Summer Vacation? Awesome. Water Damage When You Get Home? NOT Awesome.
So here we are in the middle of July. Friends, family and co-workers are taking vacation and going to fun and interesting places. It would be a shame to end a great trip by coming home to a nasty surprise… running water dripping through your ceiling. Can you imagine how shocking and a little scary that would be? We have people on our team that have experienced that first hand, and it is no fun at all.
All you have to do to make sure this doesn’t happen is turn off the main water supply to your home before you leave for an extended period of time.
Also, be sure to turn your hot water heater to the “vacation” setting or turn it down to a lower setting. That way, you won’t risk damage to your hot water heater if the water level gets low, and you will also save money by not having to keep the water as hot while you are away.
First, you have to find where the main water line comes into your home. Usually, this is located in the basement along an exterior wall and enters your house close to ground level. You will see a pipe coming in and either a round, turn-type shutoff or a straight, lever-type shutoff. (See the pictures below for examples of both types.) All you have to do is make sure either type is turned from the open position to the closed position, and you have shut off all water to your house.
Our friends at Sage Restoration shared with us recently the three most common types of water damage they see:
1. Washing machine line bursts or was not connected properly
2. Dishwasher water line connection bursts or leaks
3. Supply line to the toilet bursts or leaks
Be sure to avoid this potential problem at the end of a great vacation by turning off the main water supply to your house before you leave!
Real Estate Investing Lingo Defined – Part 1
By Paul Branton, Director of Investor Services for Home Rental Services
You know how in most professions there’s a “language” that those inside the profession tend to know? Well, that certainly is the case in real estate investing.
To make this experience a bit more fun, lets breakdown this sentence:
Hey Bill, Do you remember that time I used $100k in OPM to do a BRRR, hit the 1% rule and make an 18% Cash-on-Cash return? Wow, that sure was a great deal!
Okay, so clearly there were a few words/phrases in there that are unfamiliar to those outside of the world of real estate investing. Here are some definitions for these commonly used terms.
“OPM” or “Other People’s Money”
This is pretty much what it sounds like. The concept of using borrowing opportunities to leverage capital for investing. In other words, borrow money to use as investment capital. This works well when interest rates are low, like they’ve been for the past few years.
See the difference between using cash or leveraging OPM in the cash on the cash return example below.
“BRRR” or “Buy-Renovate-Rent-Refinance”
This is a method that is commonly practiced in “Buy/Hold” investing where you BUY a property with cash, RENOVATE the property to increase its value, RENT the home to a tenant and REFINANCE to get back all of your purchase and renovation funds.
The “1% Rule”
This is an often used “target” for the ratio of money invested vs. the rental rate. For example, if I purchase and renovate a property with a total cost of $150,000, the 1% rule would say that I should look to get $1,500/month in rent.
It will depend on the market and asset class that you are investing in, as to how easy or difficult this ratio is to achieve. The percentage will usually be lower for investments in a better market or asset class. (Lower risk = Lower rate of return.)
“Cash-on-Cash Return”
This is a percentage that is calculated based on the annual before tax cash flow or Net Operating Income (NOI) as compared to the total amount of capital invested.
As an example, if you were to invest $150,000 in cash to purchase a property that produces $18,000/year after expenses, the Cash on Cash return would be 12%. ($18,000 / $150,000) In this same example, if you leveraged “OPM” and only put 20% down, you would be investing $30,000 with the potential for a greater “CoC” return.
That being said, you must factor in the added expense of the debt service payment on the $120,000 you financed. To do this, you would take the $18,000 and reduce it by the annual mortgage payments of lets say, $10,000. This leaves you with a NOI of $8,000 and gives you a return of 26%. ($8,000 / $30,000)
If you’ve made it this far, I hope that you’ve learned something new! Or at least understand some of the abbreviations that get thrown around. If you want to learn more, look for my next post where we will break down the following sentence:
Hey Suzy, check out this turn-key deal! I can get a cap rate of 8%, maybe 9% if I do a few things to force appreciation; would you be open to doing a JV with me on this deal?
Stay tuned!
Fun Relationship Builders? The Move In Bag and Move Out Box!
By Oretta Croushore, Property Manager for Home Rental Services
Move-in appointments are one of my favorite parts of my job as property manager. It’s one of the only times I get a chance to meet our renters face to face. I love having the chance to shake their hands and put a face to the voice on the phone or behind the emails.
