Buying a Property with Tenants

Written by on January 20, 2012 in Management, Market Outlook - No Comments
Meet_Tenants

Most new landlords entering the market often buy property that is currently rented. This comes with an obvious benefit of having an income stream already in place, but can also be a bit tricky for new landlords. Here are a few things you can expect and some tips for buying a property with tenants.

Tip #1: Know that the tenants are apprehensive about the transition to new ownership. Whether the previous landlord was good or bad, they’re hoping you’ll be better, but are planning for the worst. It’s important you start your relationship with your new tenants on a positive note so they don’t abandon ship and leave you with an empty building that’s costing you money.

Tip #2: Meet with your new tenants face-to-face. This will help ease a lot of the tension and set you up as a professional person. Treat them with respect and show them you expect a cordial business like relationship to develop.

Tip #3: Address your tenant’s concerns in an honest manner. They most likely want to know:

  • If their rent is going to increase
  • What’s going to happen to their security deposit
  • Your maintenance policy
  • If you’re going to make it difficult for them to keep their pets

Tip #4: Even though you are going over your policies and expectations in person, give your tenants a written letter when you meet with them. The letter should outline the items discussed and include your contact information should they have any questions. This will make sure you have communicated the information correctly and that you are both on the same page for future discussions.

Tip #5: Use this meeting as an opportunity to walk around the apartment and address any issues your tenants have. Catching maintenance issues early can save you big money in the long run and tenants will like that you are proactive about repairs. This will also give you a good idea about what condition the property is in an what will need to be done when that tenant moves out.

Tip #6: Schedule this meeting in advance. This is common sense, but find a convenient time to meet with your tenants by calling first. It will help ease their mind if they know what to expect in advance.

Photo by: Ian Lucero

Rentals are Still Hot, Hot, Hot

Written by on January 17, 2012 in Market Outlook - No Comments
Screen shot 2012-01-17 at 1.03.32 PM

A report released earlier this week by Hotpads.com discussed the rental and housing market trends for 2011 and some predictions for 2012.

Rental Markets
The national housing search engine, found that rental prices for two bedroom units grew 3.75 percent in 2011 while two bedroom units for sale saw a 1.83 percent drop in price across the top 20 most populated U.S. metros.

The report also showed that studio rentals remained the highest growth segment, with a 7.12 percent increase over the year. One and two bedroom rental properties also grew 2.59 percent and 3.75 percent respectively, while three bedrooms actually fell by .31 percent. There were no statistics for apartments with more than 3 bedrooms.

HotPads measured the median listing prices of two bedroom properties across the U.S. and found that popular metro areas like New York, Boston, Miami, San Francisco, Los Angeles, and Chicago had some of the most expensive rental listings. San Francisco appeared to be the most in-demand market since listings stayed active for just 28 days on on the site, compared to an average of 49 days across other top metro markets.

Sales Markets
According to HotPads, homes for sale saw a further decline in 2011. The median sales price for home with two bedrooms fell 1.83 percent across the largest metro areas, while three bedroom homes for sale only declined by .19 percent. In 2011 the most expensive two bedroom properties were located in San Francisco, Los Angeles, and New York.

The company concluded the report with a statement, “While we expect demand for rental properties to remain high throughout 2012, we anticipate a slower growth compared to last year. As the price of homes for sale continues to decline, we believe more home shoppers will consider buying over renting (buy vs rent data below). We also predict more foreclosed and long standing for sale properties will re-enter the market as rentals in 2012, which should increase the rental supply and help ease prices. However, if economic conditions extend consumer uncertainty, we may continue seeing would be home owners continue to rent.”

The data in this report is calculated based on the median listing price of 500,000 concurrently active rental listings on HotPads across the top 20 most populated U.S. metros. For consistency, two bedroom properties were used to determine the rental and for sale year over year price changes. The Buy vs Rent ratio is calculated by dividing a metros median house price by annual rent. Higher ratios mean it is more expensive to buy than rent a comparable home. The 20 metro areas include major cities like Atlanta, Baltimore,Chicago, Dallas, Detroit, Houston, Los Angeles, Miami, Minneapolis, New York, Philadelphia, Phoenix, Riverside, San Diego, San Francisco, Seattle, St. Louis, Tampa, Washington, DC. ‘Metro Areas’ consist of a densely populated urban core and its less-populated surrounding territories, ex: “San Francisco-Oakland-Fremont, CA” and “New York-Northern New Jersey-Long Island, NY-NJ-PA”.

Rental & Housing Market Trends for 2011

Should You Hire a Property Management Company?

