Categories
Landlords

2022 Real Estate Forecast for Rental Property Investors in Detroit

Sign that says House For Rent in front of a building
SOURCE: Ian Samkov on Pexels

The US real estate market experienced a wild ride in the last few years, but things have started to settle down.

Many experts and agents forecast that normalcy is around the corner, especially since there was an increase in new listings with a small drop in closed sales in Southeast Michigan in 2021 compared to the previous year.

In the City of Detroit, the news is even better—total sales went up by 8.8% year-over-year.

Right now, Motor City is presently a renter’s market. The City of Detroit has seen an increase in renters vs homeowners, with renting households accounting for 44% of occupied housing units—growing by 35% over the past 3 years.

This is great news for landlords, as it means the tenant pools are increasing in size.

So, what’s in store for rental property investors in the City of Detroit? Let’s take a look.

Employment on the Up, Better Rental Prospects

The population of born-and-bred Detroiters has declined. However, we’re seeing plenty of working-age adults moving in, especially with opportunities opening up.

Just take a look at these statistics:

  • Employment growth is up 1.18% year-over-year in the city of Detroit.
  • The greater Detroit-Warren-Dearborn area saw an over-32% increase in GDP.
  • The City of Detroit is looking at a forecast of 29.31% rate for job growth and a 4.7% rate for job gain.

This shows positive trends for employment in the City of Detroit. And more people with jobs means more renters who are financially stable to afford beautiful rental properties. Moreover, it’ll help increase your occupancy rate so you can recoup your capital in a short time.

Affordable Homes with Increasing Sales Prices

As of July 2022, the median list price for homes is only $80,500, with median sales prices at $75,000. The median number of days spent on the market is a little high (85 days), but that’s already an improvement from the 143 days back in February 2022.

Currently, homes in the City of Detroit go for 11.5% below the asking price as of July 2022, but it’s worth noting that median listing and sales prices have already skyrocketed. Back in March 2022, the median selling price was $54,500. This shows a 137% increase in sales price in just a few months.

The stats show that Detroit’s property market is recovering steadily, heading towards pre-pandemic levels or better. For those looking to invest in homes, this is good news mainly due to two reasons:

  1. Healthy rent-to-price ratios, as you can easily purchase below-$100k homes and rent them out for at least $1,000 monthly. You’ll generate positive cash flow from the get-go and reap investment returns fast.
  2. Enjoy significant equity gains since you’ll purchase while the prices are still low. As home values in the City of Detroit continue to increase, you’ll steadily generate equity from rising property appreciation rates.

In short, now is the perfect time to invest in Motor City’s affordable housing market while prices are low. As the economy recovers and grows, your likelihood of renting and selling properties will only increase simultaneously.

simultaneously.

Emerging Opportunities to Invest in Condos

Meanwhile, in the urban areas of the City of Detroit, it’s also an excellent time to invest in condominiums. The greater downtown area suffered due to COVID-19, and inventory went down. But as businesses reopen and new developments continue, there’s a shift from a buyer’s to a seller’s market on the horizon.

Some key areas include Brush Park and North Corktown, with new developments breaking ground in 2022. We expect this will lead to a great economic boom for real estate investors looking to fill their commercial properties as well as more renter seeking condos in the heart of downtown.

Real Estate Forecast for 2022

It may be a renter’s market now, but as the city’s economy recovers, there could be a shift in trend soon. With the median listing price for homes still fairly low and the median sales prices increasing, there’s no better time to invest.

Overall, things are looking up for the real estate market in the City of Detroit, so catch the wave before you miss out!

If you’re looking to invest in real estate in the City of Detroit, hit us up at Logical Property Management! We’ll help you choose the best investment locations to maximize your returns.

Categories
Landlords

Top 3 Upcoming Trends of Short-Term and Vacation Rentals in 2022

An STR in the metro market
Photo by Andrea Davis

During the pandemic, STRs took a hit to their profits. Let’s take a look at some of the upcoming trends and the positive outlook facing STRs in 2022.

Before the COVID-19 pandemic, the short-term rental (STR) market was going strong. In fact, Airbnb reported a 33% increase in booking during February 2020—a month before the pandemic hit. In contrast, during the pandemic, STR bookings took a massive hit. By January 2021, Airbnb reported record low bookings, down 31% from their average.

It’s now 2 been years and we have to ask: Will the STR market recover?

