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Landlords

Why Cheap Houses Aren’t Always Profitable and How to Buy Ones That Are

If you’ve been participating in real estate forums and websites for a while now, you’ve likely noticed that new investors are often interested in buying the cheapest house they can find. In addition to getting a better Rent-to-Price rate, they believe that buying cheap will save them money on closing costs and property taxes. But there’s much more to investing than the purchase price of a home.

Cheaper houses may seem appealing on paper (or laptop screens), but it’s important to consider all the implications that come with them. And if you still decide to buy one, you need to understand what you’re getting yourself into.

Otherwise, you risk buying an asset that actually loses you money instead of bringing in a profit. 

Why Cheap Houses Are Rarely the Best Idea

The term “cheap” is relative to your perspective and can vary from market to market. Even so, whether it’s buying a home for $40,000 that rents for $700 or anything similar, buying cheap homes goes against these four pillars of conservative investment.

The 4 Pillars of Real Estate Investing

These are the crucial pillars you need to be aware of when purchasing a property:

  1. Capital Preservation: As a conservative investor, you want to protect your money and avoid loss within your portfolio. In exchange for large returns, you prioritize investment security and stability.
  2. Stable Cash Flow: You want to have the assurance of positive cash coming into your investment business. This way, you’ll increase your assets and have the funds for daily operations.
  3. Appreciation or Equity Gains: Aside from cash flow, you also want to gain equity as your property increases in value over time. This allows you to make a profit once you decide to sell.
  4. Tax Benefits: The biggest tax benefit of purchasing real estate is in the form of deductions. These come from property tax, mortgage interest, repairs, operations, and depreciation.

Why are cheap properties against these pillars? Well, it’s because they tend to come with a host of problems, some that you might not have considered. Here are a few problems and limitations you’ll face when going with a cheap property:

  • They’re located in areas leaning towards economic decline.
  • They have poorer tenant payment performance, leading to higher eviction costs.
  • They have higher tenant turnovers and RentReady costs.
  • They often come with underlying deferred maintenance issues.
  • They are harder to insure, since the cost of replacing the property often exceeds its insurable value.
  • They are difficult to secure lending for.
  • They come with limited exit strategies.

These reasons show why buying cheap isn’t always the smartest strategy. Going for a slightly more expensive property (like a Class C instead of a Class D) might take a bigger chunk out of your savings upfront, but it’s often a smarter choice in the long run.

Of course, if you’re still planning on purchasing a cheaper property, here are some factors you need to prioritize.

How to Approach Buying Cheap Properties

Not all cheap homes are traps, but you’ll need to know how to spot the good ones. You don’t want to end up with a decrepit building that eats up your savings. So, when buying cheap properties, make sure to do the following:

  • Invest in Up-and-Coming Areas: Cheap properties are often on the outskirts of town, so ensure that it’s an up-and-coming neighborhood with a growing population and economy. This way, the property will retain its value and increase over time.
  • Anticipate Necessary Repairs: Since cheap homes often come with underlying problems, you should work with a professional inspector and licensed contractor. That way you can easily manage the complications and accurately estimate necessary repairs.
  • Check the Neighborhood and Tenant Pool Class: Ensure that the area attracts quality renters who will follow lease agreements and take care of your property. Cheap properties are often in lower-class neighborhoods, which means lower-class tenant pools, as well.
  • Run the Numbers: Conduct proper real estate analysis to ensure that the numbers make sense. Here are a few calculations to get started:
    • Net Operating Income (NOI): This number should show a favorable balance of income and expenses. Compare the NOI to similar properties in the area to see if you’ll also have high revenues and small expenses. 
    • Cash Flow: How much money will you pocket? The monthly rent you can charge should be 1% or higher than the purchase price to indicate strong cash flow generation. Buying a cheap property that can only demand so much rent defeats the purpose of investing in one, as you won’t have the rent-to-price ratio you expected to enjoy.
    • Cash-on-Cash (COC) Return: The higher the COC, the more the property can pay for itself. A good rule of thumb is to have a COC that’s higher than 10%.
  • Have a Great Management Strategy or PMC: It’s relatively easy to manage Class A & B properties because the tenant pool is higher demographic. Class C & D properties on the other hand, require a LOT more attention to be successful. You’ll need a solid plan to handle the inevitable tenant issues or hire a great (not just good) property management company. 

There are many other calculations to run, but these three should get you started on the right foot.

Conclusion

Cheap properties can create significant profits and become excellent investments when done properly. But if it only sinks you into debt, you might look back and wish that you spent your money on a safer investment opportunity instead.

As always, we suggest you do ample research and consult with other investors. When you do go with cheap property, make sure your purchase gives you results that are worth the risk.

What’s your experience with buying cheap properties? Share your tips below.

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Landlords

Do You Have to Allow Emotional Support Animals in Your Rental?

Source: Unsplash

Many landlords don’t allow any pets in their rentals.

Usually, it’s because the pets might destroy the home and jack up property maintenance costs with broken lamps, scratches on the wall, and leaving their smell in the carpets and furniture… These make renovations a hassle for landlords and also eat into the tenant’s security deposit—and nobody wants either of those.

But what about emotional support animals (ESAs) and service animals? Should you allow them in your rental properties? Conversely, is it legal to ban them from your rental properties, if you want to?

The answer is complicated because ESAs and service animals are technically not pets in the eyes of the law.

This doesn’t mean that you need to accept tenants with ESAs and service animals. However, it still prohibits you from denying applications due to animal assistance or implementing pet policies on the tenants.

With many regulations surrounding the topic, this article summarizes the important laws landlords need to know from the three following authorities:

We’ll show you the landlord obligations these governing authorities have and guide you on how to approach tenants with ESAs or service animals.

Laws Surrounding Emotional Support Animals & Service Animals

ESAs and service animals are legal assistants for individuals with disabilities and special conditions based on the FHA. Though they seem similar, there is a nuanced difference between the two animals. While ESAs are companion animals prescribed by a mental health professional, service dogs are assistance animals trained to do specific tasks that help a person with disabilities.

