Categories
DIY

Landlords: Tenant-Proofing your Rental Properties

Tenant-proofing your rental properties is kind of like baby-proofing your house–it saves both of you from unnecessary headaches. The key when tenant-proofing is to identify the things that get abused the most, and think about how you can minimize damage to these areas, or eliminate them altogether. This is especially true for properties in low demographic neighborhoods, whereas problems like these rarely occur in higher-demographic areas.

Here are some other things you should avoid if you want to minimize the risk of extra damage costs:

  1. Avoid Garbage Disposal – Have you ever watched a movie, and the characters threaten to drop something meaningful into the garbage disposal by the sink? Yes, it’s true, people love to put all types of things down that drain. It’s handy–but also very easily clogged. It’s a piece of high-failure, time-consuming equipment to fix.
  1. Avoid Air-Conditioning Units – This may seem necessary, especially during the sweltering summers in Michigan, but AC units are not a requirement. Repairs are pricey and window-mounted models often disappear in the hands of thieves. Leave it to your tenants to buy one for themselves!
  1. Forbid Wall-Mounting – People like putting up decorations on their walls, but strictly avoid any nails or screws that put ugly holes in the walls. There are plenty of adhesive hooks in stores that tenants can use as an alternative, and walls with adhesive residue are easier to repair than those with holes. If you do allow nails, plan on deducting repair costs from the security deposit, because most tenants won’t repair the holes themselves (even if it says so in the lease).

Instead, install features that can help keep your rental properties clean and easy to maintain:

  1. Install Durable Flooring – Vinyl flooring is your best bet here, as it’s affordable, durable, simple to install, and it’s easy to remove any stains that a renter would leave. Although having carpet is a preference for some, it gets old and stained easily, with some stains refusing to come out at all, and absorbs odors from pets and smoke. Similarly, hardware floors – while a great feature to have when selling a house – can easily get scratched or damaged, and cost thousands to replace. With vinyl floors, all you need is a mop and bucket of soapy water, and you’re pretty much good to go. 
  1. Install Door Stoppers – Doors swing open and close multiple times a day, and many people (especially kids) won’t care if the doorknob puts an indent in the wall. Installing door stoppers is a must-have in rental properties, as it will save both your walls and your doors from unnecessary damage.

There are a surprising variety of door stoppers on the market, from baseboard stoppers and ones affixed to the back of the door itself, to wall-mounted handle stoppers and magnetic stoppers. One of the best options is the hinge pin stopper, since it has less chance of getting overworn through constant use (or played with by children).

  1. Install Window Coverings – Blinds, drapes, or curtains might seem like an added expense (and another thing to replace if damaged by a tenant), but it’s a good idea to install some kind of window covering to avoid giving thieves or squatters a clear view inside the property. Cheap coverings will do the trick, and if they’re damaged when the tenant moves out, you can deduct the replacement cost from their deposit.
  1. Opt for Durable Fittings – Some things, like faucets, can be bought as cheap plastic pieces, costing in the region of $40. While this may seem like a good cost savings in a lower-demographic rental, these cheaper fittings usually break down quickly and will need to be replaced every 2 years, on average. Investing in a more expensive, more durable option, like a $120 metal faucet, will mean that fittings can last for up to a decade before wearing out, saving you more money in the long run.
  1. Keep Pests Out – When doing property turnovers, consider conducting routine checks for pests and take preventative action, if necessary. Pests and insects hide well, and pest control services can add up to a fortune if the problem is left to worsen. So better to discover any potential infestations early, and fight back with rodent traps, chemical-free solutions, and an exhaustive scrub-down between rentals.

Follow these tips, and you should have a property that’s as tenant-proof as it’s possible to be. Of course, there will always be repairs and maintenance that need to be carried out at the end of every lease, but by planning properly, you can minimize the chance of incurring additional expenses for damages that could have been easily avoided.

Image Courtesy of: Ksenia Chernaya

Categories
Wholesaling

Wholesaling Real Estate during COVID-19

The coronavirus pandemic has had a serious impact on real estate investors, even if (this time) the economic downturn isn’t tied to the housing market. 

Already-low inventory has been thinned even further by sellers choosing to wait out the crisis, buyers are reluctant to invest amidst this economic uncertainty, and many have taken a hit to their liquid assets (and are now prioritizing liquidity more than ever before). 

