rental

Five Signs Your Locks Need To Be Replaced

By: Ralph Goodman, Guest Author

Home maintenance is a huge responsibility that tenants and landlords have to worry about at some point in time. There are very few things on this earth that are meant to stay in pristine condition forever, and as such, maintenance plays a huge role in determining the longevity of any product, including locks. Some landlords install new locks on apartment doors and do not ever worry about replacing them until the lock is damaged to the point that a tenant is locked out of their home. The act of replacing door locks is one that should be undertaken every few years, but sometimes landlords and tenants are not sure what they need to look out for when it comes to replacing their locks. This is not a big problem at all, we are always here to help. Let’s take a look at some of the signs that it might be time for you to replace your locks.

1.Recent Break-In

If you and your apartment unit have been recent victims of break-ins and burglaries, then it might be a good time to replace the locks that you have on the doors around your home. In some cases, burglars end up damaging the locks to your home as they attempt to force their way in. In other cases, they simply show you that the locking mechanism you had in place is barely keeping you safe. This is one of the clearest signs for tenants and landlords that it might be time to replace your door locks.

Door locks play a huge role in your home security and decisions about them should never be taken lightly. Burglars tend to inflict a lot of blunt force trauma on locks, and this prevents them from being as effective as they once were. That is why it is imperative for tenants to talk to their landlords about damaged lock repair or replacement if they have been recent victims of a break-in or burglary. Landlords can also improve the locks to make them more resistant to burglars. This can be done by adding security pins to the lock, using longer screws to install the lock hardware, and also by utilizing deadbolts with a longer throw.

2. Wear and Tear

Locks undergo a lot of stress over time, especially locks that are subject to heavy traffic day in and day out. Their constant use in conjunction with the effect that natural elements have on them leads deterioration over time. Old and worn locks tend to become rusty, and they start to stick, which makes the process of unlocking and opening a door a rather complicated one. Aside from the fact that it is a hassle to open doors, there is also the issue of your home security being put at risk. Locks that are old are much easier to pick and break, so it is advised that you replace your locks as soon as you notice this is happening to them.

In some cases, this natural aging process can be slowed by regular maintenance. This might involve lubricating the locks and handling them with more care. Properly maintaining your locks over time will decrease the chance of breaking a key in a lock.

3. Changes In Your Neighborhood

In some cases, the indication that you need to replace your door locks does not come from the lock itself, or from within your home. There are times where the state of security in your neighborhood might change. Perhaps your community used to be one of the safest in the country, but if you or your neighbors are falling victim to a string of recent break-ins and other related crimes, it is a good indication that you should probably replace your locks. The locks on your door are meant to restrict the amount of access that people have to your home. If your neighborhood is becoming unruly, it is important to make sure that your locks are up to the task of keeping your tenants and your property safe, and if they are not, then you should replace them.

4. Lost/Stolen Keys

In the event that your keys are lost or stolen, it is crucial that you replace the locks on your door. Misplaced or stolen keys automatically decrease the effectiveness of your home security, because your key control over your apartment unit or property has been reduced. There are some landlords who will make the assumption that no one will come back and attempt to use the key to gain access to your property, but it is always better to be safe than to be sorry.

Replacing the lock on the door will negate the possibility of anyone gaining easy access to your home or property, and it will help you boost your home security in the process. When you lose your keys, or if you suspect they are stolen, you should never dismiss it as a minor issue, because it is not. It is advised that you contact a trusted locksmith and have them replace your locks as soon as possible.

5. Your Locks Are Old

This might seem like a really obvious point to most, but it will surprise you that there are landlords and property managers who do not change their locks for years. In some situations, it is easy to understand why. The lock has not failed you all this time and it continues to work fine, so why would you waste your time and money trying to replace a lock that has not let you down? I admire this way of thinking, but it is impractical. Technology moves fast, and there are always changes looming on the horizon. If you have not changed your locks in a very long time, it is a clear sign that you need to replace them, no matter how good it might seem to you. Make sure that your locks are able to withstand every modern method that a burglar can throw at them, so that they are keeping your property and your tenants safe.

Conclusion

There is never any downside to replacing the locks on your door, unless you replace them with locks that are worse (but why would you do that?). The locks on your doors are an integral part of your home security, and better security helps your property stand out from others. There are many other reasons that might prompt you to change your locks, however, these are the 5 most prominent ones that most homeowners deal with on a regular basis. Hopefully, this list will help homeowners make the right choices when it comes to their locks and also helps you stay vigilant when it comes to the state of your home security.

You can find more informative and lock and security related blogs written by Ralph Goodman at: http://united-locksmith.net/blog/author/ralph

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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Why Renters Should Consider Renter’s Insurance

By: Eveline Brownstein (c)

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.

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.

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.

Perhaps Not the Best Places to Buy Rental Income Property

By: Eveline Brownstein (c)

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.

Managing Your Property From A Distance Is Risky

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.