While we have seen that people are becoming more willing to travel with COVID-19 restrictions slowly easing up, there are more than a handful of factors that affect the future of STRs. You’ll need to know these if you want to navigate the uncharted waters ahead.

Let’s take a look at some projections for the STR market in 2022 and beyond.

STR Trends for 2022 and Beyond

If you’re running an STR business, you’ll have to reevaluate your strategies to adjust to the changes. With how COVID-19 changed how we look at STRs, the market has adjusted to fit the new norm. Here are 3 of the biggest changes we can expect to see for STRs.

#1 – The Fall of Seasonality

Before COVID-19 made vacations impossible, it was fairly easy to predict when booking would increase.

For example, for a property located in the mountains, you’re likely to see an increase in tenants during the winter. For rentals located near theme parks or beaches, such as Orlando and California, you would see an increase in booking during spring and summer vacations.

However, thanks to the rise and familiarity of remote work (both for employers and employees), people are more willing to go on a vacation during off-peak seasons. In a May 2021 report, Airbnb recorded that 64% of respondents are willing to travel during off-peak seasons—making bookings highly unpredictable.

With people more willing to travel during off-peak seasons, bookings for vacation rentals might see sporadic bookings throughout the year. The number of total bookings might be roughly the same, but it won’t be concentrated on seasons.

To adjust to this, you should provide deals and discounts more frequently instead of focusing on seasons. Having regular weekend discounts can target the customers looking for bookings during off-seasons.

#2 – Recovery of the Urban Market

During the height of the pandemic, many people fled from cities to avoid the crowd. For instance, over 320,000 people fled New York City during the height of the pandemic, primarily to get away from crowded areas and retreat to more rural environments.

However, with the increased distribution of COVID-19 vaccines, people are returning to normalcy in terms of their comfort with meeting people. They aren’t as afraid of the crowds inherent to cities anymore as they were during the height of COVID-19.

In fact, New York City had an influx of  new residents starting in May last year. Plus, malls are reopening, more restaurants offer indoor dining, public transportation is returning to normal operations, and people are starting to repopulate the cities.

With people flooding back into the city, the need for accommodations will rise. Therefore, the urban market is looking to make a fast recovery—giving you the perfect opportunity to grow with it.

#3 – Longer Bookings Are Becoming the Norm

With the rise of remote work and online schooling (at least, for the meantime), people have changed the reasons for their vacations and, in turn, the duration of their rentals. The increase of flexibility with our responsibilities affected the length of everybody’s willingness to travel.

In a recent report, Airbnb showed that the number of people willing to book stays over 28 days has almost doubled. This is a great opportunity for your STR to adjust your pricing, provide duration-focused promotions, and meet the increased demand.

For example, offering a 10% discount for every additional week that they book can entice customers to choose your STR for a month-long trip. Even providing one free day for every successful referral can encourage people to give in to a longer vacation—and give you another guest to look forward to!

By providing customers with attractive deals for long-term bookings, you can:

  • Increase the number of visitors choosing your STR
  • Increase your occupancy rate
  • Increase and strengthen your rental income

Take Advantage of STR Opportunities in 2022

With travel restrictions lifting, the future for STR investments is looking brighter than ever. Our world is returning to pre-pandemic norms and the STR business is rebounding—if you use the opportunities wisely.

Take these trends into account and change your STR’s business strategy. Adhering to the market and behavior shifts will certainly strengthen and grow your profits as an STR owner, thriving in a market that people are looking for in 2022 and beyond.

Did you notice any other shifts in the STR market? Comment below and let’s get a discussion going.  

Categories
Landlords

How Landlords Should Handle Emergency Repairs For Your Tenants

Woman’s eyes opened wide expressing shock while on a phone call
Photo by Yan Krukow on Pexels

You’re eating dinner with your family when your phone suddenly rings. Unfortunately, your tenant is calling to tell you of a serious problem—a burst pipe that has completely flooded the kitchen.

As emergency repairs go, landlords are required to immediately take action. Obviously, this is required for safety reasons and legal reasons. In this article, we’ll discuss how to approach emergency repairs so that you can use these in your landlord practices.

That way, you’ll be able to handle emergency repairs like a pro without ruining your weekend plans. Meet your obligations, keep your tenant happy, and protect your investment.

What is Considered a Landlord Emergency?