As a landlord, you don’t need to concern yourself over differentiating between the two. The bottom line is that both are considered medical devices instead of household pets, with similar laws that protect them.

Since they’re medical devices, these are some of the implications for landlords:

You can’t discriminate against them.

Rejecting an applicant just because they have an ESA is a type of discrimination. Even if the reason is that they did not disclose their ESAs before your approval (which they’re allowed to do), you’ll find yourself in a lawsuit if you try to rescind your approval.

The only time you can refuse is if the animal poses a direct threat to the health and safety of others. Even then, you’d need to show proof that they are indeed a threat, beyond their breed or size. 

You can’t implement pet policies.

When it comes to tenants with ESAs, you can’t implement pet policies against them, because they’re still medical devices, instead of household pets. So even if you are allowing pets in your rental, you can’t charge these medical devices with extra rent, a pet deposit, or fees to cover possible property damages.

Think of it this way: You can’t charge a wheelchair fee to a tenant just because it might scratch your hardwood floors. Likewise, you can’t charge an ESA or service animal fee, either.

You can’t decline reasonable accommodations.

Regardless of your pet policies, you may have to make “reasonable accommodations” for tenants who rely on their ESAs. The situation is similar to how the ADA requires rentals to accommodate wheelchairs. 

There are a lot of reasonable accommodation requests tenants with disabilities can ask for. Still, one of the most significant impacts to landlords is the obligation to waive any no-pets policies for tenants to live with their ESA or service animal.

The process typically goes like this:

  1. A tenant who is blind approaches a landlord with their seeing-eye dog.
  2. The tenant asks for reasonable accommodations on the rental property, such as lower doorknobs and light switches for their service dog to reach with its mouth.
  3. The tenant waits for the landlord’s response. Landlords must act promptly, as an unjustified delay is equal to failure to deliver reasonable accommodation.
  4. Landlords evaluate requests on a case-to-case basis, but always with the criteria that the accommodations should bring tenants closer to an equal opportunity to use and enjoy the rental.
  5. If the accommodations are reasonable, the landlord is then required by law to grant the tenant’s valid requests.

Another point to note is that tenants with disabilities are allowed to make property modifications for full enjoyment of the premises. For example, they can open the closed patio for their emotional support labrador to leave home and look for help in case of an emergency.

As the landlord, you won’t have much control over justified fixes that help a tenant function better with disabilities. While it might seem inconvenient, think about it this way instead—by making your unit more accessible, you’re actually expanding your potential tenant pool in the future. You’re also within your rights to make the tenant revert the unit back to its original condition upon MoveOut (at their own expense).

Conclusion

After scanning through laws and requirements, it seems that the simple answer is yes—you do have to allow emotional support animals into your rental property. And if you don’t, you could face some unpleasant repercussions. 

The main reasons are that:

  • The law prohibits you from discriminating against and denying tenants who have ESAs.
  • ESAs are medical devices that tenants with disabilities need and rely on every day.
  • ESAs are part of “reasonable accommodations” that landlords are mandated by law to grant.

Stay on the right side of the law and be more compassionate towards people with disabilities by welcoming ESAs and service animals as extensions of their owners—your potential renters.

Do you have any other reasons to allow ESAs and service animals in rentals? Drop your thoughts below!

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Landlords

Top 11 Amenities Renters Can’t Resist

Everyone hates going to the laundromat. Lugging a bag of dirty clothes to a laundromat even only 10 minutes away is the kind of hassle people want to avoid. And once you have the luxury of in-unit laundry, it’s hard to go back. 

When you’re trying to make a rental unit more appealing to potential tenants, you need to keep in mind what they’re looking for. For some tenants—it’s in-unit laundry. 

Every renter has a specific thing they want in a home, whether it’s granite countertops or hardwood floors. Whatever it is, highly-requested amenities are often deal-breakers. And these days, search filters on websites are getting increasingly specific.

When tenants search on popular real estate websites like Apartments.com, Zumper, RentCafe, or PadMapper, they have plenty of filters to choose from. As a landlord, you need to know exactly what makes your rental irresistible to potential renters. 

Writing an excellent listing and taking high-quality photos can help, sure, but the key to securing long-term tenants is by giving them a place with something no others have. They may even stretch their budget if it means they get to have the rental of their dreams.

So, without further ado, let’s dive into the top amenities renters just can’t resist.

11 Amenities and Features Renters are Searching For

These eleven items come from my experience running a property management company as well as data from industry-standard websites: Zumper and Apartments.com. In other words, you can be confident that these are the kind of features you want to use to attract interested renters.

  1. Air Conditioning: Heat and air conditioning come at the top of the list according to Statista. The law doesn’t require cooling systems, but many tenants want it. Not surprising given that a large part of the US gets hit with sweltering temperatures throughout the summer. After all, nobody wants to be stuck lying awake at night with loud fans blasting beside them.
  2. Central Heating System: On the flip side, many different regions of our country also deal with the coldest of winters. While all states require heating systems, they don’t require central heating—which is what most renters prefer, according to Zumper.
  3. Plenty of Parking Spaces: Another one of the most searched items is parking. Renters want to have a parking space reserved for them and others when they invite over company. Assigned parking is especially popular in urban areas where space is limited, and covered parking is sought-after in places that get rain or snow all year.
  4. Flexible Pet Policies: If there’s one thing we all have in common, it’s that we love our pets. Most of us have one, too, as a survey showed that 96% of Americans had pets before, and 72% of renters still have pets! If you’re not allowing pets into your rental, it may be time to reconsider.
  5. Dishwasher: As they say, the kitchen is the heart of every home. So what do renters look for in a rental? A dishwasher. It’s even the 5th most popular amenity according to the same 2021 survey from Statista. Even Zumper reports “dishwasher” is one of their top 10 most-searched terms.

