeowners and tenants who decorate their homes. rentUSAnow.com recommends that property managers and landlords develop policies regarding safe holiday decorating and that these policies are effectively communicated to tenants. Some basic recommendations are:

Smoke and carbon monoxide alarm batteries should have been changed when the clocks were turned back for Daylight Savings Time. It is important to remind tenants that if they did not comply with your request at that time, now is the time to change the batteries and check the working status of these alarms.
When unpacking string lights, carefully inspect the cords for signs of wear or damage. Damaged string lights should never be used. Always turn off string lights when leaving the room. Never leave string lights on overnight.
Candles are not recommended. There are a variety of flameless choices and these are preferable. If traditional flame candles are used, they should never be left unattended, should be placed on fireproof dishes and should be extinguished when leaving the room.
Never overload extension cords or power strips. Follow the manufacturer’s recommendations diligently and carefully inspect the cords for signs of wear or damage before using.
Live trees are not recommended. If they are used they must be watered daily. Property managers and landlords may wish to write a policy prohibiting live trees.
Use fireplaces with care. Do not mount wreaths above fireplaces or place any flammable items within five feet of a fireplace that will be lit. Stockings should never be hung on a fireplace that will be lit.
Fire extinguishers should already be installed in kitchen areas, but tenants can be encouraged to purchase additional extinguishers that can be temporarily located near Christmas trees, fireplaces and in heavily decorated areas, as an added measure.

Happy decorating!

Looking for a Property Manager? 16 Questions to Ask

Always “Interview” Your Property Manager
The first step to securing a property manager for your property is for the property owner to be clear about the purpose of renting the property. Is the purpose to secure passive income; or to rent until the market improves so it can be sold; or is it being rented till the owner can move back in after a time away? If the purpose is to secure passive income, this is generally a long-term plan to keep the property as an investment and selling it is usually not a consideration. Renting till the market improves to sell and renting till the owner can move back into the property are generally shorter-term rental plans. Keeping the purpose in mind, a property owner can create a list of property owners using rentUSAnow’s search tool and then can interview potential property managers using these guidelines:

1. Are you a realtor, licensed real estate professional, or a member of a property manager association like National Association of Residential Property Managers, American Apartment Owners Association, etc.?

Why is this important? In some states, a property manager is required to hold a realtor license and be licensed by the state. It is important to find out from your state’s real estate commission if this is required and to check the licensing status of the property manager to ensure that the manager is in good standing with the commission and that there have not been any adverse actions taken against the manager for poor professional practices.

In a similar vein, the NARPM and the AAOA have standards of conduct that they require members to comply with. These associations also conduct educational sessions to ensure the ongoing education of their members of the newest trends and changes in local and federal laws regarding the industry. You want your property manager to be up to date on local ordinance and federal law and to be interested in participating in ongoing education related to the property management profession. You can also check whether the prospective manager is a member of these associations by contacting the association directly.

A follow up question to this is to ask if additional staff at the company are also licensed and/or members of the industry associations. This will be addressed below.

2. Do you have a resume? Please send me a resume.

Why is this important? Remember that the property manager is asking you to employ him/her and you will be paying for any services rendered. You are entitled to know what education and experience the manager has and knowing this information is critical to being able to properly evaluate the manager’s ability to manage your property. I would not hire a manager who was not willing to send me a resume for the job, and any manager should be willing to supply a resume, even if it means sitting down and writing one because nobody has asked for it in years. The resume may even answer the next two questions, but in case it does not, here are two other questions you should always ask:

3. How long have you managed properties belonging to others?

Why is this important? Some property managers only have experience managing their own properties. Others “fell into” the job because they were doing something else and were asked to take on the management of a property as well. This is how I got started. I was working for an attorney who asked me to help manage his properties as part of my job. He supervised me, but in that early stage of my experience I was definitely not qualified to step into the profession as I had a lot to learn. A number of realtors also contemplate adding property management to their portfolios. They have some advantages, such as knowledge of the market and what is market rent, but a property manager holds a fiduciary duty to the property that goes beyond what is taught in real estate school, because the property manager holds the owner’s rent money when it is paid by the tenant and that requires knowing the laws in a different way than is taught to realtors who are taught to represent the buyers and sellers of real estate. You want an experienced property manager, not a realtor who also manages properties. You may also want an experienced property manager who is also a realtor who can assist you to market and sell the property if that is your purpose at a later time. You want someone who is a property manager first. One with demonstrated experience as a property manager.

Next: Questions 4 through 6, found here

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Four Tips For Making Your Rental Stand Out From Others In The Neighborhood

Why you should not neglect the exterior of your rental

By: Eveline Brownstein (c)

Everyone wants a desirable rental property that has tenant longevity. Here are my four tips for making your rental the most desirable one in the neighborhood.

1. Landscaping. Most rental referrals are from yard signs and people who drive past the property to view the neighborhood and the property itself. Don’t underestimate the power of a pretty yard. Frequently mowed grassy areas, clean flower beds and property trimming of trees and shrubs can go a long way to make a strong and positive initial impression of your property, making potential renters more interested in seeing the interior of the property.

2. Exterior condition. If the paint on the exterior of your house is peeling and faded, the initial drive-past could make a potential renter drive away permanently. Maintaining the exterior of the home by touching up the trim paint and painting the exterior when necessary will make your rental home a place renters want to call home.

3. House numbers. There’s no point in advertising a property if your rental home cannot be found or can easily be mistaken for the property next door. In addition, emergency personnel need to be able to easily identify your property (this is a good tip for owners and renters). Make sure that the property numbers are clearly displayed and easily readable, from the street. This can be achieved by regularly painting your curb numbers and by erecting onto the house some large house numbers that can be seen from the street. Make sure your rental can be found and identified by potential renters and the people they may invite as guests and the emergency personnel, who may need to find the home.

4. Don’t neglect the mailbox. A leaning, missing or broken mail box can send a message to a potential renter that you do not care enough to make minor repairs to the property. After all, new mail boxes are not expensive investments and repairing the posts for them are generally simple and easily done. A sad mailbox could signal to a potential renter that the interior of the house is as sad and that a landlord will be difficult to deal with when it comes to making home repairs.

Don’t neglect the exterior of your rental home. It is the first impression a renter will have of the type of landlord or property manager you are and what they can expect in the future. Sadly, you will never know if a potential renter was disappointed with the exterior of the home as most will not bother contacting the leasing agent if they were put off by the home’s exterior. A renter may even overlook minor imperfections in the interior of the home, if the exterior makes them interested enough to enter the home for a viewing.

What makes a good rental property?

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!)

Lessons Learned From a Hurricane-Why Relationships Are Important

By: Eveline Brownstein (c)

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.

The Home Handbook-Why Your Rental Needs One

By: Eveline Brownstein (c)

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.

Are Move-in Incentives a Good Idea?

By: Eveline Brownstein (c)

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.

Is A Short Sale A Good Idea for a Rental Property?

By: Eveline Brownstein (c)

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.