Before anything else, let’s review the landlord responsibilities in Michigan regarding emergency repairs: 

  • As the owner of the property, landlords are expected to immediately address any dangerous situation that can lead to occupant injury. 
  • Landlords usually do not have unpermitted access to the property during a tenant’s lease – except when a landlord can reasonably believe there’s an emergency issue. 
  • You’re obligated to take action within 24 hours of the tenant informing you of the emergency. Otherwise, tenants can withhold rent, repair & deduct, file a lawsuit, or report to a public official. 

Although the information stated above is from the state of Michigan, other states and cities will have similar rules and responsibilities. Now that we’ve brushed over the legal responsibilities, let’s proceed to what makes an “emergency repair.”

If left up to a tenant, anything that prohibits the tenant from living properly and comfortably on the property is an emergency. Legally, an emergency is anything that is likely to cause injury to a property occupant or visitor.

Here are a few examples:

  • A gas leak, as could cause an explosion or breathing problems, or poisoning.
  • Faulty or exposed wiring could electrocute someone or cause a fire that could result in occupant deaths.
  • A broken water supply line damages occupant possession and/or the property.
  • No heat during the winter months.

Non-emergency examples:

  • Sewer backup
  • No hot water
  • Minor water leaks
  • No electricity (unless it affects heat during winter)
  • List

The general rule to keep in mind is if it can wait until tomorrow, without the situation getting worse, then it is not an emergency

Best Practices as a Landlord for Emergency Repairs

Now that we’ve covered landlord obligations, let’s dive into some of the best practices in handling and preventing emergency repairs, especially during the holidays. No matter what the situation is, here are some tips you need to keep in mind:

  1. Always Be Prompt

The sooner you can fix a problem, the better. As much as possible, don’t let any repair needed last longer than 3 days. Be prompt when dealing with your tenants’ concerns, especially with emergencies. Being prompt will make your tenants happy and protect your property from serious damages.

  1. Keep Up Your Professionalism

Always be respectful and accommodating even during the holidays. Chances are your tenant also doesn’t want to deal with any problems during these times. Remember to always conduct yourself professionally.

  1. Determine if an Actual Emergency
  2. Before taking the next steps, you need to make sure it’s a real emergency. Tenants might not be aware that some issues fall on themselves to fix. For example, some issues like a clogged sink or a broken element on the stove aren’t emergencies that need to be addressed immediately. 

Set Expectations

Before anything, clarify what you are willing and not willing to do in the lease agreement. If your tenants know the extent of your abilities and obligations from the get-go, they won’t place any unreasonable expectations or call you up for repairs that they should handle themselves.

  1. Have a Prevention Plan

The best way to deal with an emergency repair is by avoiding it completely. So, before the holidays come around, do a maintenance check to make sure everything is in order. Identify and deal with any problems you spot during the inspection to protect your property while saving time and effort.

  1. Maintain Good Communication

Whether you can help or not, always keep an open line of communication with your tenants. Even if you can’t fix the problem right away (or the repair isn’t actually considered an emergency repair), picking up their calls and hearing their concerns shows your professionalism as a landlord, and encourages them to keep you updated with the conditions of your investment property.

  1. Have Contacts for Emergencies

For situations that qualify as an emergency, keep a list of contacts with a description of their services. As mentioned earlier in the article, emergency repairs are typically water-related concerns. 

With that being said, one of your emergency contacts should be a plumbing service with a description along the lines of “24/7 service including holidays.” However, if there aren’t any, resort to the next quickest option such as services that can be rendered on the next day.

Regardless if you can do anything or not, you still need to deal with your tenants and their concerns during the holidays. As long as you deal with your landlord’s responsibilities the best that you can, you can get the best possible outcome for emergency repair situations.

Be Prepared for Emergency Repairs

Emergency repairs can be a hassle, every day of the week. But by having good practices that help prepare you for such events, you’ll be well equipped to deal with them any time of the year. After all, you never know when a tenant will call for an emergency repair!

Got any more questions about emergency repairs? Let us know in the comments below!

Categories
Landlords

Real Estate Magic: 4 Secrets of Successful Landlords

A landlord handing over house keys to their new tenant
Photo by Alena Darmel

Being a landlord isn’t all sunshine and rainbows. If you try to go in blind, inexperienced, and without proper knowledge—you’ll likely make dire mistakes that will ruin your bottom line.

Plus, doing some research online can only get you so far. You’ll get some bits of good information, but none will necessarily guarantee your success. No, you need to know how the pros do it so you can put yourself in the right direction towards becoming a successful landlord.

