The Involuntary Landlord

Sticking to What You're Good At! Monday Minute 3_21_11

 

I know you think you are good at everything - let's re evaluate!

Termites! Yuck! Thursday tip for 3-17-11

 

Termites happen! Don't get caught with all your termite eggs laid in the basket of your rental home. Get a bond and maintain it!

6 Mistakes that cost Involuntary Landlords Thousands of Dollars

I talk to people every day that have rental property they wish they could sell. Unfortunately they have joined the realm of “involuntary landlords.” Managing rental property seems very simple, but like any business venture, there are lots of things to know and the learning curve is steeper than it looks. I have helped clean up a lot of messes for these fine people and here is a list of some common mistakes. If you are making these same mistakes, maybe you could use my help.

 

1. Not performing routine maintenance on their home – Owning a home is an expensive proposition. Maintaining a home properly can cost a lot of money. Failing to do so is guaranteed to cost a lot of money. A properly maintained heating and air conditioning system can last three times as long as a neglected one. Ignoring a small water leak can lead to a mold problem and you don't even want to investigate the cost of a big mold problem. A tiny crack in your basement wall can be a sign that the foundation walls are in danger – do you really want to ignore them? You may have a tenant, but you really need to look after your own home.

2. Not visiting the home – One of the first homes I ever managed was outside of Atlanta in Lawrenceville and was owned and self managed by a lady in Virginia. When I saw the house for the first time, she had not been there in over two years. To this day it is the shining example to me of what a bad tenant can do to a house. Broken windows, holes in drywall, fixtures ripped from their mountings, dirt and debris everywhere – if you can imagine it, this home had it. Just a semi-annual visit would have stopped this issue in its tracks and saved her thousands of dollars. If you live too far away to visit your tenants 2 or 3 times a year, you really need some help with your property.

3. Allowing rent to be paid late consistently – Late rent happens. If you have tenants long enough, you are going to accept some late rent. When it becomes a habit, however, you need to be proactive and find out why. Late rent is usually a symptom of some other malady and left unchecked can quickly turn into “unpaid” rent. Landlords and managers should have a system for dealing with late rent and follow the system. Enforce late fees, send written demands, make phone calls – whatever you have decided to do. Show the tenant that you take late rent very seriously and you will move to the top of the list of who to pay first. Let it slide and you will find yourself on the bottom.

4. Having a rigid “No Pets Allowed” policy – 80% of renters have or want a pet. Do you really want to market your home to only 1 of 5 potential tenants? Stop thinking of your home as “your home” and start thinking of it as an investment. Every day your home sits unoccupied costs you money. Even two weeks of vacancy time will cost you more than the average “bad” pet will cost you and most pets are pretty good. Accept pets with a pet deposit and see your home rent much faster.

5. Asking for an above market rent – This is incredibly common and very costly. Determining market rent is simple. Find out what homes like yours have rented for recently in your area. That's the market rent. It doesn't matter how much your mortgage is or how much you spent on repairs, paint and carpet. Your home isn't that much nicer than your neighbor's. I know you think it is, but you're wrong. Don't be confused by what people are asking for their homes, either. All that matters is what people have actually paid. If you can't find the information, don't guess. Call an expert. If you price your home too high it will sit empty and you can't afford that.

6. Leasing without a written agreement – This is just stupid. I know hundreds of people and about four are welcome to live in my property without a lease. I don't care who it is, put your agreement in writing. A standard lease is available in any office supply store or online for a few dollars. Not having a written lease can cause you thousands of dollars, not to mention the stress!

 

This list is far from complete. The landlord game really seems simple until it isn't. Don't get fooled. Read some books, get some advice, do your homework or just break down and hire a professional. It's very likely that if you own rental property your time is worth more than you would pay your property manager.

 

In Atlanta, call the Best Atlanta Property Management Company – Absolutely Affordable Property Management. Find us online at www.absolutelyaffordablepropertymanagement.com or call us at 770-682-7735. We keep more money in our client's pockets every day.

 

For tips and advice, visit www.InvoluntaryLandlord.com. We post vlogs every Thursday and Monday, so visit often.

 

Monday Minute - Save thousands and get inside your home!

 

In this version of the monday minute we talk about HVAC systems and how you can save thousands of dollars over the lifetime of yours. Brought to you by the BEST Atlanta Property management Company, www.absolutelyaffordablepropertymanagement.com. 

Thursday Tip for Landlords - Setting the Rent Amount

 

Setting the rent is more than matching it top your mortgage statement. If you aren't competitive, your home will sit empty while the mortgage company continues to expect their payments.

Monday Minute 3-7-11

 

Thursday Night Tip forLandlords

 

Pets - Gotta Love 'em!

Should I Invest in a Home Warranty for my Rental Home?

One of the most frequently asked questions by my new property management clients concerns home warranties. A home warranty is an insurance policy purchased to cover repairs to various systems and appliances throughout the home. Costs and coverage vary, but for the purposes of this discussion, we will assume an average sized home with a warranty cost of $400 annually.

Should I Invest in a Home Warranty for my Rental Home?