By buying a mid-range dishwasher for even $500 to $1000, you can up the monthly rent by $50 or even $100 per month and make it back shortly—especially since a good dishwasher should last about 10 years. If your unit is on the smaller side, there are still options like countertop dishwashers that can attract tenants too. 

  1. Outdoor Spaces: Something that was a “nice-to-have” before is now a “must-have” after the pandemic. Zumper saw the search for “outdoor space” catapult by +143% after COVID-19 meant many of us were trapped indoors. Terms like “roof deck” and “balcony” also increased as people realized the importance of having accessible fresh air and open spaces.
  2. In-Unit Laundry Equipment: While others may argue that doing laundry is relaxing, Zumper data indicates that most renters want to turn an afternoon in the laundromat into a press-and-wait task at home. 

Having an in-unit washer and dryer in your unit makes their inevitable chores more convenient. It can even allow you to charge $100 more on rent! Especially when considering they cost anywhere from $300-$2,000 each, it’s logical that the rent will go up to cover the cost.

  1. Hardwood Floors: Nobody wants a carpet that reeks of pets or spilled liquids. They’re a pain to clean, and expensive when they need to be replaced. Instead, renters want beautiful hardwood floors that look better, last longer, and are easier to maintain than shag or wool.

Of course, if you’re going to splurge on flooring, you need to be sure you’re renting to tenants that will take care of it. Otherwise, you risk an even more expensive renovation. For C and D rental properties, this might not be the best choice.

  1. Furnished Homes: People hop from one city to another way more than before, which translates to a higher demand for furnished rentals. Not only is lugging furniture a hassle, but moving can cost up to $2,300—more than two month’s rent in the City of Detroit. 

If you do decide to go the furnished route, be sure to get it insured in case anything goes wrong. It also opens up the opportunity to charge far more if you accept short term renters, but it will still boost the price for long term rentals too. 

  1. Granite Countertops: While this is not a necessity, it’s a luxury that many enjoy. An updated kitchen is especially attractive to younger renters, since 76% of Millenials say that they enjoy cooking. Boosting the value and the appearance of the kitchen will help you stand out in a competitive rental market.
  2. Modern Appliances: If the toaster is old and broken or the microwave is stained or smells, it’s probably time to upgrade. Small changes like this can be a great way to subtly impress a potential tenant and help them justify their monthly payments. 

Of course, sometimes things can go missing or be taken, so this will depend on the type of property and type of tenant. If you’re renting out a high-end apartment to working professionals, then it makes sense. But, if you’re renting a basement suite to university students, then you could skip this.

Conclusion

These eleven amenities mean you have plenty of ways to entice prospects into renting your property—and maybe even increase your profits.

Keep these home features in mind when you’re upgrading the rental, revamping advertising materials, or expanding your portfolio to include more properties. They’ll give you a far more competitive edge in the market and attract serious renters looking for a perfect match.

Any other highly-requested amenities we’ve missed? Comment them below!

Image courtesy of Patrick Perkins

Categories
Landlords

Should Tenants Be Allowed to Make Home Improvements?

Nothing is worse than having a tenant who took “please feel at home” way too seriously.

While some tenants will only install their own wall decor or child safety latches on kitchen cabinets, some tenants make more permanent changes to the rental without your permission. This creates a whole lot of trouble—broken lease agreements, depleted security deposits, and costly restorations when they finally move out.

So, should tenants be allowed to make home improvements in any circumstances? Let’s look at some considerations.

Common Home Improvements to Expect from Tenants

Here are some examples of rental property alterations often done by tenants:

  • Painting the interior walls
  • Changing light fixtures
  • Changing appliances
  • Installing new locks on doors
  • Upgrading security systems
  • Changing the landscaping/garden

While these changes may be considered an actual improvement or upgrade to the property, you need to ask yourself the following questions before allowing them:

  • Will your tenants do a good job? They may not have the skill to carry out the project and may not adhere to safety or industry standards.
  • Who will pay for the improvements? They might expect a decrease in rent due to work done and materials used—even if the changes made are not up to par. 
  • Can you reverse the renovation? It’s possible that they deviate from the purpose of the original design (e.g., laminated floors are easier to clean than hardwood, simple landscaping is easier to maintain, etc.), which could require reversals in the future.
  • What does the lease state? Allowing them to break agreements might lead to them pushing their luck—further ignoring other clauses beyond just home improvements. 

You need to remember that your rental property is an investment—one that you should take ownership over, improve, and maintain according to your standards. Moreover, your tenants should see the importance of adhering to the contract and, ultimately, respecting you as their landlord.

What to Do If They’ve Done It Already

Should you discover that they’ve already made the improvements without authorization, here are three steps that landlords should do:

  1. Send a written notice of the home alteration, expressing your disappointment that they did not notify or seek permission before implementing the changes. Point out the specific lease clauses that they have violated.
  2. Warn the tenants that there should be no further changes done to the property without permission and that you’ll happily consider any changes they might still want to make.
  3. Outline the consequences of their action. This could range from just a fair warning to requesting that they reverse the renovation made—at their expense. If the alterations are extreme, you can deduct the cost from their security deposit upon Move-Out or proceed with eviction due to lease violation.

How to Prevent Tenants From Making Unauthorized Home Improvements

As they say, prevention is better than cure. So if unauthorized home improvements have been made by your tenants, make sure to review the lease agreements. Ensure that the following lease clauses are clearly stated:

  • Improvements that can only be done by the landlord or with landlord’s written permission
  • Improvements that can be done by either party
  • Consequences for alterations that devalues the property

Your goal is to create a space for tenants to freely improve their living conditions while being firm and clear with the boundaries. Even if you lucked out this time and the tenants did a great job improving the home, an unclear lease will open you to future problem alterations…and your luck may just run out.

Conclusion

Every rental property will need renovations and improvements from time to time. From repairing to re-flooring, landlords need to stay on top of their rental properties and make the necessary renovations when needed.