Not to worry, we’ve already compiled their “secrets” for you. No need to look elsewhere, here are the 5 things you should perfect to be as successful as the giants out there.

1. Successful Landlords Conduct Thorough Tenant Screening

Screening is an important process for every landlord, so it’s of utmost importance that you have a firm grasp of how to properly screen potential tenants. Add to that, you need to abide by tenant screening laws to avoid potential lawsuits.

Generally, you need to keep these factors in mind when screening applicants: 

  • Abide by the Fair Credit Reporting Act (FCRA), which limits your access to applicant information without their consent. 
  • Follow the Fair Housing Act, where it’s illegal for you to reject applicants due to race, sex, disabilities, and other discriminatory factors.
  • Perform rigorous background checks on their credit history and criminal records.

Once you make sure to abide by these laws, you should make a checklist for your ideal tenants. If your screening process is rigorous, you’ll end up with much better tenants. They’ll pay rent on time, take care of your property, and abide by everything in the lease agreement.  

2. Successful Landlords Have a Well-Written Lease Agreement

You need to be specific when writing the lease agreement, otherwise, you might run into confusion later on. List down all the things the tenant can do, all the things they can’t, from having pets to subletting. That way, there aren’t any misunderstandings down the road.

A good contract will make sure to include terms like:

  • Names of all the tenants
  • The maximum occupancy
  • The terms of the lease
  • The monthly rent
  • Deposits and fees

Other terms you might include in a lease agreement are: 

  • Pet policies
  • Parking arrangements
  • Allowed renovations
  • Subletting conditions
  • Property maintenance
  • Pest control schedule

With a thorough lease agreement, you can protect yourself, maintain your assets well, and be confident that your tenants will support you in your rental business.

3. Successful Landlords Manage Their Property Professionally

How else do you keep good tenants? Well, you do so by being professional at all times. Trust us, this goes a long way in keeping your tenants happy and satisfied enough to stay longer.

Here are a few pointers to keep in mind when managing your tenants:

  • Make it easy for your tenants to reach you. Ensure that they have your contact details and are fully aware of what situations call for immediate action.
  • Keep on top of tenant emergencies like repair requests, so the property remains habitable and you solve issues before it turns into an expensive repair.
  • Don’t be afraid to evict those who defy the lease agreement, such as:
    • Not paying rent on time or in full
    • Does major property renovations without your permission
    • Conducts an illegal business in your rental property
    • Causes excessive property damage (e.g., broken structures, flooded bathrooms, pest infestations due to hoarding or garbage)

Instead, your goal is to establish and nurture a healthy landlord-tenant relationship where both parties are respectful. That way, tenants will stay longer and effectively stabilize your monthly cash flow and overall investment.

4. Successful Landlords Prioritize Keeping Good Tenants

Landlords don’t just find good tenants—they keep them. In fact, successful landlords are experts at keeping quality tenants around for a long time. For example, they’ll offer to upgrade selected amenities in exchange for renewing the lease. 

Those incentives can include things like:

  • An internet connection upgrade
  • New flooring or furnishings
  • Improved HVAC system
  • New kitchen appliances
  • New in-suite laundry

While these do cost a pretty penny, doing so will reduce vacancies, turnovers, and maintenance. In other words, they look at the big picture and treat their tenants as they would want to be treated. By doing that, they’re less likely to look elsewhere leaving your rental vacant and not profitable. 

Learn How to be a Successful Landlord from the Start

Successful landlords don’t waste their time and money on situations that they can avoid. Instead, they are proactive in figuring out ways to find quality tenants, keep them around for a long time, and list all obligations and expectations down from the get-go.

To give you a running start to becoming a great landlord, follow our tips! By running your rental property like a pro, you won’t have to spend unnecessary time, money, and effort to earn back your investment returns—and more.

Do you have any landlord tips for those starting out? Feel free to share them in the comments below!

Categories
Wholesaling

Paperwork Made Easy: The Important Details Every Real Estate Wholesaler Should Look For

The buyer, seller, and wholesaler hashing out a contract.
Photo by Pexels

When conducting wholesale deals, contract negotiations become an everyday occurrence in your life. This means that if you aren’t knowledgeable about the requirements and details of wholesale contracts—you can end up losing a deal.

You have to be exceptionally familiar with contracts to be a successful wholesaler, which is why we’re writing this article to dive deep into the key paperwork you’ll need. Nail these on the head, and you can navigate through the world of real estate wholesaling with ease.

