Mike's Blog

So you want to be a landlord? Protect your investment and hire a property manager.

See the other posts in this series:

1. So You Want to be a Landlord? Pick a Niche...

2. So You Want to be a Landlord? Analyzing Potential Properties...

3. So You Want to be a Landlord? Finance It...

4. So You Want to be a Landlord? Make it Stand Out...

So now you have your rental property...you've made it stand out...and now you're ready to rent it out. I typically recommend to investors with only one or two properties to manage their own properties for a while. I do think hiring a property manager makes sense but I think property owners need to understand what they are paying for.

So you want to be a landlord? 10 Reasons to Hire a Property Manager...

1. Rent Collection: Experienced landlords will tell you...collecting rent is the hardest part of owning investment property. PM's have the systems in place to make sure you get your rent on time...

2. Rent Maximization: Many new property managers underprice their properties. Professional managers know the area and how to price your property for maximum profit.

3. Finding the Best Tenants: Professional managers know how to conduct background searches, criminal reports, eviction reports and overall tenant screening. Inexperienced property managers often make expensive mistakes in the screening process.

4. Top Notch Marketing: Property managers know which mediums work for your target market. Often times they have deals with newspapers, websites, etc that can save you huge on marketing money.

5. Legal Expertise: It's way to easy to get in a lot of trouble because you simply didn't know or didn't understand a law. A good property manager knows the laws and how to properly deal with tenants.

6. Property Maintenance: It's the manager's job to make sure you are alerted whenever maintenance issues arise. They should also be doing periodic inspections to make sure your investment is protected.

7. Record Keeping: Record keeping is one of THE most important parts of property management whether its a professional or you do it yourself. A professional property manager will make your tenant and financial records are in order and ready for you at tax time.

8. No Midnight Calls: If you ever hear a property owner complain- its usually about the 7am Saturday overflowing toilet calls.

9. Cost Effective: Most property managers charge from 6-10% of monthly rents. For $1000 rental property that's only $60-100 a month. That's $2-3 per day.

10. Quality of Life: This is the primary reason I chose to hire a professional manager to mange my properties. By handing over the daily management, it frees me up to do other things.

Everyone loves a farmers market. If it's fresh from the farm produce you want(and who doesn't), then farmer's markets are your thing. Studies have shown that produce bought at supermarkets travel on average 1500 miles. Surprisingly, organic food bought at supermarkets tend to travel even further.

Buying your produce at farmer's markets has several advantages

- Farmers get to keep more of the money they make by selling directly to consumers and bypassing large industrial food companies

-You know where the food comes from you buy

-It's more GREEN. Food bought in supermarkets has to be shipped all around the country using tons of fuel and resources in the process.

-Buying locally supports LOCAL businesses

-Farmer's markets are a wonderful place to take the family with all the sites, smells and colors.

Here's a list of farmer's markets in the Richmond, Va area.

South of the James Farmer's Market - 8am-1pm Saturdays    Forest Hill and 42nd St in Forest Hill Park

Byrd House Market-  3:30-7pm every Tuesday    S Linden St and Idlewood Ave behind the William Byrd House Community House

Ashland Farmer's Market- 9am-noon Saturdays   11 Thompson St(behind the Town Hall)

Goochland Farmer's Market- 8a-noon Saturdays  2955 River Road West

Market Emporium at Bryan Park- 3-7pm Tuesdays  Bryan Park(Lakeside Ave and I95)

West End Farmer's Market- 8am-noon  Wed and Sat  Gayton Rd and Ridgefield Parkway

17th St Farmer's Market- 3-7pm Wed, 10am-7pm Thurs, 4-8pm Fri, 10am-4pm Sat  17th and Main St

OK- this post got deleted somehow so I'm re-blogging it.

I've always thought Richmond was overlooked with the annual listings of party towns come out. I mean- we're a fun town with a vibrant nightlife and tons of restuarants. So it made my day when I picked up the latest Style Weekly and found this article by Jack Lauterback. 