If your property can use a bit of work and you see that the tenants are capable of doing a good job, you should have no problems allowing them to improve the space. The bottom line is to make sure that they understand the boundaries and adhere to your lease agreements, and you should be good to go.

Do you allow your tenants to make home improvements? What are your non-negotiables? 

Image Courtesy of Polina Tankilevitch

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Landlords

How Landlords can Easily Raise Rents

Many landlords dread raising rents on their tenants for fear of the tenants moving, or the landlord just finds the whole process unpleasant. So, it’s not uncommon to find landlords that haven’t raised rents in 2, 3, or more years. 

Raising rent is actually a regular (albeit not the most fun) part of being a landlord. A landlord should raise rents as the market dictates, because: 

  • Keep up with inflation
  • Be able to afford rising maintenance costs
  • Accommodate property tax & insurance increases
  • When you’ve renovated a property to a higher standard

When that time inevitably comes, you need to know the right way of increasing your rent. Doing it the wrong way might cost you, tenants, leading to longer vacancy periods and costlier turnovers. Plus, no landlord wants to feel like the bad guy, so it’s important to show you’re being fair by handling rent increases diplomatically.

This article will teach how you can raise rent amounts and generate more income while communicating the situation professionally to your tenants. We’ve even included a sample rent increase notice that you can use for informing your tenants as amicably as possible. 

How should you approach a rent increase?

Depending on local and state laws, the required notice period for rent increases can range from 30 to 120 days. In Michigan, you have to give 30 days’ notice, but if you’re raising rent by 10% or more, you have to inform the tenant 60 days ahead of time.

Most people draft a letter informing tenants of the increase (like the one we’ve included below) and send it out to them, but there’s another way to approach this: 

  1. Go on Zillow, the MLS, or Rent-o-Meter to find what the market rent for this property is.
  2. Compare that to what the tenant is paying.
  3. Submit that information to the tenant and ask them what seems fair in terms of an increase

Note: At this point, you haven’t told them the rent was going up, but you’ve implied it. You’ve also involved them in the decision, so they’re more willing to accept it, making this a more subtle, non-aggressive approach to raising rent.

  1. The tenant’s response will typically be to offer 50% of the full increase, although some will say they don’t want to pay any increased rent at all. A good way to address either of these scenarios is to ask: “Why do you think that low of an amount is fair?” Make them defend it. 
  2. Then they’ll explain why they shouldn’t pay an increase (personal emergencies, poor maintenance on your part, etc.). Then you can ask: “Are you sure that’s your best offer?” 

The best part about this is that it lets you raise rents without TELLING the tenant there will be an increase, but rather including them in the process.

Tenants may even surprise you by offering more than what you expected! 

How much can you increase?

Ideally, you’ll want to keep the raise to less than 5% per year. Any higher, and your tenants will most likely move away—even if the rate is similar to your competitors in the market.

Why?

Think of the other rule of thumb that’s often used in screening tenants: rent amounts should only be a third of the tenant’s monthly income. This means most people can’t afford to spend an additional hundred dollars a month on rent payments – unless the tenant base in your area is on the up and up, like because of new employment opportunities or developments nearby.

Jacking up the amount too high without good reason will therefore jeopardize your rental income, as tenants will struggle to pay fully and on time. 

Plus, once a tenant has been there a while, they feel entitled to zero rent increases forever. If you raise it from $800 to $900 overnight, they’ll freak out. Even if the rent in the area is $1,100, they can’t afford it. So you’re better off with consistent smaller rent increases, like $25 a year, rather than waiting 3 years and increasing your rent all at once to reflect current market value.

On top of this, some cities have rent control laws in place. These maximum rent caps on what landlords can charge and are implemented by the government. Be aware of your local regulations before implementing any rent changes (just FYI, rent control isn’t allowed in the state of Michigan, but it is common in markets in New York and California).

Sample rent increase notice

When you’re ready to implement the raise, here’s a sample rent increase notice that Colleen F. shared in the BiggerPockets Forums. This letter is great because it helps tenants understand the landlord’s own financial obligations and view an increase in rent as a necessary business decision, rather than thinking you’re just being greedy.

Feel free to use it as a basis for crafting your own notice:

Dear John Tenant,

Thank you for being a tenant here at 123 Main St, Apt 1. Our goal is always to provide a nice place to live, at a fair price. Whenever the prospect of raising rent comes up at any property, we take a good hard look at it to make sure it’s necessary.

In that light, we have decided it is necessary to raise the monthly rent on your unit, effective September 1, 2020, to $1,050 from $1,000. This is partly to offset the increasing cost of property taxes, insurance, high heating expenses, maintenance costs, and upgrades since our purchase of the building in 2010.

Even after this increase, we believe we are still at or below the average market rent for a unit of this type. Rather than pay an increase, you may choose other housing. Should you intend to vacate at the termination of your lease, the original lease agreement states that you have to provide 30 days written notice of your intent to move. If you choose, signing this form checking off that you will not renew and returning the form to us 30 days in advance of your expected renewal will be considered your written notice.

Sincerely,

Management

Conclusion

There’s no guarantee that your tenants won’t complain about an increase in rent. However, if you increase your rent fairly and strategically, you can manage their expectations and prepare them ahead of time to budget appropriately. 

When they’re prepared and you communicate openly with them about the situation, your tenants won’t see you as the bad guy for increasing their rent. 

Any other concerns related to increasing rent amounts? Leave a comment below!

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Landlords

How to Market your Rentals Online: Screen Appeal and Listing on Digital Platforms

From digital walk-throughs to Zoom tenant interviews, real estate marketing has officially transitioned to digital in light of the COVID-19 pandemic.

Virtual showing techniques aren’t new, but COVID-19 has certainly pushed the industry to adapt as a necessity. Landlords that didn’t have videos of their properties pre-COVID are now rushing to create virtual tours and trying virtual staging methods.

