A landlord recently made the following comment in response to a new landlord getting started with just one rental home, “Why bother with one rental house 90 miles away from your home…?”
A long time landlord who has lived to see the value of “one” house responded.
Do you know what one rental house will do for your future? When I turned 16, instead of buying a new car for myself, I saved my money and on my 18th birthday purchased my first rental home. Here’s what that one home did for me:
1) During the first 10 years I was able to get enough rent money to pay all expenses and save a little towards emergency repairs or vacancies. I was also able to take several tax deductions, as an investor-landlord, which saved me $3,000 a year on taxes on top of the positive rental cash flow.
2) During the next 10 years I was able to slowly raise the rent and double the income, making me $1,000 a month positive cash flow and paying down the mortgage.
3) During the last 10 years I paid off the property, received triple the original rent, and now pocket $2,000 a month in positive cash flow and have an asset worth half a million dollars.
So one rental property gives me $2,000 a month income, makes my net assets rise by 1/2 million dollars and provides a nice supplement to my retirement. In 30 years, think of how the property will be paid off and make you a great income.
10 TIPS TO “TENANT-PROOF” YOUR RENTALS
A landlord asked this week on LandlordingAdvice.com, “How do you ‘tenant-proof’ your properties? How do you minimize damage/wear and tear?” One of regular forum contributors shared the following 10 tricks of the trade.
1) Remove storm or screen doors–Especially with children around.
2) VCT tiles are my low-cost choice for floors. Trying dragging a washing machine or heavy furniture across any floor to test it for durability.
3) I have replaced broken glass windows with 1/8 inch Plexiglas instead.
4) Buy metal doors for entry/exit doors on a house. Use solid wood doors for the interior rooms.
5) When installing bathroom towel bars or roll paper holders, make sure you hit a stud with your mounting screws and not rely on plastic drywall anchors. Kids use towel bars to do chin-ups with.
6) With hardwood floors that need refinishing but your budget will not allow it, I have painted them using chocolate brown OIL based S-W paint. It looks great too.
7) Never use a light fixture that has an on/off pull chain on it. Provide a switch at the wall only.
8) Use medium-grade kitchen/bath faucets. Cheap plastic ones break too easily and the expensive Kohler ones tend to get stolen.
9) Use cheap mini-blinds and hang them yourself or you will discover what a 4 inch long framing nail does.
10) Never install carpet for anyone. It is just a matter of time (or months) before it gets soiled beyond repair.
WHY MANY LANDLORDS LOSE MONEY!
Not surprising many who get started in real estate lose money. I’m not talking about a 1040 loss after depreciation or other mystery losses. I’m talking losing cash-real green-every month. Why do so many lose money?
First off, real estate is enticing. New investors attend an “only six seats left” seminar with 246 CDs, 14 books, 6 booklets and a glow in the dark “Money is Good” orange badge. The whole shebang is only $5995, but for you, only today, it’s discounted to $1995. – Hold it, the seminar promoter just told me for the next 10 seconds it’s just $995! and Presto. You are going to get rich! 🙂
Toto and Dorothy please pull the curtain back and reveal the Wizard Guru and the dark side of the paradox. The real work. Not the fluff! And, as in most things, it’s not as easy as it might seem. The following are 4 real reasons why many landlords lose money!
1) Landlords don’t take time to really learn NICHE MARKETS, and rehab properties or add amenities aimed at niche tenants. It’s important to really know the tenant markets you want and gear your rentals and advertising toward those niches. If you do you will be blessed with at least six applications for every vacancy.
2) Poor Tenant Selection. Better to have a vacancy than a slob deadbeat. The problem is that many deadbeats today do not look like deadbeats and are not easy to spot on the surface. That’s why it is vital to do home visits, run credit, eviction, criminal checks, and adhere to your standards.
3) Poor tenant management. If you don’t enforce the rules, why should the tenant? Follow the lease (mine is 29 pages) and your procedures. File for eviction on the day your lease says you will, no exceptions. Nice guys finish broke!
4) Tenant Turnover. Always the largest expense. Average turnover for most landlords is $3,000 to $11,000. Turnover includes all repairs, plus lost rent and PITI during the months of non-payment and vacancy. Yeah, I know, you do it for $1,500. Sorry buddy, that’s not a light, that’s a train. Turnover includes, Cleanout, major repairs, major replacements, minor repairs and replacements, paint, flooring, months of non-paid rent, rent-loss during vacancy, advertisement costs, cost of your time, etc. Still at $1500. Buy a calculator that works.
Advice: Buy and read good books and newsletters from “real” landlords. Attend seminars or landlord conventions by real landlords and investors who do what they talk about and are successful and happy! Avoid gurus who won’t reveal what they own or manage.
- Pass through as many of your expenses to the residents: For example: tenants would be responsible to pay for rental registrations imposed by city, Their share of monthly water bill and other ala carte expenses such as garbage pick-up, etc. Charge for service requests/repairs of problems caused by residents or their neglect, i.e. drain stoppages, broken windows, lockouts, etc. (these charges would be included in the lease).