What is A Buy and Sell Contract? 

Otherwise known as a purchase agreement, this is the contract you enter with the seller of the property. It acts as a legally binding agreement and outlines the terms of the offer between a buyer and seller in real estate transactions. 

Your job as the wholesaler is to act as a middleman and find a willing investor to buy the property. That means to need to know how this is the contract permits them to purchase the home. Once you find a buyer, this contract transfers from you—the wholesaler—to the buyer. 

The content of the buy and sell contract should have the following: 

  • The date of the agreement 
  • The name of the seller/individuals listed on the property’s title
  • The buyer’s name
  • Property address 
  • The earnest money deposit. 
  • The total purchase price of the property
  • Financing 
  • Closing date and transfer of title 
  • Escrow and closing fees 
    • The buyer can be assigned to pay the fees
    • Or it can be the seller 
    • Or they can pay equally 
    • Or they can pay their respective escrow and closing fees
  • Signatures of you and the sellers
  • Date of signature

This list isn’t exhaustive, but these are the most relevant things you should pay attention to in buy and sell contracts. As long as you have these covered, you should be good to go.

Note that your buyer will also thoroughly examine the agreement before getting into the deal with you. As such, it’s best that you know your way around these contracts well enough to answer their questions and successfully close the sale.

What Is A Seller’s Disclosure? 

The State of Michigan requires a seller to complete and sign this disclosure to accompany any and all purchase transactions. It’s meant to protect a buyer from seller misrepresentation about the condition of a residential property.

Since most sellers aren’t aware of this form, you’ll want to keep a copy with your buy-sell contracts. Do NOT ever complete the form though, for a seller—legally they must complete it.

The next one to know is an assignment agreement. 

What is An Assignment Agreement? 

An assignment agreement is a real estate contract that transfers your rights and responsibilities listed in the purchase agreement to your investor—the new buyer. Often, this can also be referred to as an “Assignment of Real Estate Purchase and Sale” agreement.

After signing this contract, the buyer will take over the purchase agreement, and you’ll be awarded an assignment fee. Only you and the buyer will receive copies of an assignment agreement since the seller is not involved in completing an assignment contract.

An assignment contract needs to contain the following: 

  • The agreed-upon assignment fee
  • The assignor’s name 
  • The assignee’s name
  • The date of agreement on the purchase contract
  • The names on the purchase agreement
  • Location of the property 
  • Closing date 
  • Assignee to pay the security deposit in escrow 
  • Signatures of you and the buyer 
  • Date of signature

Once the assignment contract has been signed and fulfilled, the investor will then take over the purchase agreement. After that, the buyer closes on the property and you’ll be awarded your assignment fee.

Wholesaling Contracts Made Easy 

There’s a lot of paperwork that comes with wholesaling in the real estate business. If you get in over your head and gloss over every other contract you get into, you can end up losing your wholesale deals—or worse—alienating your potential buyers. 

If you ask us, it’s just not a risk worth taking if you want to grow your wholesaling business.

With our help, you’ll have a good idea of how the contracts you’ll be dealing with regularly are done. If you need more help with wholesaling paperwork, feel free to reach out to us!

Have any questions about wholesaling contracts? Let us know in the comments below!

Categories
Landlords

Tips and Tricks for Managing the Property Maintenance of Your Home

 poorly maintained rental property
Photo by Payam Moghtader

Nobody wants to live in a dilapidated home. We all want a place where we can come home to an environment of relaxation and comfortable living—certainly not a messy, broken-down house that’s far from being stress-free.

This means that, as a landlord or homeowner, you need to treat your property with care to ensure it lasts for decades to comes. Tenants won’t want to occupy your rental property if it’s falling apart and neither will you. You need to perform frequent maintenance on your rental property, and do everything you can to protect your hard-earned assets in the long term.

In this article, we will discuss some tips and tricks to keep your property in tip-top shape.

5 Tips for Maintaining Your Rental Property 

First thing’s first, maintaining your property is mandated by law. If you are located in Michigan, you are liable under the warranty of habitability law to keep your rental property liveable

The law states that a landlord must abide by 3 factors:

  1. The property and all common areas must be fit for use.
  2. The property must be kept in reasonable repair while under a lease. 
  3. The property must comply with health and safety regulations. 

If you don’t follow the warranty of habitability law, tenants can either withhold rent until you make the repairs (no income for you!) or resort to repair and deduct—where they’ll make the repairs themselves and deduct the costs from rent payments. It may deceivingly sound convenient, but experienced landlords know that leaving repairs to tenants likely means cheap fixes and short-term solutions.