So you want to be a landlord? Ok now it's time to make it stand out.

See the other posts in this series:

1. So You Want to be a Landlord? Pick a Niche...

2. So You Want to be a Landlord? Analyzing Potential Properties...

3. So You Want to be a Landlord? Finance It...

Congratulations! You're an investor!! You found a home... did your homework to make sure it cashflows... then you bought it! Now comes the fun part...getting it ready to rent...quickly...and to the best possible tenants.  It doesnt matter how much or how little work needs to be done to the home....there are lots of ways to make your rental property look like the home of some lucky tenant's dreams.

As a fulltime real estate professional...I have the luxury of seeing hundreds of homes a month all over the price spectrum. But if you don't have that luxury- spend a Sunday afternoon going into the open homes in higher end neighborhoods around you. What you're looking for is the look...the look that screams... luxury.... expensive... comfortable. Place close attention to the details and the materials used.

Then...we need to recreate that look in your rental home... cheaply. I'm a huge fan of trying to make my $100k rental property look like a $500k rental property. Everyone wants some luxury... let's give it to them in a cost effective way. Here's a few tips for for upping your bling value:

1. Replace vinyl flooring with inexpensive ceramic tile. Check out the "end of rack" specials at Home Depot or Lowes. Both have specials were you can buy ceramic tile for cheap money....sometimes as low as $.50 -$.85 a sq ft!  The look in a house you wouldnt normally find tile.

2. If you're replacing cabinets...use a darker wood like a cherry. Home Depot has a great off the shelf cabinet that's cheap but looks incredible when you pair it with a nice tiled backsplash.

3. Get the stainless appliances or atleast black. They are normally only a hundred $ or so more and the looks screams bling

4. Always replace toilets in your homes... no matter how hard you try...toilets are used...and disgusting. Replace them.

5. Add crown molding to the living room. It's inexpensive and it's immediately noticeable when you walk through the front door.

6. Add landscaping...curb appeal doesn't just apply to homes you are selling. Make your home look amazing.

7. Make the exterior color stand out from the neighbors... if the neighbors home are full of light colors...paint yours a tasteful darker color. If the homes are older and filled with grays, browns and faded blues...paint your yellow with a bright red door. Make it stand out. Everyone wants to live in the nicest home on the block.

8. Add some detail...add a fence section with some landscaping...you know alot of women dream of that white picket fence...give it to them. For a few hundred $ you can add a fence and paint it white. It doesn't have to be functional...it's just for the bling value.

9. Stage it...that's right. We normally think of staging as something you do when you're trying to sell a home. But you can create the luxury in someones mind by staging the home. Staging doesn't have to be expensive... at the very least add a few pieces of inexpensive furniture and some art, lamps etc that you can pick up at Target. Even a few $2 hand towels and a $10 shower curtain from Walmart goes a long way to go from Blah to Spa in a bathroom.

10. Don't forget Green. There is an entirely new niche of renters out there looks for ecofriendly rentals. Do your homework...there are tons of inexpensive ways to make your home greener.

This is a great video on the social media revolution. This is why I focus my marketing energy toward social media over the outdated traditional methods of RE advertising.

So you want to be a landlord? Finance it...

See the other posts in this series:

                So You Want to be a Landlord? Pick a Niche...

                So You Want to be a Landlord? Analyzing Potential Properties...

OK...so now you've picked your property niche and analyzed potential properties. Your analysis has told you which property to buy...now comes the hard part... financing it.

It didn't use to be the hard part...but after a couple years of out of control foreclosures and government ownership of banks... financing for investors is hard to come by.  But there are still options..

Private Financing

One industry that has done well as banks have stopped lending- is the private equity industry. Many companies have realized there is an unfilled need in the marketplace and have started lending to cash starved investors. Expect large downpayments, 20-30% and higher rates.