At this pace, digital marketing will fast become an integral and permanent part of real estate marketing before we realize it!

What does this mean for landlords? 

Prospective renters are now viewing and shortlisting properties from their screens, making “screen appeal” a crucial factor to promote your rental property. You want your offer to stand out where the prospective tenants are: online.

In this article, we’ll go through the ways to increase your property’s screen appeal, write an effective ad online, and list your properties where tenants are most likely to find them.

Increase screen appeal with noticeable features

First, you need to make your rental look impressive in photos. To do this, invest in features that will stand out in photos—even if the prospect browses on their tiny phone screens. 

These are the things that will make a huge difference in digital listings:

  1. Sparkling kitchens with shiny appliances, glossy countertops, and newly-painted walls and cupboards
  2. Spotless bathrooms with new showerheads, clean mirrors, and re-grouted tiles
  3. Fresh blinds and curtains without any mold or grime that are updated to fit the aesthetic of the property
  4. Blemish-free walls freshly painted with a color that makes the room look bigger, brighter, and homier
  5. Brand-new fixtures everywhere—from light switches to faucets to doorknobs and fly screens
  6. Clean carpets that even look like they smell great
  7. Bright lights in every room to make the rental property feel new, and more importantly, show that you’re confident enough to put everything in the spotlight

Make sure that you use a camera that does your rental justice! None of the spectacular features you updated and cleaned will be seen if you use the front camera of your beat-up phone. If you need to hire a photographer for decent equipment, it’s worth the one-time payment to get a lifetime of great photos for your listing. 

Write an effective ad that highlights relevant details

Once you’ve updated your rentals with photogenic features, you need to post them on digital platforms. But what do you say? How do you write an effective ad that attracts your tenant pool? 

Here are the important factors to focus on:

  1. Write a great headline. Rentalutions’ formula suggests including the key information tenants look for (e.g., number of rooms or location) plus one feature that makes your rental unique.
  2. Use professional word choices that add value to your listing, as long as they’re an accurate description of your property. You want to avoid generic words such as “great” and “nice”, instead, choose words like: upgraded, spacious, tasteful, landscaped, modern, luxurious, and charming.
  3. Add more information on the key features. Knowing what tenants want (as you should), make sure to highlight these features in your ad. Are you expecting to attract tenants who put importance on parking spaces, walkability, nearby supermarkets, or proximity to a great school? Your copy should indicate that.
  4. Add detailed property descriptions. Similarly, also indicate what the tenants will want from the property itself. How many rooms, floors, and bathrooms? Will they be attracted to a lush backyard or extra storage areas? Flesh out all of the important details to attract tenants.

Lastly, prove what you said with great photos! When you use great photos to compliment everything that you verbally promoted on your listing, your screen appeal will skyrocket. This is where the prospective tenants should go “Wow! They weren’t kidding!”

List your rental on industry-popular websites

Armed with your impressive photos and well-written ad content, it’s time to post your listing where it matters. Most people are baffled by how many options there are to list online, especially since there isn’t a one-stop-shop solution that posts to all the rental listing sites. 

Zillow—the favorite of most landlords—allows you to create detailed listings that they’ll syndicate out to 26 partner sites (including Trulia, Hotpads, and MSN Real Estate), but it still doesn’t cover all of the sites available.

To get started, check these sites that are known to be effective and user-friendly:

  1. Zillow
  2. Trulia
  3. Hotpads
  4. Craigslist
  5. Facebook

Apart from those, you can also consider these lesser-known platforms:

  1. Apartments.com
  2. Apartment Finder
  3. Apartment Guide
  4. Apartment Home Living
  5. Apartment List
  6. Backpage
  7. Byowner.com
  8. Cozy
  9. Doorsteps
  10. Move
  11. My New Place
  12. Nextdoor.com
  13. Oodle
  14. Realrentals.com
  15. Realtor.com
  16. Rent.com
  17. Rentals.com
  18. Rentdigs.com
  19. Rentlinx
  20. Saletraderent.com
  21. Sublet.com
  22. Walk Score
  23. Zumper

All of these websites allow you to post for free. You just need to do some research and decide which platform enables you to attract the tenants that you want. For more details on the sites we mentioned above, check Smart Move and Landlordology.

Conclusion

Technological development waits for no one. In order to keep up and remain competitive in the rental property business, it’s time to level up with online marketing!

The steps are easy enough—simply increase your property’s screen appeal, write an effective ad describing the best parts of your property, and list them on websites where tenants are likely to browse for new homes.

Any other tips on how to market rentals online? Where are your rentals listed so far?

Image courtesy of Joshua Miranda

Categories
Landlords

How to Find Good Contractors for Your Rental Property

There are many shady contractors out there! Finding a trustworthy contractor to work on your rental property can be tough. You want to make sure that you find one who will do good quality work, is licensed, and won’t rip you off.

To ensure you get the best contractor for the job, here are 5 steps you should follow.

1. Gather Your Options

There are several places you can go to look for contractors that can serve your area:

  • Ask for referrals: Ask your friends, family, and colleagues who have had the same kind of work done for any recommendations. Many contractors rely on word-of-mouth advertising to build their client base and reputation, which makes it easy for landlords to ask around.
  • Read neighborhood review websites: Popular sites like Nextdoor give you several leads, all with contact information and recommendations for your area. You can also check Angie’s List (now Angi) or Yelp for more client reviews.
  • Post on social media or advertising sites: Posting on your social media platform may get you connections and recommendations from people outside your circles.
  • Ask hardware and supply centers: Your local hardware store or building supply center will likely have a list of plumbers, carpenters, electricians, and more. You can ask the customer service representative for their details. 

Our pro tip? Seek out the hustlers. Visit Home Depot at 6 AM on Saturday to find hard-working contractors. 

