System - Monday, December 3, 2018
When discussing a target rental rate with landlords, I typically describe the need to balance between the competing goals of maximizing their cash flow and minimizing their vacancy. Setting a higher listing price will hopefully result in a more positive cash flow, while setting a lower listing price will more likely result in more interest from prospective tenants, a quicker move-in date, and a decreased likelihood of extended vacancy.
Personally, when setting a listing price for my own rental properties, I lean toward the lower range of the suggested listing price because I have a complete aversion to vacancy! Vacancy not only equals lack of cash flow, but also introduces many risks.
First, a landlord’s insurance policy may require additional coverage for properties that are vacant for more than 30 days. Landlords should always check with their insurance provider to understand their policy’s requirements regarding coverage during vacancies.
Vacant properties can become a “hang out” for teens to congregate around or break into. We’ve had several instances of teens breaking into vacant properties during the winter months to find a warm place to smoke. In some areas of our county, homeless persons have also take...
Michele - Sunday, April 2, 2017
Since most of our new landlords are “Unintentional Investors”, many make an initial calculation of their projected cash flow by taking the expected rent and subtracting their mortgage, HOA fees, and property management fees. There is much more to determining your return on investment than that! So, as our new landlords are now becoming investors, intentional or not, we ask that they become familiar with the full scope of calculating cash flow and return on investment so that they can make better-informed business decisions.
There are five elements to analyzing whether your investment property is providing you with a positive rate of return:
Net Operating Income (NOI) – Income gained from rents minus operating expenses (not including your debt service or mortgage loan).
Cash Flow – Cash flow is calculated by subtracting the debt service costs from the NOI. Debt service includes the loan costs, such as interest, but not principal reduction. This is close to what most new investors assume to be their cash flow, but new investors often (incorrectly) include the principal reduction to their cash flow c...
Michele - Wednesday, February 17, 2016
I often share with landlords that “late night emergencies” seldom occur. However, in late January and early February when significant storms and freezing temperatures occur, we do need to plan for emergency calls from our tenants. Last weekend, we had four emergency calls. There were two no-heat calls, one home without hot water, and one ruptured pipe inside a home.
In order to prepare for such emergencies, we have a 24 hour maintenance emergency call service, we remind tenants to change HVAC filters regularly, we coordinate with HVAC companies and plumbers in advance to ensure that we can receive priority service if needed, and we stock several room/space heaters to lend to tenants if failed heating systems can not be promptly repaired.
While our management contract requires any non-emergency repair exceeding $250 to be approved by the owner in advance, such emergency situations will be handled to the best of our ability and may exceed that financial threshold. Our obligation is to protect the home against further damages and to ensure the tenants have a safe and habitable environment in the home. We inform owners immediately if such emergency situations occur. While these ty...
Michele - Thursday, April 30, 2015
Repair or replacement costs of an HVAC system are major contributors to the maintenance budget of a landlord. With recent requirements on the Seasonal Energy Efficiency Ratio (SEER) imposed the the Department of Energy (Click Here for More Details) coupled with the conversion from R-22 to R-410A refrigerant dictated by the EPA (Click Here for More Details) costs to repair or replace an HVAC system are likely to catch landlords by surprise. In most cases, installation of a new system will cost over $5K. Any major repairs will also be costly as the may require a conversion kit/process or the capture/recovery of refrigerant.
We suggest that landlords be aware of the age of their HVAC system and its the projected life span. With the rising costs of system repairs and replacement refrigerant, we suggest landlords put an annual HVAC contract for spring and fall cleaning/check in place to prolong the life of their systems.
If an air conditioning unit stops functioning during the peak summer temperatures, tenants will be requesting (actually expecting/demanding) prompt action. It is ...
Michele - Thursday, April 23, 2015
Occasionally, a landlord transitioning his or her home to a rental property will ask about the option of providing the appliances to the tenant in “as-is” condition. This means that the owner is providing working appliances at the beginning of the lease term, but if the appliances fail, the owner will not be required to repair or replace the appliances.
While this seems beneficial to a landlord on the surface and while a tenant may agree to this scenario at the time of lease signing, I believe that this dynamic can easily backfire and cost the owner more than the cost of the repair that he or she is trying to avoid.
Say, for instance, that the owner decides to provide the washer and dryer in “as-is” condition. If the washer fails during the first few months of the lease, the tenant will typically suspect that the owner knew that there was a potential problem. This sets the stage for lack of trust and will likely impact the tenant’s commitment to keep the property well maintained. If the washer fails later during the lease term, the tenant may not feel that the owner knew of a pending problem, but would still be upset about the prospect of living in a home without a washer.
Michele - Thursday, April 16, 2015
Due to consistent administration of rental qualification criteria, we are presenting qualified applicants to our owners and have not initiated eviction proceedings against a tenant in over a year.
We do occasionally experience late payments by tenants. With 250 properties currently under management, we average 3-4 tenants per month who pay rent after the 5th. Typically these tenants will have informed us in advance that they will be paying a portion of their rent late, and typically full payment is received by the 15th. If we have not received rent from a tenant by the 6th of the month, a late fee will be assessed and the tenants will be sent a legal notice demanding payment within 5 days to avoid initiation of the eviction process. Late fees collected will be forwarded to the owner. Any exceptions or additional grace periods must be approved in advance by the owner.
We also experience approximately 3 returned checks per month. We initiate rental funds transfers to the owners on the 7th of the month. Sometimes, a tenant's rent check is returned for non-sufficient funds after we have already transferred the rent payment to the owner. In this case, the tenants are assessed a return chec...
Michele - Thursday, August 14, 2014
In general, I believe that home warranties are a good option as a method for budgeting maintenance costs for landlords who own older homes with appliances and systems that are no longer under manufacturers’ warranty. My husband and I own six investment properties and have home warranties in place on four of the properties. However, there is one significant down side. …. Tenants may have to wait WEEKS for the warranty company and their vendors to address summertime NO-Air-Conditioning service calls!!
Over the past month we have had 5 tenants who had to wait several days to get an initial service call appointment from a vendor assigned by a warranty company. After the initial service call appointment, it took several additional days to get the warranty company’s approval, parts ordered, and the repair date scheduled. One tenant was without AC for over 3 weeks as the warranty company and vendor played phone tag regarding the approved course of action due to needed parts being unavailable.
The tenant and our mainten...
Michele - Monday, March 10, 2014
We’ve learned the hard way that when an owner disconnects utility service in order to save $50-$100 dollars per month on utility service to an empty house, it often leads to additional unexpected costs, coordination, and frustration.
Once utility service is turned off at a home, the electric breaker panel and the main water valve must be turned off before these utilities can be turned back on. The power/electric company does not want to cause a surge to any of your appliances and the water company does not want to have a plumbing leak or open faucet go undetected. If the utility companies attempt to restore service and find that the main breaker is not off or if there is any running water in the house, service will not be initiated, and a note will be left on the door. This requires us to send someone out to turn off main breakers or valves. We must then coordinate a second appointment to initiate service, sometimes an additional fee is charged by the utility company.
Depending on the type of appliances in the property, having the gas s...