So, what does all of this mean for wholesalers in the current market? Here are some points to consider when brokering wholesale deals during the coronavirus pandemic:

Focus on Inbound Marketing

Wholesalers traditionally rely on outbound marketing methods to source new deals and secure buyers – things like sending email blasts, making cold calls, and attending networking events. All of these strategies involve a lot of time and energy on the wholesaler’s part to track down new leads.

However, with people stuck at home and spending more time on the internet than ever before, wholesalers should consider optimizing their inbound marketing to enhance their sales funnel during this crisis. Having your own website, blog, or YouTube channel, running digital ads, and boosting your social media presence are all ways you can get noticed by buyers and sellers who are actively searching for properties in your area. It takes a considerable initial time investment to get these up and running, but if you’re stuck at home now, too, then what better way to spend your time than building funnels which will bring leads to you passively?

More Conservative Offers

Panic in the markets, combined with desperate sellers, creates an opportunity to get good wholesale deals, which means you can and should be more conservative with your offers in the current environment. Buyers will also be looking for a deal, so 70% of ARV minus repairs might not leave you with enough room to make a decent profit wholesaling in this market. 

COVID Extension Clause 

To protect their contracts against extenuating circumstances due to the pandemic, many wholesalers are now including an option to extend their agreements with the seller if necessary. If your contract stipulates that you need to find a buyer within 60 days, add a two-week extension that can be triggered to give you more time to close deals during the crisis.

Wholesaler Collaboration

Inventory was already at an all-time low in most parts of the country prior to the outbreak, and now it can be even harder to find enough suitable properties to keep your wholesaling business running consistently. 

We’ve seen wholesalers respond to this by reaching out to the competition – other wholesalers – in order to work together, rather than against one another. Wholesalers operating in the same area put together a shared spreadsheet of all of their current deals, and offer a finder’s fee to anyone who’s able to bring them a buyer for it. This can help you both fast-track deals in this uncertain market, and generate a steady stream of income from the finder’s fees you receive on other wholesalers’ deals. 

Real estate wholesaling is still alive and well in the era of COVID-19, but wholesalers have had to adapt and innovate in order to keep turning a profit during these unprecedented times. 

Many of these trends will likely continue in the age of the new normal, so if you want your wholesaling business to thrive both during and after the pandemic, consider incorporating these areas into your strategy now. 

Image Courtesy of Curtis Adams

Categories
DIY

How Long Does It Take To Fill Rental Vacancies in Metro Detroit?

The amount of time it usually takes to fill a rental vacancy varies from area to area

Rental vacancy rates are an important indicator for investors to judge the strength of individual real estate markets, because these shows whether or not there is an adequate demand for the number of rental properties available in a given area.

Rental vacancies are also one of the biggest impacts on landlords’ net operating income (NOI) each year, so, apart from retaining tenants, having a short turnover time is crucial for minimizing losses. According to SmartMove, vacant rentals cost landlords in the US $1,750 each month, on average, so investing in an area with lower vacancy rates and quick turnover times is essential for maximizing the return on your rental investment.

Vacancy rates in Metro Detroit

Vacancy rates across the country reached their peak in 2008 and have been steadily decreasing year-on-year ever since. According to FRED, the average vacancy rate in the US in Q1 2020 was 6.6%. Census data for 2019 shows that rental vacancy rates in Michigan were at 6.8%, and 6.2% in the Metro Detroit area, down from a peak of 12.8% in 2010.

According to the most recent data from HUD, Oakland County has an overall vacancy rate of 4.68%, although apartments are in even higher demand, meaning complexes have only a 2.4% vacancy rate. By comparison, Wayne County has an average rental vacancy rate of 6.7%, with apartment vacancy rates at 3.4%, Midtown Detroit has a vacancy rate of just 1.9%, and the highest rates in Metro Detroit are seen Detroit, sitting at 5.3%, on average.

However, in the Metro Detroit area, vacancy rates have been steadily declining, due to population growth and the corresponding increase in rental demand. There’s been an increase in the number of rental home developments in recent years, but it’s estimated that the current planned construction projects in Oakland and Wayne will only account for roughly 20% of the new rental homes that will be required to meet this demand, boosting competition for existing rentals on the market.

This is good news for landlords, as prices have been going up, while turnover times are getting shorter.

You can find vacancy rates for the 75 largest metropolitan areas in the country at cccensus.gov, but this data won’t tell you what the average rental turnover time is for each specific neighborhood. The best way to find out how long it takes to fill a rental vacancy for your property type in your area is by talking to local real estate agents, landlords, and property management companies. They will be able to give you an insider view into the current rental demand in your market, the amount of time a typical turnover process takes, and the kinds of issues which generally slow down or speed up the process in your neighborhood.