- Pool resources with other investors to get volume discounts of 20 to 35% or more.
- Rent house components. Example: Detached garages or sheds, washer/dryers, etc.
- Offer “convenient” fees to residents. Examples: Lease initiation fee, Early lease termination, month to month, etc. (Two dozen additional recommended fees are highlighted in a new FEE book featured on MrLandlord.com).
- Offer Pay Day rent payment plans.
- Eliminate property components items that require more service calls or replacement. Examples: carpet, dishwashers / garbage disposals, etc.
- Convert/Add one additional bedroom if permitted and feasible.
- Shop or challenge your major expenses (i.e. insurance, property taxes, etc)
- Attend monthly association meetings, landlord conferences and trainings.
SCREENING TIPS FROM MRLANDLORD.COM
Tip 1: If you are looking for non-smokers, do not ask on the application, “Do you smoke?” Instead ask, “Do you smoke inside or outside?”
They probably will say “outside” thinking it is more favorable answer, rather than lying and saying they don’t smoke. Now, you can decide if you want to rent to a smoker.
Tip 2: You can do phone number searches on Facebook and find people — even if their phone is private on Facebook itself. Even if they have just used the mobile version of Facebook at some point, if you do a phone number search, it will usually find them. Again, this is true even if their number is otherwise private. That is how I find most of my applicants that I’m researching — by putting in their cell phone.
WHAT’S YOUR FAVORITE LEASE CLAUSE?
On MrLandlord.com, we recently asked website contributors to vote on over 60 lease clauses. The following 4 clauses received the most votes:
1. If Tenant shall remain in possession of all or any part of the Premises after the expiration of the term of this Lease, with consent of Owner and without a new Lease being executed, then Resident shall become a lessee from month-to-month subject to all of the applicable covenants, terms and conditions hereof, except the monthly rental payments shall increase by 10%.
2. EARLY LEASE TERMINATION: Should the tenant (s) terminate or cause this agreement to be terminated early, the Landlord may charge the tenant (s) an early termination fee of $_______.
3. PAYMENTS: All monies paid by Tenant to Landlord are applied first to late fees and all other outstanding debts and bills, then to any past due rent, and lastly to the current month’s rent.
4. RENT DUE DATE: The due date for rent owing under this Agreement is the ______ day of every calendar month. Owners need to RECEIVE the rent on or before this date. If Tenant chooses to use a payment service that generates or mails checks from a remote location, Tenant bears the responsibility of ensuring that checks are mailed so that they arrive on or before due date.
It’s important to note that laws vary from state to state, and you should seek counsel before adding any to your lease.
WANT TO IMPROVE THE RENTAL NEIGHBORHOOD THIS YEAR & IMPROVE PROFITS?
Is it time to get rid of crime, neglect and problems and take the neighborhood back surrounding your rental? One of the best and simplest pieces of advice I can give you, comes from my colleague, Al Williamson.
DON’T GO AT IT ALONE! Get backup. Acting as an individual, even in affluent neighborhoods, one can run into unexpected situations or people. This goes even more so for lower income neighborhoods.
It is useful to imagine yourself as a slender piece of cross bracing in a tall scaffolding system. You have some strength on your own, but you become exponentially stronger when interconnected with others.
If you, as a landlord, connect with other landlords, together you can overcome nearly any obstacle. Meet the other owners surrounding your property.
CASH FLOW TIP OF THE WEEK - Consider hiring a virtual assistant to compile contact information of all the neighboring property owners. The very act of assembling a directory of all other nearby landlords and property owners will trigger a series of unforeseen (and profitable) benefits that help crime-proof your block. It’s a phenomenon; neighborhoods become safer when people say “hello.”
If you implement this one single idea, it may be the beginning of the most profitable thing you do all year long! You may end up even buying a property at some point from one of your newly discovered neighboring contacts. 😉
That’s exactly what happened to me several years back when contact was made with a neighboring landlord regarding a problem renter that was actually one of my residents. After handling the matter and developing a relationship and mutual respect with the fellow landlord, who was looking to retire from the business, I ended up buying an eight-unit family building from the retiring landlord for no money down.
– This is one step toward becoming a Catalytic landlord and much more profitable in 2014. By Al Williamson, author and regular contributor to MrLandlord.com.
EXPENSES — THE CEMETERY OF REAL ESTATE INVESTORS
Kids tend to have nightmares they can’t control. Parents often have kids they can’t control. Some investors have expenses they can’t control–Or they won’t even acknowledge the problem. Thus, rental real estate becomes less of the fulfillment of a dream, but more like a Nightmare on Elm Street. How about you? Are expenses making you crazy? EXPENSES drive many investors out of real estate, and some investors to financial ruin.
