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
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:
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.
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.
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.
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?
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:
Go on Zillow, the MLS, or Rent-o-Meter to find what the market rent for this property is.
Compare that to what the tenant is paying.
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.
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.
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.
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.
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!
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:
Sparkling kitchens with shiny appliances, glossy countertops, and newly-painted walls and cupboards
Spotless bathrooms with new showerheads, clean mirrors, and re-grouted tiles
Fresh blinds and curtains without any mold or grime that are updated to fit the aesthetic of the property
Blemish-free walls freshly painted with a color that makes the room look bigger, brighter, and homier
Brand-new fixtures everywhere—from light switches to faucets to doorknobs and fly screens
Clean carpets that even look like they smell great
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:
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.
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.
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.
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:
Apart from those, you can also consider these lesser-known platforms:
Apartment Home Living
My New Place
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.
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?
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.
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!
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.
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?
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?
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
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.
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?
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.
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).
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.
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.
Your property listing is the very first touchpoint between you and your ideal tenant, so it’s pretty essential to get this right. A big part of this is the written property description which should appeal to the type of person you’d most like to have as a renter, whether that be young professionals or middle-class families. This article will show you how to get inside the mind of your prospective tenant and tailor your description to speak to them, just like professional marketers do when they want their product to stand out from the crowd.
Think Like a Marketer
As you prepare your rental listings, always write to attract your target tenant. You can do this by finding out as much as you can about their interests, concerns, and needs, and addressing these within your description.While you can’t discriminate as a landlord, you can still tailor your messaging to make it sound more appealing to your preferred target demographic, making them more likely to choose your home over another similar property on the market.
Know Your Audience
Once you have an idea for who your target tenant is, you can use tools like social media to help get inside their head. Look through property groups or ads on Facebook, and read through the comments to get an idea for the types of questions that concern your audience, and even the language they use to describe their ideal home. Write these words down and incorporate them into your property description, to help your home appear when they search for these keywords online.
Do Market Research
You can also use social media, and other property listing sites, to get a feel for the competition in your area. The point here is not to copy other descriptions, but rather to understand the ways in which your home is unique, so you can better emphasise these qualities in your own ads.
Craft Compelling Copy
There are two kinds of buyers: emotional and rational. You can make your marketing copy appeal to both of these kinds of prospective tenants by choosing the right words.
For those driven by emotion, tell a story with your property description to help them imagine themselves living in your home (e.g. “Curl up by the fireplace in the evening with a good book”). Just make sure the story you use is something that would speak to your ideal tenant.
For those driven by logic, the best way to “sell” them on your property is to remove any element of doubt from the equation. To do this, try to answer any potential question they may have about the property in the description itself. Take note of all the questions you see while doing your online research, as well as those which are asked most frequently by your prospective tenants, and incorporate the answers to them in your ads. This way, when they see your property, they’ll be able to tell right away whether it’s right for them, and this will give them confidence to choose your place over all the others on the market.
Embrace The New Normal
In the era of the new normal, tenants’ priorities are changing, so highlighting features which appeal to people in the current climate is another way to help make your property stand out.. Concerns about privacy and seclusion from neighbors, and the presence of big indoor/outdoor spaces, entertainment or recreational areas, large kitchens, home offices, and spaces which can be easily separated to accommodate people living and working at home together are just some of the things that tenants are now prioritizing more than ever before, so if your property has any of these features, make sure to emphasize and leverage on that as a selling point.
When creating your listings, you don’t need to stand out by having the fanciest property description in the entire market. You only need to stand out to one person: your ideal tenant. The best way to do this is by tailoring your language to address their desires and concerns directly, just like the best business marketers do.
Property management is extremely labor-intensive. You need to collect rent, evict problematic tenants, coordinate with contractors, maintain the properties, and so much more.
It’s not easy, either—if you’ve ever experienced difficult tenants or irresponsible contractors, then you know what we’re talking about.
However, if you have a rental investment property, you can’t go without it. The solution to your stress? Hiring outside help in the form of a property management company.
If you have a lot of properties, you may not have the time or energy to manage them all. PMCs can take care of the dirty details for you, which frees you up to expand your portfolio or focus on other things. More than that, property management companies provide expertise—expertise that you don’t have.
We understand that you may be hesitant to share your profits. Are property managers really worth the cut?
Let’s take a look at some of the benefits of having a property manager that’s not you.
You’ll fill vacancies faster
A good PMC uses their experience to find you the best tenants. You’ll still have the final say on who rents your property, but a property management company can pre-screen applicants for you.
Plus, good property managers will know how to keep tenants and encourage them to renew their lease. This means lower turnover rates for the PMC (so less work for them to do) and steadier revenue for you.
You’ll have more thorough rent collection.
Collecting rent payments is every landlord’s most dreaded task. But if you have a PMC, you won’t have to worry about consistent and persistent rent collection anymore.
Property managers will take over collecting the rent, enforcing lease policies, and implementing fees. With a good PMC, your income as a landlord should be much more stable.
You’ll have a more aggressive eviction process.
Whether it’s a problematic tenant that slipped through the screening process or someone who turned sour overnight, you don’t have to go through the grueling eviction process anymore.