By following the law, you can avoid consequences and protect your properties.

To help keep in line with the warranty of habitability law, here are best practices to maintain your rental property.

1. Establish Easy Communication with Your Tenants

The first step to keeping your rental property maintained is to communicate with your tenants if you aren’t living there. Your tenants will be the ones living in your rental, which means they are the first to find any need for repairs. Plus, you don’t want to leave a problem unattended for too long, or it becomes permanent damage.

Having regular communication with tenants is important for catching necessary repairs immediately

Always provide a way for your tenants to get in touch with you easily. Your goal should be to make it easy for you to get ahead of important repairs before they cause major damage.

2. Perform Regular On-Site Inspections

Schedule a yearly inspection with your tenants or for yourself so you can have a frequent, in-person idea of the status of your rental. Getting an expert to help is also not a bad idea. You should look out for tell-tale signs of property damage, like the following:

  • Broken windows and screens 
  • Leaky plumbing 
  • Discoloration on walls and ceiling 
  • Burn marks around sockets 
  • Malfunctioning smoke detectors and fire extinguishers

Your goal in performing regular on-site inspections is to catch any signs of water damage or gas leaks that can lead to costly repairs down the road.

3. Schedule Periodic Pest Control Visits

Pests are one of the most damaging factors to a property. For instance, do you know that the US spends over $5 billion yearly for termite repairs? That’s a lot of money spent on dealing with termites that can certainly be avoided.

So, take a preventive approach by scheduling pest control maintenance once every 3 to 6 months. Have an exterminator visit the property and extinguish any possibilities of pest infestations, so you don’t have to worry about little damaging critters occupying your rental property.

We understand that regular pest control visits can be costly to your business. But, it’s a cost worth taking, especially when you consider the more-expensive alternative of dealing with existing creatures.

4. Opt for a Professional Landscaper 

Not only does great landscaping help entice new tenants if you’re renting it out, but it also keeps your existing renters happy and helps you avoid many problems down the line. You can always maintain the lawn yourself, but hiring professional landscapers will give you benefits such as:

  1. Preventing pests from making a home in the lawn and trees
  2. Avoiding debris accumulation that can harm your plumbing system
  3. Protecting the structure of the home from nature-related issues (e.g., falling trees or overhanging branches that pose harm)

Plus, professionals will have the skill, experience, and equipment to keep all lawns, gardens, and other green areas of the rental property beautiful and functional. Many other benefits come with maintaining the landscape, but the biggest benefit is that you’ll beautify your home.

5. Hire Heating, Air-conditioning, and Ventilation (HVAC) Specialists

One of the main systems that keep a property habitable is the HVAC system. If the system fails, it becomes very difficult to live on the property. Just imagine going through winter without any heating or sweating in the summer with air-conditioning, and you’ll know what we mean!

Moreover, if an HVAC system fails, the entire cost of replacing everything can range from $5,000 to $10,000. In other words, shouldering the costs of regular maintenance is definitely better than having to replace an HVAC system eventually.

Consider hiring professionals to perform annual maintenance and constantly remind your tenants to clean and replace AC filters whenever necessary. Your goal is to avoid having an HVAC system breakage while keeping your tenants living comfortably.

Take Preventative Care of Your Property 

Living in a rundown home is one of the worst things to experience. A home with no heating, full of pests, and faulty toilets is a nightmare no one wants to experience. Not only will your tenants leave right after the lease if you’re a landlord, but failing to maintain your property also means violating Michigan laws that will cause to recipe some financial penalties.

Instead, be more proactive. Keep your rental property well-maintained, stay on top of arising problems, and do everything you can to ensure that your property lasts a long time. The more you maintain your assets, the farther they’ll take you in terms of investment.

Do you have any other property maintenance tips that you’ve found useful? We’ll love to hear about it in the comments section below!

Categories
DIY Landlords

Investing in Real Estate from a Property Manager’s Perspective

Executive Summary

Many real estate investors self-manage their properties and I did too learning from my experience as I went. However, professional property managers have a lot of experience to help both new and seasoned real estate investors make the best investment and property management decisions. I asked my property manager, Jill Powell, of 1st Choice Real Estate, PLLC to share some of her insights into what investors should be considering.