I have found no other subject in rental house investing that is so invisible, that is not often written or taught, than expenses. I have researched the most popular real estate investing newsletters — and I’ve found nothing. Websites – nothing. The bestselling books – nothing. The guru/experts speaking agendas – nothing. Yes, it may be mentioned in passing to, “control expenses”, “cut expenses”, but there are no numbers, no ratios, and no strategies, such as my almost-famous “The Eliminators”.
Why? Perhaps it’s better to push the Nightmare into the corner, hide it in the unconscious. Better not bring to light the ugly and noxious truth even as it bulldozes your hopes to a pile of moaning rubble on a foreclosed empty lot.
In direct contrast, public companies’ quarterly and annual reports are filled with expense totals, percentages against budget, and gross margins. These numbers are openly reported and enthusiastically followed by investors and Wall Street. Ignoring expenses is not the norm in business; it is the exception–and it is deadly and dumb.
I actively manage 70 houses and 26 garages. I deal daily with the nonstop tide of expenses. I study (not just look at) my profit-and-loss monthly statement against my budget, and I consistently attempt to monitor and make adjustments to overruns. I don’t do this naturally or particularly well—I force myself to do it.
For instance, I have a 3′ x 4′ poster board on my office door with monthly totals for Rent – PITI = Gross Margin – Expenses (9 categories) = Net for each month and quarter, totals vs. budget. The poster board on my office door forces me to look at my expense numbers several times a day.
If an investor is not calculating and monitoring the monthly numbers, he is not an investor; he is a speculator/mystic who leaves the making of profit to chance. Do you hope and pray for profit from the tooth fairy so you can gamble another day?
I have asked individual investors if they have a budget and track expenses.
“I’m too busy.”
“I don’t know how.”
“What do you mean?”
“My CPA does it at year end.”
Don’t let yourself be one of the former.
There’s so much more to share on this subject, but for now let me suggest that beginning in 2014, at a minimum you track your expenses on a monthly basis and compare this to your budget, or develop one.
DID YOU GET MY TEXT?
Surviving in Landlording, like any business, often means being able to adapt to changes in the times and embrace new methods of communication. Texting is one type of communication where some landlords have adapted and embraced the idea whereas others have not as much. Whatever your personal preference regarding using texting, there could be advantages to using texting in your business. The key with texting, as with other communication tools that will come along, is to remain open to the idea of discovering what ways (even if in minor ways) texting can possibly add to your effectiveness in business.
For example one landlord shared how she likes and utilizes texting in her landlording business:
“Texting saves me hours of time. I have to laugh because I remember when FAXES weren’t acceptable. Then voicemail. Then it was email. Now it’s texting. Here’s just one tiny example of why I love texting–Two days ago, got a text from a resident. The fridge was warm. I texted my repair guy. He texted the resident. He went over, fixed the fridge, and texted me when it was done. Done and done. Now if that was phone calls–First of all, trying to get people to answer the phone during a work day is hard. But they read their texts! Second, in order to be polite, when you DO get someone on the phone, you don’t say, ‘The fridge is broken. Can you check it out?’ You might say, ‘Hi how are you how’s your day going, how’s the kids, etc.’ It just always takes longer.”
Please understand, this is not a commentary to persuade you whether texting is something you should or should not do. It is simply an encouragement to be OPEN to the idea, that there may be some ways that you can utilize texting in your business to your advantage. If the truth be told, I’m pretty “old-school” in many of my ways, so I’m writing this note as much to myself as to anyone, because I’ve learned that if I let my personal preferences totally limit my thinking, I may also be limiting the success of different aspects of my business.
SCREENING TIP OF THE WEEK
You can do phone number searches on Facebook and find people — even if their phone is private on Facebook itself. If they have just used the mobile version of Facebook at some point, and if you do a phone number search, Facebook will usually find them. Again, this is true even if their number is otherwise private. That is how I find most of my applicants that I’m researching — by putting in their cell phone number in the Facebook search engine.
POSITIVE LANDLORD STORIES
Lot of news lately about negative stories involving landlords, one of our regular website contributors asked this morning if any positive stories can be shared as we start the new year, some GOOD THINGS landlords out there are doing for our families, our neighborhoods, and/or our residents.
Couple of the first responses: 1) We have a tenant who didn’t like her refrigerator when she moved in. It’s older, we repaired one of the shelves, but it was in good shape and perfectly functional so we basically told her take it or leave it. She called a week or so ago saying the shelf broke again. We could easily repair it, but she’s been there a year and has been a decent tenant so we decided to buy her a new fridge instead. We’re letting her pick the style and have promised it to her before Thanksgiving. She’s thrilled.
2) Tuesday, I drove my Section 8 tenant to a Church to fill out papers for help. Her vehicle caught on fire after a recall from Ford just two days before! She is challenged with resources to get compensation from Ford, who is sending her a letter, depending on family and friends to get to and from work and kids to and from school. She has no saving and now no vehicle. With no ride to the Church I drove her to and from, bought her lunch and heard about her kids, school, and life. She has the best attitude. She is trying, SALUTE! Salute to those who are trying to help themselves.
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