Friday, August 31, 2012

Is it a Good Time to be a Landlord?

Nothing says "get rich" like becoming a real estate mogul. In the past, most of my clients have been people seeking to build a wealth portfolio by strategically investing in residential income properties.

For decades, "mom and pop" landlords have been slowly amassing their way to retirement through buying, fixing and keeping rental houses, duplexes and four plexes.

These days, however, many (if not mostt!) of out clients are "accidental landlords" - people who are stuck in houses they no longer want but cannot afford to sell at these current depreciated values.

After hiring us to help them with the chores of landlording, they often wait a couple years and decide to cash out and swallow their lumps.

But, is that the best strategy? Maybe there is a longer term vision they can adopt, now that they have been painted in the corner of owning a rental against their will....

This month, MONY magazine published an article on the 4 ways to become a millionaire. Along with stocks, power saving and building a small business, there was the time honored strategy of owning 3 rental properties. What is most surprising is how little the strategy has changed in the 30 years I have been in this business!

Here is the link to the article. It is worth the read.. If you would like to discuss how it could benefit you, please give me a call!

http://money.cnn.com/2012/07/20/real_estate/millionarie.moneymag/index.htm

Saturday, July 7, 2012

Tenant Safety


There are numerous disclosures and forms that tenants are generally required to sign when entering into a rental agreement; one which has now become common is a Safety Addendum. 

The first statement on the form published by The Metro Multifamily Housing Association reads: 
“WARNING!! Many areas of the property may pose dangers to unattended children who may not be aware of the risks.”

·         Windows
·         Use of appliances
·         Parking lots
·         Dumpsters and Trash compactors
·         Exercise equipment
·         Swimming pools, Spas and Saunas
·         Water
·         Balconies, Decks, Second story walkways
·         Play areas

It doesn’t take a lot of imagination to contemplate what could go wrong and cause serious injury or death when reading this list. However, it’s not unusual for people to scoff a bit and say “Duh” while reading and signing this form, as if  “anyone knows you can drown, fall or get hit by a car”. D-U-H.

Yet, every week there are "Breaking News Stories" in the media of horrific accidents that occur while at home involving these issues. A recent tragedy in SE Portland was reported when a small child fell out of a 3rd floor window as his caretaker had stepped out of the room. The TV story made a point of showing how the window screen was not even bent after the child had pushed on it before the accident, demonstrating just how little protection lay between safety and tragedy.

In truth, these are very difficult subjects to think about and discuss. Yet, like any emergency preparedness, with a little forethought individuals can do a great deal to prevent the unthinkable from happening. A recent article in The Oregonian gives tips on securing windows and is well worth the read. 

Monday, April 16, 2012

Why Should I Hire a Property Manager?


The Top 3 Reasons Why someone who owns a rental would NOT choose to hire a property manager:
1.       We can do it ourselves (we WANT to. It’s fun.)
2.       We have a friend (cousin co-worker, etc) who we are/ will be renting it to.
3.       We can’t afford the expense of hiring someone else to do it for us.

For Rent. 3 Bdr 2 bath. Fenced yard. No pets. $1,100 per month.  1st + Last + $500 DP to move-in.

This was the sign in the window of the house when I pulled up, the day the owner called for information.

Roger had lived there for 8 years and, after losing his job last year, he decided to rent it out to an ex co-worker. He had done a lot to the house (refinished floors, stainless steel appliances, cool antique bathtub) and wanted someone to take care of it. He worked for a local building association in town (he was a project manager) so he “knew something about being a landlord”.  His mortgage (without taxes and insurance) is $960.00 so he chose the rent that would cover it and pay the utilities, and the co-worker agreed. He told him there was no smoking, and the tenant agreed to only light up on the porch.

Five months later the tenant said he had 2 roommates with a young son who wanted to move in to share the costs. They were his old friends - so Roger dropped by to meet them personally. He determined they were “okay” – especially after realizing the boy was only 10 months old, so probably couldn't do too much damage. Then, 3 months later (in August) the tenants let Roger know they had adopted 2 cats. Because they agreed to pay an extra $150 deposit for the pets and the rent was always on time, (and Roger was out of town traveling for his new job and couldn’t really deal with it), he went along with it...

When they called on November 8th to say they’d be late on the rent and planned to move by Thanksgiving weekend anyway - they wanted to know how soon they would get their security deposit back.

Roger heard about me from a friend. He called and I came by the day before Thanksgiving to see the rancid mess they left... There was stuff everywhere and Roger was “not sure if they had fully moved out yet”. He was visibly discouraged, and he felt betrayed. He told me he was "changing the locks and just going to keep the damn deposit and sell the pool table and all the stuff in the shed they had left". His new plan was to spend the next month - through Christmas - fixing it all up on weekends, because his nephew was moving to Portland at the end of January, anyway….

He mainly wanted to know how much I charge, but he wasn't sure he wanted to hire me, because now he was even further behind. So... I mused, just how many mistakes had Roger made?