Written by on January 15, 2012 in Landlord Tips, Management, Market Outlook - No Comments
Hand Putting Deposit Into Piggy Bank

There are several schools of thought when it comes to hiring a property management company to help you with your rental properties. Some say yes and some say no. The biggest question to ask is are you getting your money’s worth?

If your properties require a lot of time, have many maintenance issues, or high turnover rates, a property management company can offer you a lot of value. However, if your properties do not turn over every year, are in good condition, have very few maintenance issues, and do not require too much of your time, hiring a property management company to collect the monthly rent check could be a big waste of money. This is the conclusion Dennis Fassett came to in a recent blog post on Bigger Pockets.

Dennis had employed a property management company for a while when he decided to see what he was getting for the money he was paying. He discovered “their work every month amounts to getting a check in the mail, depositing it, then sending me a check in the mail.” So he was paying a lot of money each and every month to get a consolidated rent check.

After he did the math he realized the 10% off the top wasn’t really number he was paying.

How Much Does Your Property Management Company Cost You?

Instead, he saw that he was paying 27.9% off of the net income that he could be taking home. To read more of Dennis’ story and how he came to this conclusion, click here.

Property management companies definitely have their place and are very useful for landlords that have no desire to work on their properties. However, if you’re like Dennis, it might be time to reevaluate how you’re running your business. Could you save money by using a property management software or online rent collection service instead?

The Income & Wealth Producing Potential of Real Estate

Written by on January 12, 2012 in Landlord Tips, Market Outlook - No Comments
RowHouses1

We recently compared real estate to other forms of investment like stocks and discussed several reasons why someone would choose to invest in real estate. Another one of the positive attributes of rental property is the potential for real estate to produce not only wealth, but income.

Wealth from other investments is generated through appreciation and it is no different for real estate. Over time, a property gains value and this appreciation compounds tax-deferred during your years of ownership. Taxes are not paid until you sell your property, and even you can roll over these gains into another property through something called a 1031-exchange to defer paying the taxes even longer.

On top of the wealth generation of real estate, rental property investments actually bring in cash through the rents paid by your tenants every month. Of course, this income is offset by the expenses incurred in the management of the property like mortgage, interest, taxes, insurance, maintenance, and association dues. Smart landlords will invest in properties where the rent will at least cover these expenses from the beginning.

Over time, as the monthly rent increases (on average 3% per year) and the mortgage is paid off, the rental income can become significant. This doesn’t even take into account the appreciation on the house, that once it is sold will result in a much larger payday because your tenants have paid off the mortgage for you and essentially bought you a house.

Let us know what you think in the comments below. Why did you get into real estate? Was the income and wealth producing potential too hard to pass up?

Photo by: byrdiegyrl

How to Retire with 15 Rental Houses

Written by on December 12, 2011 in Landlord Tips, Market Outlook - No Comments
How to Retire with 15 Rental Properties

How can 15 rental houses help you retire faster than a million dollars in a 401k? That was a question examined by Brian Lee of Lifestyles Unlimited.

Brian credits Robert Kiyosaki of “Rich Dad, Poor Dad” fame for changing his opinion on wealth and making him understand that wealth can be determined by this simple test:

Quit your job today; and without touching the principle on any of your investments, how long can you live on your passive income?

Most people would not be able to live on their passive income very long and that is why they slave away each year building up their 401k plans. However, in this article he explains how 15 rental properties making $200 each per month in profit can help you retire now assuming you only need $3000 per month in income.

Brian explains how 401k plans work in simple terms and what to expect when it comes time to live off of your savings. He makes the comparison between the 401k investments, where you will be drawing down and reducing your savings each year, with the rental properties that will be paid for with rental income and will historically appreciate over time.

Then he quickly demonstrates how you could purchase 15 rental homes over the next 5 years and begin your path to retirement now. The simple plan he lays out is as follows:

The Five Year Plan

Here’s how to buy 15 rent houses in 5 years:
Y1: Save $5k from employment to buy 1 house with a hard money loan. (1)
Y2: Save $5k and refinance $5k out of the 1st house to buy 2 houses. (3)
Y3: Save $5k, refinance $10k out of last year’s 2 houses, to buy 3. (6)
Y4: Save $5k, refinance $15k out of last year’s 3 houses, to buy 4. (10)
Y5: Save $5k, refinance $20k out of last year’s 4 houses, to buy 5. (15)

This example only took $25,000 out of pocket over a 5 year period… much less than a million dollar 401k …and much faster.

For more information and to read about 5 more advantages to buying real estate, check out the rest of the article on Lifestyles Unlimited.

Photo by: arancidamoeba

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