Rental turnover times in Metro Detroit

So how do vacancy rates translate into turnover times? Higher vacancy rates in an area means less demand for rental properties, which in turn creates longer turnover periods for landlords looking for new tenants. In Metro Detroit, rental homes on average remain vacant for 52 days, and turnover times can reach up to 90 days, depending on several conditions.

The amount of time it usually takes to fill a rental vacancy varies from area to area, with rural properties generally experiencing longer vacancy periods than urban rentals. The type of property also has an impact on vacancy rates – for example, student rentals have longer turnover times, owing both to the summer holidays and more intensive repairs requirements. Single and multi-family rental vacancies also experience seasonal swings, with turnover periods taking longer during the winter months than in the summer, when rental demands for family homes are 51% higher, on average.

In Metro Detroit the tenant turnover process is particularly fraught with difficulties: finding quality tenants can be a challenge, meaning there is a greater risk that landlords will have to deal with evictions or time-consuming and costly repairs between tenancies. All of this can drive up the number of days your rental sits empty throughout the year. The best way to combat these issues is to be highly selective when choosing tenants and to manage your rentals well to avoid unforeseen issues when the lease ends.

Pricing is also a key determinant of rental turnover times. Interestingly research indicates that, across all rental property price brackets, slightly lowering your asking rent correlates directly to a shorter turnover time. On the other hand, overpricing a rental and later reducing the asking rent leads to properties spending longer on the market and achieving lower rents. Ultimately, pricing your rental competitively will lead to a shorter turnover time and drive up competition for your property, letting you be more selective when it comes to choosing the best tenant.

Working with a good property management company, having a solid rental marketing strategy, and carrying out thorough tenant screening are the best ways to ensure that the turnover process goes as fast and smoothly as possible for your Metro Detroit property. Vacancy rates in the area have been steadily decreasing, so if you’re still experiencing longer-than-usual turnover times, it might be worth talking to your property manager, or revising your pricing, advertising, and tenant selection strategies.

Image Courtesy of Sarah Trummer

Categories
Shortterm Rentals

Overview of Metro Detroit’s Short Term Rental Market

Property investors are attracted to short-term rental properties because they offer an opportunity to make more than long-term leasing, but the short term rental industry has taken a huge hit during the coronavirus pandemic. In Michigan, STRs were banned from operating during the height of the lockdown, and even now that they’ve been allowed to reopen to guests, vacancy rates are still sky-high – hitting as much as 85% in some areas. 

Furthermore, the great “Airbnb debate” has been raging in many areas of Metro Detroit for years now, with local city councils seeking heightened regulation and a limit to the number of short term rentals permitted within a given area. 

The new proposed ordinance in the City of Detroit, for example, will supposedly eliminate 85% of the nearly 1,000 listings currently active there – something short term rental owners in the area are keen to prevent. This is because, in addition to a rule limiting the number of Airbnbs to roughly 1 per city block, the new regulations would make it so that only owner-occupied properties could be used as a short term rentals. 

Yet “private rooms” in a host’s house account for less than 50% of all the short-term rentals currently on Airbnb in the Metro Detroit area. The rest are whole-place stays, where guests have exclusive use of an entire house or apartment, and these types of properties are where most of the demand will lie as we enter the age of the new normal. 

This could be an opportunity for STR owners outside the City of Detroit to take advantage of the area’s growing tourism industry in the coming years. If the new ordinance is passed, guests may look further afield to Metro Detroit’s Ring Cities as an alternative to staying in hotels or shared STRs in the city center. 

So, if your property is located near to good transport links or local amenities, you should highlight these points in your listing. In places like Hazel Park, Dearborn, and Dearborn Heights, where there are several conference centers catering to private and corporate events, expect a healthy demand from business travelers and out-of-town visitors once we return to normalcy. Whereas, in the shorter term, cities like the Pointes and St Clair Shores might see demand rise as people search for an escape from the more densely-populated metropolitan areas. 

Whether you want to target tourists, businesspeople, or city-dwellers looking for a more remote getaway, the way you present your STR should be in line with what your ideal customer wants. For example: 

Budget Stays – These could be just a simple, private room in the owner’s house, with basic furnishings, or a no-frills apartment. The target market for these types of stays are budget travelers and businesspeople, looking for an alternative to a 2 or 3-star hotel. This means you won’t need to splash out on fancy interiors or extra amenities, but you will need to make sure the property is in a good location, since budget guests will value convenience and affordable travel costs above all else. 