1..         Wrong rent (too low for the market).
2.          Wrong move-in charges (last month's rent guaranteed he be disappointed).
3.          Bad rental agreement (Stevens Ness).
4.          Wrong expectations (what make a good rental and how to qualify a tenant).
5.          Floors = scratched. Stainless = scuffed. Old bathtub = water damage. 
6.          Renting to a friend = "rapport hell" and anger and angst.
7.          No written non-smoking policy= new paint required throughout.
8.          NO pre-qualification on roommates. (Luckily they moved out too...)
9.          HUD violation on child (see www.fhco.org for details).
10.        Too little deposit and not properly accounted.
11.        No written termination notice.
12.        Wrongful entry on the day before Thanksgiving.
13.        Improper handling of abandoned property.
14.        Improper Lock out.
15.        Improper final accounting.
.
I told him I charge 8% per month + ½ month’s rent for screening and placing a tenant. And with my vendors, I could have the house ready in 1 week, but I wanted nothing to do with the prior move out.

After consideration, he reluctantly went with me, but after signing the management contract, he confessed to me that he felt relief.

SO WHAT HAPPENED NEXT?

I had it rented by December 15th for $1,575 per month. $2,500 security deposit (including $500 for pet – 1 cat) and no last month’s rent on a 15 month lease (so it would be vacant next in the Springtime, not again next Thanksgiving!). Total cost for turnover was $3,350.

On Jan 4th his furnace went out adding to his out of pocket costs (we took the call on Friday night at 8:00 pm and had it fixed on Monday after taking space heaters to the house).

By hiring me and taking my advice his (simplified) yearly rental income looked something like this:
$1,575 x 12 1/2 =     $19,687.50 GROSS RENT  - Rented in 5 days - getting him 1 ½ extra month’s rent.
-          $ 1,575 Management Fee
-          $    788 Vacancy Fee
-          $ 2,800 Cost of Turnover (painting and touch up repairs)
-          $    250 Cleaning – (Metro Professional Cleaners)
-          $    300 Yard care clean out (Green Source Landscaping)
-          $ 1,400 Furnace Repair  - (blower /gas valve but tech mis-diagnosed circuit board)
$12,574.50 Net EARNINGS
-          $11,520.00 Mortgage Payment
$  1,054.50 POSITIVE CASH FLOW

Had Roger not hired me, and completed his original plan on his own for convenience and economy:
$1,100 x 11 =       $12,100 GROSS RENT      - Spending 1 month to fix it. Vacant for January.
-          $ 1,000 Materials for Turnover
-          $ 1,800 Furnace Repair (owner would not have re-negotiated the circuit board)
$10,300.00 EARNINGS

Roger makes $40 per hour as a consultant.  ($40.00 x 15 hrs x 6 weekends = $3,600 in labor).
$10,3000.00 EARNINGS
-          $   3,600.00 Roger's Labor
$   7,100.00 NET EARNINGS
-          $11,520.00 Mortgage Payment
($ 4,820.00) NEGATIVE CASH FLOW

Here is the Apples to Apples Comparison:  
He saved $5,874.50. No out of pocket expenses for the heater. His weekends were now freed up.

The top 3 Reasons Why someone who owns a rental would choose to hire a property manager?
1.       We do it professionally (we WANT to. It’s our business.)
2.       We legally screen the tenants, use proper documentation and don’t rent to friends.
3.       We know the market value of rent and we have skilled vendors that work with us 24/7.

(I know that’s more like 6 reasons, but it just goes to show, you get more for you money by hiring us).

Tuesday, February 14, 2012

Should You Walk Away?

Some owners are tired of feeding the beast - paying for a mortgage that no longer makes any sense. What are the consequences for walking away? Reuters reports on this and addresses both the moral and financial impact and outcomes. Click here to read.

Trends in Mortgages

We all know that a key component of the housing recovery will center around the banks loosening the stringent credit requirements to obtain a new loan. DSNews.com has encouraging news on this today. Click Here to read.

Tuesday, January 24, 2012

Monday, January 16, 2012

Bad News Good News for Homeowners

There are a couple of different reports that came out today for those of us who own real estate regarding the housing market.

Locally, the Oregonian reported on the further decline of home prices and sales volume. You can read it by clicking here: http://www.oregonlive.com/front-porch/index.ssf/2012/01/falling_portland-area_home_pri.html

Nationally, HotPads.com (an internet real estate search engine) announced the increase in rents and the higher than normal demand for rental properties. You can see it by clicking here: http://hotpads.com/pages/housing-report-2012-05.htm

Saturday, January 14, 2012

New IRS 1099's

Last spring Congress repealed the requirement for most landlords to file 1099's for work performed on their properties. However, for anyone who holds the title to the property in a Limited Liability Corporation (LLC), these new rules are now in place. Today's Oregonian has an informative read on the new IRS requirements. You can read it by clicking on this link:
http://www.oregonlive.com/finance/index.ssf/2012/01/for_small_businesses_and_taxes.html

Wednesday, January 11, 2012

The 5 best (and 5 worst) housing markets for 2012 - MSN Real Estate

Today MSN Real Estate listed their 5 Best and Worst real estate markets. In the article they discuss the consequences to tenants for breaking a lease in order to buy. It's worth a look! Just click on the link above.