Owner Financing

Many owners are in a position to finance the sale. Owner financing can take many forms.

Lease Options allow you to rent the property with the option to buy while you sub-rent the property. This is commonly known as a sandwich lease.

Installment Sales, also known as Land Contract or Contract for Deed, is a contract between the seller and buyer in which the buyer makes payments in installments(much like a retail lay-a-way plan). The seller retains title until the debt is paid in full.

Subject to Existing Financing is a non-traditional method of financing in which the existing mortgage stays in place and but the title is transferred to the investor. There are several important points about this form of financing. First, you need to know if the mortgage is fixed or adjustable. Second, the seller is relying on the buyer to hold up their end of the deal by making the payments. The sellers credit can be jeapordized if the buyer defaults.Third, although it rarely happens, the due-on-sale clause in the mortgage agreement can be triggered when the title is transferred to the buyer.

Traditional Mortgage Products

If your only option is a traditional mortgage- don't worry... there are still products available for investors. Begin with your neighborhood community banks. Many of these hold and service their own loans are less constricted by federal regulators. There are also many nationwide programs specifically for investors. If you're going to live in one unit of the property while renting the other units- you can still get owner occupied loan products.

Loan officers and lenders....if you have an investor product that you would like to advertise- please leave the product info and your contact info in the comments section.

Walk in to any big box home improvement store and you'll be faced with tons of magazines about remodeling your kitchen...your bath... your garage... your whatever they think they can make money on. Seriously....if you're considering remodeling your home...think like an investor.

Most of us remodel our home because we want something more modern, more comfortable, more functional or just more appealing to our friends. But remodeling has an big financial impact on the values of our homes.  There are tons of national magazines touting return on various remodeling projects. Typically- they tell you kitchens and baths bring the biggest return. In fact...usually they say the average bath remodel will cost somewhere around $5,000 but the value added is about $5,800. It looks great on paper...wow a 16% return in just a few weeks. Let's start rolling!!

But what you don't understand is that magazine is trying to sell ads to home improvement product companies who obviously want you to take on that expensive remodel project.

So how do you think like an investor when deciding where to spend money in your home?

Bring Your Home Up to Par

When investors look for a home- they look for the ugliest home on the block. Then they bring it up to standard with the rest of the neighborhood. They don't over-renovate because they know that making the house toooo nice wont add to the incremental value.

The lesson for homeowners...look for improvements where your home is below standard. And bring it up to standard. Don't overspend with the hopes of recouping that cost when you sell.If youre in a neighborhood of four bed two bath homes...and your home only has one bath...spending to add that second bath makes a lot of sense.

Restoring

There are many cases where your home is in an older neighborhood that is seeing a resurgence. Investing in modern touches such as Paperstone countertops or dual flush toilets can make your home appeal to a whole new crowd. This is especially true in Urban historic areas that are experiencing an influx of young hip buyers looking for luxury at affordable prices.

The Numbers

Another way to look at remodeling from an investor standpoint is to analyze the potential returns of your project compared to your desires. If that new kitchen is going to cost you $30,000 but will add $20,000 in value... then you just got your shiny new kitchen for a net cost of only $10,000. The question you have to ask yourself is...is this kitchen really worth an extra $10,000 in costs for you? If that answer is yes...then go for it!

Check with your REALTOR

One thing investors have learned... a good REALTOR is worth their weight in gold. Notice I said GOOD. Investors rely on their REALTOR to help them understand a neighborhoods standards. What improvements will add value and which one will not.

Even if you're not considering selling anytime soon- a REALTOR is always ready to start a new relationship and will gladly share their knowledge of the neighborhood and give you advice on which remodeling projects make the most sense. With the help of an experienced real estate agent, you can make much better investments in your home. And the great thing about these investments...you get to enjoy them every day. Happy Remodeling!

So you want to be a landlord?

So you've decided you want to be a landlord. You've picked your niche and you've found a couple potential properties. But are they going to be money makers?