Let’s face it, moving is stressful.
I don’t care how you do it. We have renters who are moving across town and those who are moving across the country. I’m chatty and curious by nature, so this is like a mini Barbara Walters moment for me. I love to hear their stories. I recently moved in a couple who were moved to Kansas City from Kentucky by the military. They were married just a few short months before. Knowing they were going to move, they had not even opened most of their wedding gifts.
I was thrilled to think of these newlyweds starting their lives as a married couple in one of “our” houses. I don’t think I will ever forget the very large family who came to the move in appointment! We must have looked like a clown car unloading as we all filed out of the conference room after the move-in appointment. The kids were a delight though… It’s such a treat to hear them excited about their new house.
Our conference room has a beautiful view of College and Metcalf, and the office tends to be peaceful. I know the people I’m meeting with have been running from here to there trying to get everything ready for the past several weeks. Sometimes, they’ve even driven straight in from out of state to meet with me. When they walk into our beautiful conference room, and let out a little sigh, I feel like we’re already making them feel at home.
The Move In Bag
Once all the business is done and I’ve handed over keys, I have one more surprise for the renters. The move in bag! This is a reusable bag with the Home Rental Services logo on the front. I tell them it’s a goody bag with a few things to get them through the first few days in their new home. There’s some toilet paper, paper towels, hand soap, cookies, candy, pens, a chip clip, and popcorn. We also like to include local restaurant guides.
A lot of thought has gone into what we put in the bags. We wanted things which are portable, economical, and useful. The reaction is always so appreciative and often excited. There’s been talk of having these bags left at the house for when the renters arrive. However, the property managers enjoy the experience so much, we refused to give it up.
Move Out Boxes
The move in bags have been so successful, that we decided to implement move out boxes. These are delivered by the leasing agents when they go to the house for the walk-through at relisting time. We make no rash decisions at Home Rental Services. We spend a lot of time thinking about the right things to put into these boxes. The idea was they would be things to help the renter get the house ready for inspection and to help their move. We created a few documents to help walk the renters through the move out process and the reconciliation of the security deposit.
We’ve learned over the years there are a lot of questions at move-out. We included a checklist of things to remember to address before they leave. Are there burned out light bulbs? Have you mowed the yard for the last time? Is the furnace filter clean? These reminders benefit everyone (and help keep turn costs lower.) There’s a small roll of packing tape and a Magic Eraser as well as some candy in the box. We want to send our renters off onto their next chapter with as much care and consideration as we did when welcoming them to their new home.
It’s the little things that make all the difference in a relationship. Move-in and move-out gifts are good ways to show our clients that we really care about them!
How to make more money on your rental property.
By Jennifer Hermon, Administrative Specialist for Home Rental Services
Investors have one goal in common… to make a decent return on investment with their rental properties. So one of the most common questions we hear as a professional property manager is “how?”
How do I make more money on my investment property?
One drastically overlooked area is renter retention. Sure, there’s location and making a house look good for showings. But once we’ve secured a good renter, a typical landlord forgets about it. They often count on the rental profit coming in from then on out. The mistake is that many owners don’t plan on keeping that renter to avoid costly turn over.
Renter retention starts the day the renter moves in and should never stop.
Typically, just after move in, a renter will find a few things that need to be checked or repaired. Maybe the wobbling ceiling fan didn’t bother the last renter, so it wasn’t reported. A toilet may have a slow leak that no one noticed before because that bathroom was rarely used. Whatever the case, we listen to the renters and do what is reasonable to make the home enjoyable for them. This also protects your investment.
Throughout the year, we keep renters informed with email and blog post reminders about removing hoses in the winter, reporting problems directly after large storms, etc. These are just a few of the things Home Rental Services does to promote renter retention.
So what can you, as an owner do? Listen to your renters. Be Proactive.
Ask your renter what could be done to the home to make them want to sign a new lease at renewal. Recently, we had a renter comment that they really love the home, but the old dishwasher makes a terrible racket. So they can’t really run it when someone is on the first floor. Sure, it works, but if spending a few hundred dollars on a new, quieter dishwasher makes them love the living space, replace it! That is so much less expensive and worrisome than vacancy or making constant repairs to a failing appliance. (Investor Insight: It is almost always a better ROI to replace a dishwasher vs. paying for repairs.)
Reinvest in your rental investment property.