Purchasing a home warranty is a financial decision. The homeowner needs to weigh the costs and benefits in order to determine whether or no to make the purchase. In this case, the cost side is easy. The cost of the policy in our example is $400 per year.

The benefit side is another story, and this is where the problem can become tricky. If I were a warranty salesman, I would tell you that a new furnace or air conditioning unit could easily cost you $4000 dollars - TEN TIMES the cost of the warranty. I would tell you that if your water heater breaks it will almost certainly need to be replaced and that replacing a water heater is a thousand dollar job. I would ask you if you have shopped refrigerators or dishwashers lately and caution you against gambling that a tenant will take care of your appliances. And then, when I had you thinking about all the horrible things that could happen in your home, I would pull out my sales contract and say "sign here."

Since I am not really a warranty salesman, let's take an honest look at the benfits of owning a home warranty. We will start by answering some questions. In the last five years, how many times have you had an appliance serviced? Think back to what the problem was and how much it cost to repair. I can tell you that in my own homes, I have only had two problems. The first was with the auto igniters on a gas range. They would not ignite the gas. The second was last year when my oven stopped working. The computer chip that ran the oven failed. The igniter problem was solved by disassembling the igniters, cleaning and adjusting them, and putting them back together. The total cost for the visit and service was $150. The oven control problem was more expensive. The part was $350 and the labor was $100. So using me as an example, my benefit over the last 5 years would have been $600 or $120 per year. When you add the trip charge that most warranties require (usually about $50 per repair), my benefit would have been $500 and my cost would have been $2000 (5 years @ $400 per year).

Right now I am managing 16 rental homes. They all have problems from time to time. This year I have replaced 2 dishwashers, an oven, and a water heater. If all 16 homes had a warranty, the total cost of the warranties would be $6400. The 2 dishwashers cost $700 total. The oven was $500 and the water heater was $1000 (all including labor). The total benefit to the owners would have been $2000 with a $6400 cost.

Most systems and appliances in your home are built to last. The oven we replaced was twenty years old. Dishwashers last ten or more years in most cases. Water heaters average eight years or more. Furnaces and air conditioners can last thirty years if properly maintained. Take care of your appliances and when the time comes to replace them, you will know you got your money's worth.

I suppose it is conceivable that an owner could have thousands of dollars in covered repairs in a year, but I think it would be like hitting the lottery. Most of the time, insurance should only be purchased in situations where not having insurance could be ruinous. If you drive a car without insurance and total another person's Rolls Royce, you could be liable for hundreds of thousands of dollars. If you don't have health insurance and get hit by a bus, you could quickly be bankrupted by medical bills. If your water heater blows you will be inconvenienced and annoyed, but probably not ruined.

My advice is don't purchase a home warranty. Instead, have your furnace and air conditioning units professionally serviced once a year ($79), replace your filters 4 times a year ($12), and put aside the other $309 for repairs that will certainly come up from time to time. In the long run, I think you will be pleased with the decision.

On the other hand, if you are the sort of person who is more comfortable with a fixed annual cost and a more limited risk, I would be happy to put you in contact with a reliable warranty company.

Its not always easy to find an honest answer to questions like this one. Most of the folks with the answers are too busy trying to sell you the product to help you decide if it is right for you. Remember, if you have any questions concerning property management, landlord/tenant issues, general real estate concerns or just need the best possible team managing your North Georgia Property, call me personally at 770-682-7735.

It's Not a War

©2007-2009 Chris Compton

One of the biggest issues I deal with as a property manager is the “us vs. them” mentality of my landlord clients. This is a normal state of mind for new landlords. If you are a landlord and you find yourself feeling this way, take a deep breath and repeat after me:

It’s Not a War

It’s not a war. Your relationship with your tenant is going to go a long way towards determining the profitability of your rental property. You need to always try to put yourself in the tenant’s shoes before you make a decision. You should make every decision not just thinking about the short term financial implications of your action or inaction, but also the effect on your relationship with your tenant and how that effect might affect his tendencies to pay the rent on time, maintain the home in the way you hope he will, and renew his lease.

Am I suggesting that you bend over and take it whenever the tenant asks for a concession? Absolutely not. What I am recommending is that you take a hard look at your decisions with an eye on the horizon.

Remember when you were learning to drive and you naturally looked at the road just over the hood of the car? You were useless at responding to curves, squirrels and any other pathetic creature or object that got in the way. Hopefully you have learned to drive looking off into the distance, seeing anything that might impede your path and reacting well in advance to make sure you reach your destination safely.

Landlords need to have a similar mindset. Look down the road. If your tenants want to paint the living room, it is perfectly natural for you to have concerns. They probably aren’t painters. They may well get paint on the floor and the trim. They will certainly pick a color that you would not have picked. But so what? The right answer is, “Yes Ms. Tenant. Feel free to paint the living room. You are paying to live there and I want you to feel like the home belongs to you. Just remember that I expect the home to be returned in the same condition I gave it to you. If you don’t think you can do a professional job, you may want to hire someone. If you pick colors that will make it hard to rent to another tenant, I may insist you return it to its original color. Does that sound reasonable?”