While others are sleeping in on the weekend, these hustlers will be wide awake and ready to work. You want contractors like this, who work beyond the usual 9-5 on weekdays, as your tenants are usually available for repairs only when they’re not at work themselves. You don’t want to pay contractors “overtime pay” for coming in on weekends! A good contractor will be greedy—grabbing opportunities to work even on odd hours, and some of them won’t even charge more for doing it. 

2. Research Them Online

If you’ve done your research, you’ll likely end up with a long list of contractors. Shorten your list by doing an initial sweep online—conduct your own background research for any shady activity or active disputes by certain contractors. 

Pull up Google and type in their name, their company’s name, and your city. Add keywords such as “scam,” “complaints,” or “court” to reveal negative information against the contractor.

3. Initial Interview

After the initial screening, choose the ones you’re comfortable with and schedule an interview. You’d want to ask questions about their services, such as:

  • How long have you been a contractor?
  • How long has the company been in business?
  • Is the team familiar with this kind of work before? How often?
  • Does the team have references that I could see?

Narrow it down to a handful of contractors. The next step will determine who’ll make the cut.

4. Verify with References

By this point, you’ve talked to the contractors themselves. This is the time to talk to the client references to verify service quality and performance.

Call former clients and ask the following:

  • Was the work done in a complete and timely manner?
  • Was the work done according to the agreement?
  • Was the contractor well-organized and professional?
  • Did the contractor charge fairly? Were there additional costs?

After this, you should have a shortlist of contractors that you want to proceed with. 

5. Screen Them Thoroughly

Schedule a meeting with each contractor to discuss the work in more detail. See how they feel about the proposal, and get a sense of their work ethic as well.

It’s important that they are experienced, knowledgeable, and officially licensed to carry out the work. Clearly outline your expectations, as you’ll be relying on them for both basic and emergency property maintenance.

The key questions you need to ask are:

  • When are you available and what locations do you serve?
  • What type of work would you say your team is most capable and skilled at doing?
  • Can you walk us through a typical job and the communication you provide?
  • How often do you send pictures and videos of the work? Are they clear and detailed?
  • What are your licenses and insurance to complete this particular project?
  • Can you pull permits, or would I have to?
  • How are your estimates and invoices created and delivered?
  • What is your preferred payment schedule?

Then, get into the details of how you want them to serve you by asking the following:

  • Will you add us as “Additionally insured”?
  • Will you agree to estimating and quoting by the job instead of hourly?
  • Will you allow payment within seven days to allow time for inspection?
  • Will you sign waivers for all payments?
  • Will you agree to a background check?
  • Will you sign a W-9?

Once you’re confident with a contractor, draw up the contract and close the deal. The document should include all the important information, including the start and end dates, payment schedule, materials required, description of the work, and specific instructions on how to handle any changes to the project plan.

Conclusion

With a good selection process, you’ll have a whole roster of trustworthy contractors in your arsenal, ready to meet the quality you expect from the best of contractors.

Gradually build your list of contractors you’re happy with, and keep their details easily accessible. You’ll never know when you’ll need to call them!

Image courtesy Tima Miroshnichenko

Categories
Landlords

Eco-Friendly Tips to Maintain Lawn and Garden

As a landlord, there are several reasons you need to take care of your lawn and garden:

  • Good landscaping is a great way to increase your property’s curb appeal.
  • Allowing weeds to thrive or leaving soil exposed might lead to flooding and pipe damage.
  • Large weeds can even destroy foundations, fences, and outbuildings.

For all these reasons, it’s actually more cost-effective to do preventative outdoor maintenance (and make sure your tenants do, too).

One of the ways to make the task easier, cheaper, and healthier is by using sustainable, eco-friendly methods. Taking care of plants and greeneries without harmful pesticides isn’t as hard as many would think! And, depending on the type of tenants you’re aiming to attract, your eco-friendly garden could be a major selling feature.

Even if you don’t have a green thumb, these quick and easy tips will help you maintain a healthy lawn and garden while being environmentally friendly! 

Leave grass cuttings on the lawn.

Grass cuttings act as natural fertilizers, providing essential nutrients to the lawn and garden. They decompose quickly into the soil, adding nitrogen and acting as a moisture barrier. They also eliminate the need for commercial chemicals that pollute the atmosphere, taint the groundwater, and add unnecessary maintenance costs to your property.

After mowing the grass, skip the rakes and leaf blowers! Just leave the cuttings on the ground—you’ll save time and money, without compromising your garden’s lushness. 

Use yard waste and kitchen compost as fertilizers.

Composting is a great way to reuse resources and create high-quality fertilizer that’s completely free. It’s achievable even in apartment buildings that don’t have garden space—you can use countertop compost containers or a technique called Bokashi composting.

In most cases, you can simply have a compost bin where tenants can throw in their food scraps, then add them to an outdoor compost pile. If they’re not interested in doing so, you can also maintain your own compost and bring it to the rental property during the turnover period to fertilize the lawn and garden.

Avoid gas-powered equipment.

Using electric or battery-powered lawn care equipment will cut down your fossil fuel consumption and emissions—especially if you use manual push mowers (which are also free to run). The US Environmental Protection Agency (EPA) reports that a gas-powered lawn mower produces as much air pollutants as 11 cars, and that’s if the equipment is brand new!

If the old-school push mower isn’t quite your style, you can take advantage of electric technology with the many options available in the market. A corded electric mower will also cost you less than a gas-powered one, running anywhere from $150 to $250 on average.

Water deeply, but less frequently.

Your lawn and garden obviously need water, but not all methods will contribute to healthy growth. Here are a couple of techniques to water them properly:

  • Water the area three times a week instead of every day.
  • Program your sprinkler system to go off at midnight for minimal water evaporation.
  • Keep the sprinkler system on for an extra 10 minutes to have the roots absorb enough water.
  • Use smart watering systems to operate them remotely.
  • Devote a few sprinklers to drip systems for water efficiency.