This involves more than just planning ahead for exterior painting or new carpet in seven years. Plan for appliance replacement. Updating light fixtures and faucets can also go a long way. A freshly stained deck not only protects your investment, it reminds the renter of additional living space, giving more value to the home. If someone is proud of their home, whether they rent it or own it, they’re more likely to take better care of it.
In summary, don’t lose money to turnover and vacancy… Spend money on your occupied property to keep your tenants (people paying the mortgage) happy. Give them more reasons to love the home and stay year after year!
99 Problems, But Turnover Ain’t One
By Paul Branton, Director of Investor Services for Home Rental Services
What do you do when the same tenant stays in your property for nine years?
First, you should CELEBRATE!!! You’ve successfully avoided a ton of vacancy and extra turnover costs. These are generally the two things that quickly eat away at the potential profits for rental investors.
Second, you should BUDGET. Just because you might not need the funds this year, doesn’t mean you won’t need them when the time for turnover comes. You should be diligent and set aside an appropriate amount of money each year as if you were “turning” the property.
In our experience, a good rule of thumb would be to plan on one months’ rent as the amount to set aside each year.
This actually took place recently for one of our investors.
One of our clients has been with us since we opened our doors 29 years ago. Wow, that’s humbling to think about… I’m only 5 years older than his relationship with our company! (Thank you Bob. We sincerely appreciate the opportunity to work with you!)
In this example, the tenant moved into the property in 2009 at a rate of $1,070/month. When the tenant gave notice to vacate in 2018, his rate was $1,155/month. If you take the $1,155 and multiply it by nine, this gives you $10,395 which should be enough to cover all the turn costs, deferred updates/upgrades etc. to bring the property back to market ready condition.
As soon as we received the notice to vacate from this long-term tenant, we knew we needed to get our renovation plan ready.
Here’s what that process looked like:
- We reviewed the photos from our leasing agents pre-marketing walk through.
- We requested the bids from our trusted vendors.
- We spoke with the owner and presented the vendor bids.
- The owner gave his approval.
- We scheduled the vendors.
- We waited for the lease to end.
- We performed the formal “move-out” inspection.
- The work began (as scheduled) the day after the lease ended.
- The project manager performed periodic site visits for quality control and to keep things on schedule.
- Work was completed ahead of schedule. (8 business days.)
- New marketing photos were taken. (For future marketing to highlight new flooring.)
- Move In Inspection was done.
- New tenant takes possession only TWO WEEKS after the old tenant vacated.
Oh, did I mention that the new tenant is paying $1,400/month? We were marketing the property with the new market rate and advertising the improvement plans. Would you believe that renters really like new paint and flooring? I know, it’s crazy. :)
The Budget?
So you may be wondering if we kept this turn to the $10,395 estimated budget. Well, we didn’t. We spent about $12k. We could have been good with $10k but since this investor plans to continue holding the property long term, we opted to replace the flooring on the main level with a longer lasting LVP instead of carpet. (This decision will actually save money on future turn costs.)
The Result
The math works though, because the new rental rate of $1,400/month will allow the owner to make $3,000 more each year!
All things considered, this a great success story in the world of buy and hold rental real estate. If you would like more information on our Investor Services, be sure to visit our website or give us a call!
Living Room Before/After
Kitchen Before/After
Master Bedroom Before/After
Master Bath Before/After
Case Study: Understanding the appropriate pricing for your rental property.
By Paul Branton, Director of Investor Services for Home Rental Services
We recently had a client ask us if we were confident that we could place a new tenant at a rate that they had received three years ago. The amount they were asking for was 11% higher than what the current tenants were paying. To answer this question of pricing and confidence, we had to review the overall “health” of the property.
A couple of quick lessons to observe from this situation:
Lesson 1
Just because your home leased previously for a certain amount, does not mean that it will lease at that same rate in today’s market.
Lesson 2
The costs associated with turnover and vacancy can easily wipe out almost any rate increase.
Lesson 3
DO NOT ignore your properties marketing/leasing history.
What to learn from the lessons above:
While it is true that the home leased at a higher rate three years ago… It’s not an accurate indicator of what the home will bring today. The market conditions and competition are constantly changing. We must always look at the math behind the risk/reward scenario.
In this example, the owner would need to lease his home with less than 30 days vacancy and NO turn costs in order for his 11% rate increase to get him ahead financially. Is that realistic? The answer for this property is: No. The answer might be yes in a different market or for a different property. However, we know the leasing history on this property and it typically takes over 30 days to place a qualified tenant.