Luxury Stays – These include high-end apartments and lofts or nicely-decorated houses, and should ideally be located in safer, trendier areas with a walkable downtown. Your target market will be the bigger spending guests, looking for an alternative to a 4 or 5-star hotel. This means that you’ll likely have fewer issues regarding the security of your rental, but will almost certainly have to work harder to accommodate guests’ high expectations. Expect to get detailed reviews listing any small thing that your visitors found unsatisfactory, like clutter, dust hiding in corners, or noise from outside the property. 

The short-term rental market in Metro Detroit is still not as developed as it is in other cities, like Chicago, but the industry was growing prior to the coronavirus outbreak, and will likely continue to do so once regular travel resumes. If you operate an STR, keep an eye out for new proposed ordinances in your area, voice your opinions to your local city council, and make sure you adjust your strategy accordingly if nearby cities impose their own Airbnb bans – this could be an opportunity for you to capture guests from those markets. 

Image Courtesy of Monica Silvestre

Categories
Shortterm Rentals

How Soon Until Short Term Rentals Bounce Back From Coronavirus

Lady wearing a face mask
What is the new normal?

Coronavirus has affected the travel and tourism industry at an unprecedented scale. With strict stay-at-home orders and lockdowns still in place globally, online travel traffic is down by 70%, potentially accounting for up to $20B in missed revenues. In the US, bookings for short-term rentals bookings saw a 94% year-on-year decrease due to the pandemic.

As borders slowly start to reopen in the near future, what will the new normal of the short-term rental industry look like in Metro Detroit and Oakland County, in particular?

Localized Effects Will Differ

Travel restrictions have crippled the industry severely, but data suggests that the short-term rental industry is doing better than the hotel industry, which reported continuous declines, with revenues per available hotel room dropping year-on-year by as much as 94%.

Urban markets will likely suffer more than holiday or leisure destinations. In New York (where the virus hit hardest), year-on-year data indicate that the demand for short-term rental properties have decreased by 50%, and consequently, revenues have gone down by 47%, too.

What we’re currently seeing is a shift in demand from urban to remote rental locations, where there is less exposure to the virus. As these patterns carry on into the foreseeable future, we recommend STR operators to keep a closer eye on market trends and industry news. More than ever, strategic and data-driven decisions will be crucial in bouncing back from this crisis.

Assessing the Impact of COVID-19

To predict demand and gain market insights, consider using a trend analysis tool, such as MarketMinder. They provide good breakdowns of market rates and offer valuable insights on trends that can help you work out the state of your particular market, and adjust your strategy accordingly. (Note: some of their features are only available for paid subscribers, but you can do 5 basic reports a month for free).

Here are some trends to look at to gauge the stage of your market’s recovery:

  • How far ahead reservations are being made?
  • How are other hosts pricing their properties now vs. their pre-pandemic rates?
  • What rate do guests actually book the property for?
  • How far are people travelling to reach your area?
  • How are they getting there – by air or car?
  • When will business-related travel resume? Are there any conferences planned for the future in your area?
  • Are people booking owner-occupied rentals, or only “have the whole place to yourself” ones?

Post-pandemic, it seems very likely that travelers may opt for vacations that could be reached via land travel to mitigate risks. This may lead to an increase in demand for nearby STRs, as travelers try to find budget-friendly holidays and accommodations within easy reach of the city. 

To see how these trends are developing in Metro Detroit, we used MarketMinder to conduct a comparison between Downtown Detroit and a suburban area closer to the lake, such as Saint Clair Shores.

Insights from the tool indicate a rental demand score for Saint Clair Shores of 72, in comparison to Detroit’s score of 69. Median occupancy rates (calculated over the last 12 months) in Downtown Detroit are also down, from 69% in June 2019 to 45% in April 2020. By comparison, Saint Clair Shores has a current occupancy rate of 50%, possibly showing early signs of the shift in demand from urban locations to less densely-populated areas.

Human beings have an inherent desire to travel and explore. So it’s almost certain that, once travel restrictions are lifted globally, the demand for STRs will slowly increase again. Although we don’t exactly know when this “new normal” will begin in earnest, for now, property owners and landlords can spend this time preparing for it, by implementing strict sanitation measures to reassure and attract future guests.

Image Courtesy of: Anan Shvets