Additionally, consider turning the system off when rain is forecasted. Not only do you get free water, but you also avoid over-watering the lawn and garden.

Create a buffer zone between lawn and waterways.

This last tip is simple yet crucial, especially for homes in locations that are prone to natural disasters.

If your property is near a lake, river, or stream, try to leave a 10-foot buffer zone between the waterway and your lawn or garden. Allow the zone to thrive naturally with vegetation and plants, binding the soil underneath into a strong barrier. 

The area will serve as a physical barrier to prevent fertilizers from entering the body of water, protecting your area from erosion and keeping your property safe during storms, floods, and more.

Conclusion

There are many ways to implement eco-friendly maintenance of your lawn and garden. Most of them are completely free and only require a bit more effort in setting up. 

Pass these tips along to your tenants if you want them to maintain your garden perfectly during their tenancy, and you can hopefully prevent your outdoor areas from getting overgrown while the property is rented out.

By simply leaving grass cuttings, maintaining a compost pile, using electric equipment, controlling the water system, and having a buffer zone for waterways, your rental investment will have a thriving, beautiful lawn and garden designed to last for a long time. Plus, prospective tenants might love the idea of living in an eco-friendly property.

Any other tips that we’ve missed? How are you currently maintaining your lawn and garden?

Image courtesy of Pixabay

Categories
Landlords

7 Ways to Attract Newly WFH Tenants

Now that work-from-home is normal, many Americans are planning to move!

The pandemic has shown both employers and employees that remote working is possible, profitable, and preferable. Employers enjoy lower overhead costs, while employees can relocate to areas with a lower cost of living and larger homes.

Don’t believe that work-from-home is really here to stay?

Just check out these statistics from Upwork reports:

  • 1 in 4 Americans said they’ll be working remotely in 2021.
  • The U.S. predicts an influx of 14-23 million remote workers soon.
  • 14-23 million Americans intend to relocate as a result of remote work.
  • 36.2 million Americans (22% of the workforce) will be working remotely by 2025—an 87% increase from the number of remote workers prior to COVID-19.

With so many people planning to relocate, your tenant base can expand beyond the traditional type of applicants you received in the past – like those who work at nearby companies. Tenants can now come from anywhere, work anywhere, and will have priorities that are different from tenants who commute to a job nearby.

As a landlord, you need to know what these remote-working tenants are looking for, so you can tailor your marketing efforts and investment strategy to capture this huge new market.

Let’s look at 7 different ways you can attract them:

1. Offer a Work-Conducive Space

Whether your rental property is a stand-alone house or apartment units in a building, remote workers now prioritize a space for working almost as much as a space for sleeping! They will look for a home that’s well-lit and has a dedicated office space, ideally – perfect for long hours of work.

This could be as simple as a secluded corner where an office table would fit perfectly, or a spare bedroom that’s easily convertible to a home office. Both areas should be ready for additional electrical wiring (e.g., outlets or light sockets) and additional shelves or cabinets. Remember, remote workers will be spending at least 8 hours of their day in whatever working space your home can provide—if you want to attract them, you need to cater to their working needs and make this area as ideal as possible.

2. Advertise Where They Are – Online

With the coronavirus solidifying our dependency on technology, many landlords have already adapted to digital means of advertising. Now, with most applicants finding and even viewing properties online, digital listings have become more important than ever.

In other words, you need to create a killer ad on real estate sites and renting platforms, or else nobody will find you!

Aside from standard details, such as the rental rate and location, you should also highlight parts of your property that will be attractive to remote worker renters. This will vary from property to property.

For apartment units, this may mean laundry services or swimming pools, but the most important thing is to make sure there are stable, fast internet speeds available from providers in your area. It may also mean plenty of nearby businesses, shopping centers and other local amenities, like services to support remote working (print shops, etc.). With proximity to the office becoming a lower priority, having amenities and services near their residence might appeal to tenants more than commuting times in the current environment.

In special cases, you might advertise a home specifically because it gives the off-the-grid appeal. Remote workers finally being able to move away from the city might be on the lookout for a quiet retreat from the hustle and bustle of metropolitan life, so rural and remote rentals might be more in-demand now with WFH tenants.

3. Emphasize Value for Money

One of the biggest reasons why remote workers move is because they want to pay lower rent, and they’re now no longer limited to renting in expensive areas, just to be closer to their office.

Think about this when marketing your rental properties.

For example, if your home is a 3-bed, spacious property in a Class A neighborhood that rents for the same cost as a 1-bedroom apartment in your closest major city, you could say: “2000 sq ft house on ½ an acre (in an award-winning school system), for less than the price of a Chicago apartment!”

Speaking directly to the pain points currently experienced by your tenant base will help make your listing more appealing to them, and could help you stand out from the crowd when marketing to WFH applicants.

4. Provide 3D or Virtual Tours

Because of social distancing rules, travel restrictions, and the risk of infection, many people now avoid visiting properties in-person. Providing virtual tours for prospective tenants will allow them to “visit” your property freely at any time of the day – from anywhere in the country! This makes it easy for remote workers who are planning to relocate to view your property, even if they’re stuck in the middle of a city at the moment.

There are plenty of softwares available on the market that specialize in creating virtual tours for your property. Consider getting a professional to come film and create your virtual or 3D tour, because in some cases, it will be the only point of reference your tenants have before deciding whether or not to rent your property. It’s important to make a great impression with your tour, so spending a little cash on having it done by an expert is well worth it – especially since you’ll be able to re-use the same 3D tour in future years (as long as you don’t do any major renovations).

5. Assure a Contactless Process

Now that remote work is becoming the norm, you (as the landlord) should also consider having a contactless process for managing your rental properties. Not only will this make things easier for you to manage, but it also makes the system safer for your tenants.