Valuing income producing properties is very different from non-income producing properties. Even a single family home should be analyzed based on its cash flow. Therefore traditional methods of Comparative Market Analysis are not useful for income producing properties.There are essentially five methods of valuing income properties.

Price per Unit

This is a great "in the field" analysis. If you're looking at a 6 unit apartment building that's selling for $180,000, then the Price per Unit is simply $180,000 divided by 6 or $30,000. This is a great way to quickly compare properties in similar areas but have more or less units. This is great for your very basic analysis...but obviously a deeper analysis is required.

Price per Square Foot

Very similar to the price per unit, to compute P/Sq Ft. you simply divide the price by the number of square feet.  So our 6 unit building with a price tag of $180,000, was 5,000 sq ft... that means the price per square foot is $36. For income producing properties...I don't really like this method. There are simply too many variables to be considered to simply use a price per sq foot method. For non-income producing properties...this method still works.

Gross Rent Multiplier

Gross rent multiplier is another good field analysis tool because it's easy to calculate.  Just divide the property's price by its expected gross income. So our $180,000 6 unit building has a gross yearly rent of $46,800($650 per month per unit) and a gross rent multiplier of 3.9.  Again this is a great method of comparing several buildings of varying types and sizes.

Cap Rate

To dig down even further than the last 3 methods...you need more detailed rent information and cost information. Cap Rate takes into consideration the costs and income of a potential property.  Cap Rate uses Net Operating Income(NOI)  instead of Gross Income like we use in the Gross Rent Multiplier. To get to the NOI, we simply subtract all operating costs(taxes, insurance, owner paid utilities, lawn service, trash removal, expected vacancy,etc) from the yearly income and dividing it by the purchase price. So using our example again, our $180,000 6 unit building has a gross income of $46,800....but we have $7200 of yearly expenses. So our NOI is $46,800-$7200 = $39,600...so our Cap Rate is 22%. The only difficult part is really drilling down the actual operating costs.

Cash Flow

For most beginner investors...Cap Rate is pretty useless.  What really matters to the beginner investor is "Am I going to have have anything left after I make my mortgage payment?". The calculation is very similar to the Cap Rate. But we are only looking at real $...not percentages. To do this we need to know our expected mortgage payment. Then simply subtract your monthly rent, taxes, insurance, owner paid utilities, vacancies, lawn service, etc. Whats left over is your cash flow. Does that end number match your requirements? Some investors only want to break even, some want $200 per month per unit of free cash flow. That's for you to decide...

Analyzing rental properties really isnt difficult. Most of it can be done sittig in your car in front of the subject property using the calculator on your cell phone. Before long-doing the calcualtions in your head become second nature and you'll quickly be able to compare properties with confidence.

Also Check out:  So You Want to be a Landlord? Pick a Niche...

Chance are if you are a landlord... you take care of your properties. I mean it only makes sense. Properties in good repair make better homes and rent for better values. So it makes sense to have nice properties. I have remained silent on the plight of one notorious Richmond, VA landlord that has been making the local headlines. But there are some lessons to be learned from this guy. So here it is Landlords...a Lesson in Bad Publicity.

 Property owner complains to Richmond Voice about citations

 Again Lawrence gets off lightly

Lawrence to skate once again?

Oliver Lawrence to finally get his due?

Taking Back Richmond

Owner of vacant buildings in Richmond fined $3,600

Richmond vacant-property owner is convicted

This is just a sample of the negative publicity one man received because of his property neglect. His face and the name of his company has been plastered across the evening news, local newspaper and of course the neighborhood BLOGS. Neighbors have staged demonstrations at some of his properties. Some have even used squatters rights laws to clean up the houses.

The lesson here...landlords- please take care of your properties. Only buy the properties if you have the cash reserves in place to fix them if they become vacant. One bad landlord can make a lot of us look really bad ....really fast.