In review of this homes leasing history and condition in relation to the comps, we advised the owner to renew his tenants at a 3% rate increase vs. taking the risks associated with the 11% higher rate.
Ultimately, the odds of the owner breaking even or losing money was more likely if he tried to obtain that higher rental rate. And our owner was really happy that we outlined all the details so that he could make a more informed decision.
Hot Tamales, Unicorns and Pizza Parties
Company culture is something that’s created over time. It’s an interesting blend of people, passions and recognition. We wanted to give you a glimpse into some of the things we do to celebrate our team members, recognizing their contribution to the Home Rental Services culture.
The Hot Tamale Award
We’re not sure where this originated, but the Hot Tamale Award traditionally goes to the salesperson with the best month. We decided to get an inflatable pepper to recognize our Agent of the Month ongoing.
In March, Chris won, and the award has been hanging over his desk for the entire month. What a fun way to inspire some friendly competition between our agents! We’re excited to see who is going to win the award for April.
Unicorns
Oretta is a property manager for Home Rental Services. She happens to love anything related to unicorns. A couple of weeks ago, she was having a really busy week. Paul, our Director of Investor Services, brought in Unicorn Magic ice cream to be supportive. (Awesome.)
She LOVED it. But ice cream melts. We thought it would be a fun idea to get her some kind of unicorn decoration for her office. We found an LED Unicorn light for her and presented it to her today. And yes, she loved it, as you can tell by the smile on her face.
Pizza Parties
Another thing we’re celebrating in the office is that our average Google review rating is now 4 out of 5 stars. People will take the time to post negative reviews when they’re frustrated. But they don’t always take the time to post a positive review when they’re happy. We have a bunch of happy owners and renters, and we’ve been doing our best to ask for honest feedback. As a result, our average rating has gone up, and we think it’s a milestone worth celebrating.
So we ordered enough pizza for twenty people to celebrate. And we have ten people working here… It’s better to have extra than not enough!
These are just a few of the recent examples we hope can inspire you within your organization. And this is something that needs to happen on a regular basis. When was the last time you did something fun for your team or for the person that went above and beyond? We will be talking about more creative ideas to say thank you in future blog posts!
Breakfast of Champions: Top 6 Things That Define Good Leaders
On a quarterly basis, we host a Breakfast of Champions for our vendors. It’s an opportunity for them to network and get to know each other while having breakfast. We also bring in a speaker with the goal of providing education and thought provoking content that our vendors can use in their businesses.
This month, we were excited to have Jeff DeWolf speak to us about Leadership and Job Satisfaction. If you check out his profile on LinkedIn, you will see that he calls himself a Job Happiness Fanatic. Jeff talked about the correlation between job happiness and leadership. He made a strong case that they are directly related. The better the leadership, the happier the employees.
Here are the top six things that define strong leaders.
Communication – Strong communication includes clarity of direction, opportunity for input and the level of information flow between groups.
Relationships – Relationships are the glue that holds teams together when times get tough. It’s important to foster a teamwork mentality. It’s human nature to want to be accepted in groups.
Growth – Most people want to be making forward progress in their personal and professional lives. So making progress towards their professional goals and responsibilities is important.
Fairness – It’s incredibly important that employees feel treated fairly. This means no special treatment and consistent policy administration. It also applies to compensation for the work being done.
Accountability – When employees understand what is expected of them, and why, they are usually more committed and accountable for their results. A good leader will hold their team accountable, but this can backfire without the “what” and “why”.
Trust – Jeff defined this as confidence in management’s abilities and intentions. He also made a point that when there is trust, employees will have freedom to express ideas (professionally of course) without repercussions. Good leaders are focused on an employee’s best interests over personal gain.
Have you heard a leadership talk with good points? Any other traits that you think are exhibited by strong leaders? We’d love to hear from you!
Vendor Spotlight: Renew Crew
One of the things we try to do when sharing our stories every week is to focus on our team, our clients and our vendors. This week, we wanted to spotlight one of our vendors (and friends!) called Renew Crew.
Renew Crew is a company that provides exterior wood, siding, and concrete cleaning and protection. They have an environmentally friendly, 3-step process that lifts built-up outdoor dirt and grime to the surface. And then it gets washed away, leaving outdoor living spaces clean and protected.
We’ve done quite a few projects with Renew Crew and the results have always been great!