Nearly everything in real estate can be done remotely, such as:

  • Self-guided virtual tours
  • Thorough tenant screening
  • Document preparations
  • Securing digital signatures
  • Collecting rent via online portals
  • Delegating, coordinating, and monitoring tasks to contractors

As a bonus, remote worker tenants will most probably have no problems adapting to a digital process – in fact, it’s what they’re used to, at this point! Mention in your listing that you offer these contactless solutions, and it can help attract these tech-savvy tenants.

6. Highlight Health & Safety Measures

Moving during a pandemic can be a scary undertaking, especially if tenants are worried about coming into contact with the virus when they move into their new home.

To give them peace of mind, make sure you thoroughly disinfect the property before move-in day by deep-cleaning the carpets and furniture, mopping floors, wiping down surfaces, and clearing the ventilation systems.

You can hire a professional disinfection service to sterilize the property with UV light, smoke, or cleaning solutions, and even provide a certificate stating when the disinfection took place. Again, highlighting these safety measures in your ads will help reassure applicants who are concerned about transmission.

7. Allow their Pet Companions

According to The Humane Society of the United States, 72% of renters have pets. Now that many people are transitioning to WFH, this number might even increase.

Some tenants who never were able to care for a pet before due to long hours spent out of the house might now decide to get that puppy they’ve always dreamed of, since they’re working from home. Others may be feeling isolated during the lockdown and have only their furry friend to keep them company – so if your rental means giving up their pet companion, it might be a deal-breaker! Allowing pets right now therefore could be an additional way to attract remote workers as tenants.

However, if you don’t want to consider having pets in your rental properties, just be aware that more tenants could be trying to sneak in unauthorized pets now than in previous years – so that’s something to keep an extra-close eye on when inspecting properties.

Conclusion

The best landlords are always on the lookout for the next real estate trends. Remote working is just one of the huge trends that emerged in 2020, but experts are predicting that it’s a trend that will remain in 2021 and beyond.

Because of this, landlords need to make sure their rental properties are primed to attract the huge influx of remote workers who are on the hunt for a new home.

Take advantage of this new opportunity to meet the demands of our ever-changing society—and grow your rental business in the process!

Are you renting out to remote-working tenants? What are the things they tend to look for, in your experience?

Image courtesy of Teryn Elliott

Categories
Landlords

How to Calculate Rental Return: How Much are You Making from Your Rental Property?

How much can you actually expect to make from rental property investments?

This is a great question, and one without a straightforward answer. 

That’s because the amount of rental income you receive from a particular property depends on the financial viability of the deal, as well as how well you manage it. 

In this article, we’ll give you some tips for identifying profitable rental investments, and some rough rules-of-thumb for calculating the potential profitability of a rental property. If you want a better idea of how property management can impact these figures, check out this article. 

Financial Viability

Here are some formulas you can use to help you determine the financial viability of a real estate investment.

Return on Investment (ROI)

ROI is used to measure the performance of an investment by evaluating the expected return relative to a property’s cost.

Add up the cost of acquisition, closing fees, repair costs, and annual expenses. Then, divide your total annual income (from rent) by the sum of your expenses to arrive at your yearly projected ROI. There is no sweeping standard for a “good” ROI, but if we were to aim for a benchmark, you’d want to look for a yearly ROI that’s above 15%. 

Cash-on-Cash Return (CoC)

CoC calculates the yearly returns based on cash income and cash invested. In other words, it measures how much you’ve made on the property in relation to how much you’ve paid for the mortgage.

Get your annual pre-tax cash flow, divide that by the total cash you’ve invested, and you’ll get your CoC return. Expert investors advise aiming for a CoC return that yields around 8% to 12%.

Capitalization Rate (Cap Rate)

Cap rate is the ratio of net income to the property’s acquisition price. There’s no “good” or “bad” cap rate, but it’s great for comparing your return across multiple properties. Here’s a quick guide on how to calculate it:

Get your net operating income (NOI) by taking your gross rental income and deducting every expense you have (excluding financing), like taxes, insurance, water, HOA fees, etc. 

Then, divide your NOI by the current market value, and you’ll get your cap rate. In riskier neighborhoods, 6% probably won’t be worthwhile. But in high-demand, high-quality neighborhoods, 6% could give you an amazing return.

The 1% Rule

Lastly, the 1% Rule is a quick calculation to determine if the monthly rent earned will generate positive cash flow for a property or not. The rule is that the amount grossed through monthly rent should be at least 1% of the final property purchase price (including the cost of any repairs). 

Calculating Profit

Now that you can identify money-making opportunities, the next step is to answer the following questions to calculate the profit you’ll get to keep.

How much rent will I realistically charge?

Start by surveying other rentals in the vicinity to get an estimated rental amount. You can ask a local realtor or property management company for an accurate number, or visit sites like Rentometer.com for a rough estimate.

If you end up with a range, stick to the lower number for a more conservative approach when assessing a deal and making your other calculations.

How do I know what the expenses will be?

When calculating your profit, you must add up all the expenses, including property tax, insurance, property management, and possible vacancies. Assume that these expenses will cost roughly 40% of your rental income. 

While it may sound like a lot, this figure is actually a conservative estimate and doesn’t cover any serious renovations or overhauls that a property might need.

What about the other 60%? 

If you took out a mortgage on the property, the mortgage payments will be covered by the other 60% of your rental income. This means you should only secure loans with monthly payments which total less than 60% of your estimated revenue from rent.

What happens to the remaining money?

Whatever is left over will be your profit. However, this is also what the government will charge taxes on. The taxes you pay on this income are not included in the property tax you pay annually. 

There are ways to lower your taxes as a real estate investor, but for this article, just remember to budget for paying both income and property taxes when calculating your potential profits.

Conclusion

How much can you earn from rental properties? How do you know if a rental investment is worth it? 

Just answer these two questions:

  • Is the investment you’re eyeing a profitable opportunity?
  • How much can you earn from renting out the property?

If the property passes all these common metrics with flying colors and earns you the rental income you’re looking for—you’ve just found a profitable rental property to invest in.

Image courtesy of David McBee