Property Management Considerations Before Purchasing

Interestingly, all of the suggestions from my property manager come before purchasing the property. Thus, education and preparation are key to success in real estate investing. However, from my own experience, there are things that you just cannot anticipate and only experience teaches you.

15 Things to Consider Before Making that Next Purchase (in no particular order)

  1. New property investors should not buy older homes that have been turned into multi-units with all utilities included. These properties are often efficiencies or one bedroom units with transient tenants. You will have sky high turnover and sky high utility bills. Plus, you can’t hold anyone responsible for leaving the junk sofa on the curb that you now have to pay to have disposed.
  1. If you buy in a college town, have the parents co-sign.
  1. Always run prospective tenants’ credit and have a good way to score the rest of the application findings. Make sure the application is complete and all steps followed—no cutting corners or exceptions.
  1. If you don’t have a lot of spare time or don’t enjoy tenant calls at 3 a.m., when their heat goes out in Michigan in the winter, think about hiring a property manager. After self managing at first, I now buy my properties with the intent of having a professional property manager help me run my rental business.
  1. Use a cashflow or deal analysis spreadsheet prior to writing your offer. My property manager has seen many out of area investors pay for inspections only to walk on the deal once they find out what the local taxes will be after buying, local cost of the rental licensing and the true cost of rehabbing the property. It pays to have a professional on your side. I always have my property manager weigh in and be involved prior to making any offers. They are a valuable part of my team.
  1. Use a local Realtor who specializes in rental properties. They can tell you not only what is happening with property values and market rents in the area but also things like is there a moratorium prohibiting rentals in that subdivision, a limit on the number of unrelated persons in a property or a limit on the number of pets a tenant/owner can have in a property in that area. 
  1. Get the details from your lender before making the offer so you have the exact downpayment number as this will affect your rate of return.
  1. Start slow and learn from each property.
  1. Investing in real estate is not a way to earn “passive income.” It is a very time consuming business unless you use a property manager.
  1. Be cautious purchasing rental properties with tenants in place. Ask for a tenant ledger. Ask for current photos or, better yet, inspect all units personally. Look up rental/tenant violations for the property historically. Drive by the property at multiple times of the day to see how the tenants maintain the property.
  1. Research rental rates for the area. Just because the listing says they can get a certain rent doesn’t mean they actually are—verify it against market rents.
  1. Know the local laws regarding “discrimination based on income source” for things like section 8 vouchers.
  1. Decide if student housing is right for you. You will have high turnover, higher costs to get the property ready to re-rent and potential issues locally if the tenants like to party.
  1. Have a good CPA. They can help save you a lot of money and understand the tax implications of the investment.
  1.  Make sure you understand the local rental laws where you purchase property.

Conclusion

A professional property manager is a valuable part of any real estate investor’s team. Even if you self-manage your properties, you can learn from their experience to make the best investment and property management decisions before you buy your next property.

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Categories
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.

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

Categories
Flipping

How to Find the Ideal General Contractor to Flip Houses

Finding a general contractor (GC) for your house flip can be challenging.

You want someone who knows what they’re doing, is trustworthy, has affordable prices, and has good reviews. This means you need to do proper research before hiring a general contractor—don’t hire the first one you find!

As a flipper, your main goal is to earn a high flipping profit in return for your investment. To do that, you need to renovate the house within a specific budget and timeframe, which means using contractors who stick to deadlines and understand the importance of flippers’ margins.

While simple repairs are easy to budget for and can be done within a month, more complex renovations can easily incur budget overruns and take more than a couple of months to complete. In these cases, it’s best that you hire a general contractor to handle the project for you, or assemble a team of go-to contractors that you work with regularly on your flipping projects. Which you go for will depend on your needs, but this article focuses only on general contractors.

Let’s go through some best practices for finding the ideal general contractor for your flip projects.

Independent Contractor vs. General Contractor

Before we go any further, it’s important to make a distinction between independent and general contractors:

  • Independent Contractors: These are contractors that you directly contract to perform tasks on a contractual basis. They complete the project themselves, without the help of subcontractors.
  • General Contractors: These are also directly contracted; however, tasks are subsequently contracted to subcontractors to complete. They complete the project along with their subcontractors instead of completing the project by themselves. They also handle all the administrative tasks needed (e.g., paying subcontractors, securing building permits, getting insurance for all workers, etc.).

General contractors will coordinate with necessary subcontractors on your behalf and oversee the project for timely and on-budget completion. They are ideal for major renovations and flips, because you can get all aspects of the renovation handled by a single entity.