Deck Project
One of the things Renew Crew is best known for is their ability to make an aging deck look amazing again. We’ve seen this service completed on quite a few properties, and the results are outstanding.
Here’s an excerpt from their website about their process:
“While commercial pressure washing hastily bullies surface dirt away (leaving damage behind in the process), Renew Crew takes a more meticulous 3-step approach. We start with a pre-soak, using a gentle (yet effective) foam to work even the most persistent dirt and grey wood fibers out from any cracks or crevices. Next comes our signature pressure washing service, which powers any grit and grime away. After the first two steps, your surface will look as good as new — but unlike other companies, we don’t stop there. For our final step, we apply a protective finish to help maintain your surfaces and keep them cleaner for longer.”
In our experience, that’s exactly how it works. For example, we had a deck that was ten years old. The stain was gone in many places and the horizontal boards were covered with dirt. When Renew Crew was done with their process, the deck looked like almost new. It was an amazing transformation!
Driveway Project
We had a driveway that was deteriorating and the owner was considering replacing it. The quotes that came back for a brand new driveway were in the many thousands of dollars range. (It was a fairly large driveway leading to a three car garage, so not surprising.)
The driveway was still physically sound, but the surface was showing signs of wear. When it rained, water was pooling in certain areas and causing further damage. We talked to Renew Crew to see if their cleaning and sealing process could extend the life of the driveway. And the answer was, “yes!”
The Renew Crew team did a deep cleaning of the driveway. First, they treated the surface with a solution that broke up the dirt and grime. Next, they used a machine to remove the dirt and grime. (It looked like the one used to polish the floors in a school.) It was amazing how much dirt was brought out of the concrete. Finally, they applied a sealant to the entire surface of the driveway.
In the months since the cleaning and sealing, the driveway has retained the brighter look, and more importantly, when it rains, the water beads up on the surface. It’s proof that the water isn’t seeping into the concrete and causing more damage. There’s a good chance that the driveway will last a few more years before needing to be replaced! And the “clean and seal” process cost a fraction of what it would have taken to replace the driveway.
Need your deck or driveway cleaned and sealed?
If you are interested in learning more about Renew Crew, please give them a call at 913-661-9663. Or you can visit their website at http://kansascity.renewcrewclean.com.
Top 5 reasons that it’s still smart to RENT in Kansas City
By Paul Branton, Director of Investor Services at Home Rental Services
People buy or rent homes for lots of reasons. And I find myself being asked the question, “should I rent or own a home?” on a regular basis. Here are five reasons that it is still smart to rent instead of owning a home in Kansas City.
1) Housing Inventory
Inventory is low and it’s a very expensive time to buy. In just the past year, Kansas City has seen sales prices rise 11.6%. In contrast, rental housing inventory is stable and rental pricing has leveled off.
2) Maintenance and Repairs
Are you ready, willing and able to pony up extra money every year to cover general maintenance, repairs and improvements if you owned your home? Industry experts say that this will cost on average 1-2% of the property value. So, if you go out and buy a $200,000 house, you should anticipate and budget $2,000 – $4,000 per year to maintain your property.
3) Flexibility
Have you committed to living in Kansas City long term? If you put less than 10% down on the purchase of a home and need to sell within the first three (or so) years of ownership, you will likely not make anything when you sell. And hopefully you don’t actually lose money!
4) Down Payment
Are you ready to break open your piggy bank and lose access to those funds for the next (fill in the blank) years? Depending on your down payment, which varies by lender and loan type, you’ll need to put down anywhere between 3% and 20%. If you put less than 20% down, you will almost always be subject to paying what is called “PMI” or private mortgage insurance. This can easily add another $50-$200 per month to your mortgage payment.
5) Market Conditions
House Prices
While we don’t expect a “bubble bursting” experience like we saw a decade ago, I still believe we’re in store for prices to start easing. You don’t want to put yourself in the position of buying at the top of the market, only to lose value shortly thereafter.
Interest Rates
Don’t worry about rising interest rates. The difference between 4% and 4.5% on a 30-year mortgage (or even a 15-year mortgage) is about $10,000 – $20,000 more in interest over the life of the loan. This difference can be made up (in part or entirely) by buying the same house for less money when the market adjusts. It’s also quite unlikely that you will have the same loan the entire time you own the house. It’s likely you will either refinance or sell the house before you pay it off.
Those are just a few of the reasons why renting in Kansas City may be a better decision for you right now.