Handling it this way empowers your tenant. They have the situation in their hands. They feel like owners. Owners take care of their property. If you are concerned that they will not remember the agreement, put it in writing. Detail the conversation on paper and ask them to sign a copy for their protection. Tell them you know they will feel more comfortable with written permission.

Other situations have more immediate financial impact on you. Maybe the dishwasher won’t drain. Every time they run the dishwasher it fills up with water until water and soap spills out onto the floor. A new dishwasher is going to run you between $300 and $700 dollars installed. That seems like an awful lot of money and it’s tempting to ask your tenants to wash the dishes in the sink, but think down the road. If the tenants are paying $1000 monthly and the dishwasher costs $500, you can see what a two week vacancy would do. Go ahead and get the dishwasher taken care of. The sooner the better.

No matter how good your tenants are, occasionally they will do something to upset you. Sometimes they will do several things in short order and you will begin to think you are in a war. Take a deep breath, count to ten and think about what is fair. Then do just a little bit more. If  you have any questions concerning property management, landlord/tenant issues, general real estate concerns or just need the best possible team managing your North Georgia Property, call me personally at 770-682-7735.

 

Five Great Reasons to Become a Landlord

©2007-2009 Chris Compton

I’m often asked by potential clients questions like’ “Don’t I have to worry about renters destroying my home?” What they are really looking for is reasons to become a landlord despite the horror stories they have heard. In this article I am going to give you five great reasons to become a landlord.

Until recently, if when you heard the word “landlord” you thought of a cigar chomping inner city slumlord tough guy, or a corporate bigwig sitting high in an office tower counting his money, I couldn’t find tremendous fault with your imaginings. The real estate roller coaster ride our country has been on for the last decade has changed everything in the rental arena, though, and today’s landlord is far more likely to be an involuntary participant, at least at first.

She needed or really wanted to move and was unwilling to sell her home at the price dictated by today’s market. She sees the landlord option as a slightly unpleasant means to an end. For the most part, she has been pleasantly surprised.

Five Great Reasons to Become a Landlord

The biggest reason to rent your home out to a perfect stranger is the primary factor in most business decisions you make. Renting your home provides a source of income. While it is true that rent does not always exceed expenses, the expenses exist whether the rent is coming in or not. The rent is definitely an income source. For owners fortunate enough to own their home without the encumbrance of a mortgage, this rental income drops to the bottom line quickly and with only minor resistance. (In fact, buying a home for cash and renting it out can bring returns far higher than putting the same money in a bank, credit union, or other financial instrument, but that’s a subject for another day.) Even owners unable to collect enough rent to totally offset expenses from mortgage payments, taxes, insurance, homeowner’s association dues and maintenance can probably get close enough to be able to afford housing in a more desirable location.

An often overlooked benefit of being a landlord is the security provided by the tenant. The vast majority of homes victimized by vandals are vacant. Insurance companies charge much higher premiums and limit coverage for vacant homes. Many insurers will not cover a vacant home at all, citing loss rates that are unacceptable. When I was a high school junior, my family moved from northeastern North Carolina to Hopewell, Virginia. For the first two years there we lived in a home we called “the Mansion on the River.”  Our rent was reasonable (zero), and the home was enormous and beautiful and right on the Appomattox River. The house was for sale and the owner was concerned with vandalism. Having a responsible family in place was a tremendous benefit from his perspective.

Most families cannot afford the luxury of owning multiple homes without the offsetting income a tenant provides. When we find ourselves in the position of owning a home one place and needing to live somewhere else, something has to give. A good tenant is often the key factor in allowing a family to take the next step in life’s journey, a step that just could not be taken otherwise without serious ramifications.

Owning rental property can be advantageous at tax time. Rental income must be reported, of course, but owners may deduct mortgage interest, repair costs and depreciation for starters. Have property in another state? The annual trip to check on it could be a tax deduction. Please don’t take my word for it, however! The IRS is a serious group and you should consult an expert about what they will and won’t allow.

Probably the least talked about advantage to becoming a landlord is one you would never suspect existed and may not believe. Trust me on this, though. I am an expert. Good tenants frequently improve your property during their tenancy! Really. Good tenants, especially long term tenants are a pleasure. They paint, they landscape, they put up storage buildings and fences, they maintain systems and make repairs, all while paying the rent. Good long term tenants rent your home, take care of it, pay for it and increase its value!

I know I promised 5 reasons, but I always try to under promise and over deliver. Here is a bonus reason that you may not have considered. Many landlords get to know their tenant families and often they make an impact in one another’s lives. This may sound hokey, but when you open your home to another family, even for money, you are exhibiting a trust in them. That trust, properly nurtured, often grows into respect, friendship and sometimes love. Being a benefactor can deliver a peace unobtainable in any other manner. Connecting with our fellow human beings is a tremendous experience and one we can’t possibly get often enough.

So with all of these benefits, what about the horror stories? We’ll talk about them in a future article, my friends. Until then, if you have any questions concerning property management, landlord/tenant issues, general real estate concerns or just need the best possible team managing your North Georgia Property, call me personally at 770-682-7735.