What to Look for in a General Contractor

Here are the key things to look for in a general contractor:

  • A Good Reputation: The best way to find a general contractor is by asking for recommendations. Contractors work largely based on referrals. Ask your friends and the real estate community if they can vouch for somebody reliable, communicative, and punctual.

Once you have a list of options, go the extra mile to read online review websites and visit the Better Business Bureau to check their reputation and ask about the projects they’ve worked on before. 

  • A Good Contract: Hiring a GC on a handshake is not a good idea. You’ll want a contract that spells out what they will do and what you will do, with deadlines. The more thorough the better! Otherwise, there’ll be no accountability and your project can go sideways quickly.
  • Appropriate Payment Practices: A good general contractor will accept payments in the form of checks and wire transfers. They would also agree to sign a lien release before payment and negotiate with you on the payment schedule.

Stay away from contractors who want you to pay in cash or a lot upfront. Cash payments are not illegal; however, contractors who ask for them might be avoiding paying income taxes. This is a practice done by less-than-reputable contractors. Moreover, a down payment of 30% of estimated costs is typical to cover an initial retainer and materials, but an established contractor won’t need your full payment to start the job.

  • Local Coverage: Hiring a general contractor who lives and operates within the area of your flip is your best option. They will know the local building codes, city inspectors, have a network of subcontractors ready to help them, and you can easily contact them in the event of an emergency.
  • Proper Licensing: General contractors need to be licensed to pull the necessary permits for your property. Without these, your property won’t abide by the local building codes or pass inspection. You’ll end up financially responsible for bringing up the property to the required standards.

Instead, verify their license by asking for the license number. Check it with your state’s licensing board. For licensure information in Michigan, visit the state’s Department of Licensing and Regulatory Affairs website for details on the Bureau of Professional Licensing’s requirements.

  • Proper Insurance: General contractors should be insured for General Liability Insurance and Workers’ Compensation. You can ask to see a copy of their policy and call up the insurance company to verify the information. The insurance should be current and have clear policy limits for you to check. You should also be added as an “additionally insured” on their policy, until your project is complete.
  • Warranty in Writing: General contractors should provide warranties that cover the work they’ve done in your property. A warranty assures them that they won’t be coming back for multiple repairs over an extended period of time (warranties typically last one year only) while guaranteeing you a good renovation result.

This list isn’t exhaustive, but it’ll put you on the right track in finding your ideal general contractor.

Questions to Ask During the Interview

As part of the process, you should also have an interview with the general contractor. Here is a list of questions you can ask to help you identify those who’ll fit your criteria:

  • How many people work for you? How long has your crew been working together?

You want to work with an established company that has a large team of managers and assistants.

  • Where are you operating, and what is your service coverage?

You want to work with a local company that knows its way around renovations in the area.

  • What similar past projects have you completed?

You want to see their experience concerning the project you’re giving them. If they’ve never done what you need them to do, ask them how they will approach the project.

  • How do you communicate with your clients?

They should give you daily or weekly progress reports with photos and send itemized, detailed quotes and invoices.

  • For this project, will you be using subcontractors or just your own team?

If they are using subcontractors, make sure that all workers are trained, licensed (if applicable), and insured.

  • Are you licensed and insured?

Licenses should be updated and registered in the state where your property is situated. Insurance should include General Liability Insurance and Workers’ Compensation.

  • What would our contract look like?

Not all general contractors will have contracts. If they don’t, you can draft one up. Regardless, have your lawyer review it before everybody signs.

  • Will you provide warranties?

Make sure the warranty is written down and will conform to the requirements of the contract.

  • How will the payment schedule and plan work? Will you agree to sign lien releases?

Agree and sign the payment schedule before the job begins. They should agree to sign lien releases before payment.

  • Have you ever had to deal with lawsuits?

If they’ve been sued, ask what happened and how they handled it. If they’ve sued a client, ask for further information and check public records. If they’ve had serious accidents before, ask how they dealt with the situation and what they’ve improved to make sure it doesn’t happen again.

Conclusion

We hope this article is enlightening and helpful in your search for a general contractor. It might take a lot of effort, but having a reliable and skilled general contractor will protect your budget and timeline for a successful and profitable house flipping project.

The better your general contractor, the more houses you can flip fast, at the highest quality, and for the most competitive price.

Any additional tips for finding the ideal general contractor as a flipper?

Image courtesy of Andrea Piacquadio

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