PMCs will enforce the policies in your lease and ensure that difficult tenants are evicted. Plus, with a more thorough screening process, property management companies can help you avoid renting to problematic tenants in the first place!
You’ll have well-maintained properties.
No more attending to tenant repair requests and making sure the rental is well-maintained. PMCs will keep your properties in top shape and field tenant concerns 24/7. They’ll do everything from scheduling and monitoring to documentation and evaluation of the repairs. PMCs are also in charge of paying your suppliers and utilities at the end of the year.
Keep in mind that property managers may not help you with cutting costs. However, you can leverage their expertise and connections to get better deals on maintenance.
You’ll have better legal compliance.
Keeping up with legislative changes is part of a property manager’s job. This will help you avoid having a lease or process that’s out-of-date, in violation of a new law.
You’ll have the time and ability to scale.
If you want to grow your company and portfolio, you can’t spend most of your day managing tenants and properties. You’ll need a team to take on some of the responsibility. The less time you spend fixing problems, filling vacancies, and evicting tenants, the more time you’ll have to expand your investments.
Paying a PMC to manage your properties will result in less stress and an improved ability to scale. The bigger a revenue source you are, the more they’ll want to protect their relationship with you—so don’t skimp! Both of you will benefit from this working relationship in the long run.
Are property management companies really worth the money?
Well, having one will ensure that you have quality tenants, complete rent payments, someone to process evictions, well-maintained properties, updated legal requirements, and the time and ability to scale your real estate portfolio.
Just note that not all property management companies will do a good job—cheaper rates usually mean cheaper service. So, instead of asking if they’re worth the cost, ask “how can I make sure I hire a PMC that IS worth the money?”
Interested in hiring a PMC? What aspect of property management do you struggle with the most?
Rigorously screening your tenants is everything in landlording. Why? Because great tenants will make you wish you got into landlording earlier, however, problematic tenants make some landlords wish they never began investing in the first place.
If you don’t want to end up with regrets – screen your tenants! Here are just a few of the problems you can avoid by doing so:
MISSING & LATE PAYMENTS
The occasional late payment is one thing, especially if the tenant is just going through hard times (like a pandemic). But no landlord wants to end up with tenants that never pay on time, or never pay at all. Non-paying tenants will give you a headache trying to reach them, turn a blind eye to the lease agreements, and eventually, when you finally threaten them with eviction, pay only partially, just enough to stay a bit longer in your rental.
However, by screening well, you’ll see their employment status, current income, credit history, and talk to their past landlords to find out if they pay rent fully and on-time. This is the only way to help guarantee yourself consistent income through their rent – which is the whole point in renting out your properties.
Processing evictions is expensive, time-consuming, and extremely stressful. Common reasons for evictions are non-payment of rent, lease violations, property damages, or illegal activities – all of which are pains you can avoid by screening well.
You can avoid getting yourself into situations that require evictions by looking out for any concerning things during the interview screening. How responsible are they with their finances? How did they behave in their past rentals? Are they rule followers (e.g. did they follow the lease agreements at their previous rental)?
For more on how evictions work in Michigan, head on over to this link.
Some tenants don’t take their landlords seriously. They may seem great prior to renting, but this doesn’t mean they will continue to behave once they’ve secured your property.
Some will damage your property. Some will harass the neighbors. Some will want you on standby to attend to any of their requests, no matter how unreasonable or small. Just look up “tenant horror stories” on Google and you’ll see what we mean! They will make you wish you hired a PMC (which you can obviously consider doing, too) or at least have screened them properly before handing the keys over to them.
It’s just not worth it when you can verify their historical data and call up their references to check their behaviors.
4. DIFFICULT MAINTENANCE
Since tenants have no attachment to the property, many lower class (C and D) tenants won’t take care of it as much as you wish they will. But you’ve invested good money in your units, so why wouldn’t you also invest in good tenants to take care of them?
It only takes one sloppy tenant to reverse the improvements you’ve done into costly damages you’ll be forced to fix. One dog to scratch the hardwood floors, one lazy tenant to neglect the overheating boiler, and one hoarder to turn your rental into an insect hub.
To avoid this, ask previous landlords how they were during their tenancy. Were there any problems with property damage, housekeeping issues, or living habits? Also ask if deductions were made from their security deposit, and get an explanation as to why. If tenants can’t provide a suitable, well-documented explanation for any sketchy rental history, beware!
5. HIGH VACANCY RATE
The words “high vacancy rate” should scare any responsible landlord, because an empty rental investment is just losing you money by the month. The vacancy rate compares the amount of time your property could have been rented versus the time it’s actually rented, so you want it to be as low as possible. Common reasons for vacancies can be because the tenants you get are always leasing short-term, the tenants are often problematic and have to be evicted, or the tenants ruin your property and you need to do major repairs – either way, your business is not generating profit during this time.
To prevent this from happening, verify the following during screening: Do they tend to move residences often? Do they have stable employment? How long do they plan to stay in your rental, and do they have the financial stability to commit to a longer lease? Look at past rental history, previous addresses, credit and employment history to figure this out.
Tenant screening is the last area of your property management that you want to skimp on. By being cautious before accepting an applicant, you can avoid more than just these five problems – you can eliminate most, if not all, of the things landlords have to stress over.
Any experience you’d like to share on how tenant screening saved your life as a landlord? Comment below!