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.
Stop comparing Apples to Oranges.
By Paul Branton, Director of Investor Services for Home Rental Services
When you go to the grocery store and apples are on your list, do you also look at oranges? Of course not! If you want oranges, you look at the oranges. If you want apples, you look at the apples. Unfortunately, too often when talking to folks looking for a property manager, they don’t realize that they are comparing apples to oranges.
While the monthly management fee, tenant placement fee and other recurring costs are important to consider, those may not be the expenses that will matter the most at the end of the year. When you call around and simply ask property management companies what they charge, there’s a good chance you aren’t getting the whole picture.
In addition to fruit, I also compare property management to insurance premiums and coverage. If one provider is less expensive, is it because they offer the same service or coverage for less? I doubt it. It’s more likely that they are cheaper because the deductible is higher and/or the coverage is weaker.
What questions should you be asking?
In addition to the commonly asked management fee and tenant placement questions, here are a few more important questions to ask when interviewing a property manager:
- How long has your company been doing property management?
- How many properties do you manage?
- If you charge a flat fee, what extras might get charged each month?
- What is your average vacancy between tenants?
- Do you market and show the home while it’s occupied?
- What is your tenant renewal rate?
- What is your annual eviction rate?
- What is the average amount charged to the tenants Security Deposit?
- Do you “up charge” vendor invoices? If so, by how much?
These questions are important because, when the year comes to an end, all of the above will impact your bottom line.
You should ask how long the company has been in the property management business to determine if they have a track record of success. If they’ve been in business less than five years, they’re probably still “learning the ropes.”
You want to know how many properties they manage (and types of property) to determine how well your portfolio will fit into their business model. If the majority of their management is multi-family and you have a single family portfolio, that is likely not the best fit.
You need to know the average vacancy between tenants, renewal rate and eviction rate as all of those will impact your cash flow. Avoiding turnover, vacancy and make-ready expenses is critical to the success of owning rental investments.
Finally, you should know if vendor invoices are being “up-charged” by the property manager. This one could cost you, and it’s not uncommon. For instance, let’s say you need a new hot water tank and the vendor bill is $900 but the PM gets a 10% “referral fee.” You are now paying $990. This up charge can easily add a 1-2% difference in the annual cost of management.
Just as you should not buy an orange when shopping for apples; you should not hire a property management company based solely on management and tenant placement fees. Be sure to ask more questions and get the whole picture.
Is there an advantage to installing a few, well-chosen smart devices in your rental home?
By Oretta Croushore, Assistant Property Manager for Home Rental Services
Up until a few years ago, I felt like George Jetson had lied to me about the future. He said everything would be controlled by the touch of a button, we would all have “visiphones” and flying cars. I guess two out of three isn’t bad.
It seems these days everything is getting “smart” tacked onto it. I live in a “dumb” home. We turn switches on at the wall like Neanderthals. When I get cold, my husband has to step over our saber tooth tiger and stumble past the cave drawings to adjust the thermostat on the wall. We don’t even have someone named Alexa living in our house. Turns out most of these devices are pretty affordable and don’t require major installation. There’s hope for my “dumb” house, yet.
Is there an advantage to installing a few, well-chosen smart devices in your rental home?
It certainly helps to set your listing apart. Features like energy savings, convenience, and peace of mind, help keep the home at the front of the prospective renters’ minds. Many of these products could prove beneficial during vacancy times. How great would it be to know the furnace stopped working as soon as it happens?
Smart Thermostats: This is the one we’re probably all the most familiar with. Change the temperature in the room from the convenience of the couch with your phone or tablet. Control the thermostat when you’re away from home as long as you can find a WiFi connection. Some models offer a sensor to stick in those hard to control rooms like finished basements or attic rooms. The energy savings from these devices can be quite remarkable.
For more info about smart thermostats, here’s a recent CNET roundup of 9 smart thermostats to consider.
Smart smoke/carbon monoxide detector or a Smart 9 Volt battery: No big surprise that a “smart” smoke detector is a thing. Talk about peace of mind! Getting an alert on your phone to tell you when your battery is low? How about one to tell you the alarm is going off? Some even have the option to reset them from your phone. No more climbing on a chair because a pepperoni jumped to its death in the oven.
The Smart battery really impressed me though. They cost about $40 and sync up with an app on your phone. If you’re detector goes off, you get a loud, smoke alarm-like noise from your phone within 30 seconds. The life span is up to 5 years in a smoke only device and 2-3 years in a combo device.
Water Leak Detectors: This is a sensor about the size of a coffee cup and costs between $35 – $80. It’s placed near a potential water leak source. In the event of a leak, you get a notification.
For more info about water leak detectors, here’s a recent CNET roundup of water leak detectors to consider.
If you can dream it, there’s probably a smart version of it. There’s plugs to control your appliances while you are away. Bulbs that let you set mood lighting in addition to turning lights on while you’re on vacation. You can even get garage door openers that give notifications about who is coming and going, tell you the garage temp, and do everything but start the car for you (and your key fob might already let you do that!) Most any smart device can be tied into your virtual assistant like Alexa, Siri or Google.
Now, if only Alexa could put out the trash cans!
JivoChat: Chat with us right now on Home4Rent.com!
We’re always looking for ways to improve our processes and communication. One of the most recent improvements we’ve made is to add live chat functionality to our website!
JivoChat
JivoChat is a web-based chat software that can be installed on your website. It shows up as a little chat bar in the lower right corner of your web pages and stays visible as web visitors navigate your site. If they have a question, they can start a quick chat session to get an answer right away.
We have five people at Home Rental Services on the chat list rotation. Any time a web visitor wants to chat, a notification is sent to everyone that is logged in as available to take a chat request. They can host the chat session from their desktop computer or their mobile phone. The software works with PC, Mac, iOS and Android devices, so pretty much a universal solution.
How Much?
The free version of JivoChat allows you to have up to five “agents” on the system. And you get basic chat functionality on unlimited websites with no limit on the number of chats. And they promise that the basic system will be “free forever”.
The paid version is $10/agent/month and comes with a ton of additional functionality like proactive chats with smart triggering, visitor info with social profiles, chat transfer between agents and more.
We found it was really to easy to set up JivoChat for Home Rental Services. And we’ve enjoyed interacting with potential renters and owners using the JivoChat system over the past few weeks. It’s interesting, because the web chat feels a lot like a text message chat, especially if you use your mobile phone instead of a desktop computer. Even better, our potential new customers say we are being incredibly responsive, which is a really good thing.
Want to see what it’s like? Go to our home page and start a live chat with us… and be sure to mention that you read this blog post!
Real Life Monopoly and 1031 Exchanges
By Paul Branton, Director of Investor Services at Home Rental Services.
When people ask me what I do for a living, I think that my new response will be…. “I help people play Real Life Monopoly.” We’ve said this inside the office for some time now, but after thinking about it more, it does seem like a reasonably accurate description.
If you look at the rules of “Classic Monopoly” you’ll see that the objective of the game is as follows: “Become the wealthiest player through buying, renting and selling property.”
Given those parameters and that objective, this is really quite similar to what I do here at Home Rental Services. My goal is to help our clients acquire, improve and maintain the best rental portfolios in Kansas City!
Here is a recent example:
A few weeks ago, I suggested to one of our investors that he sell his property that was struggling to rent and exchange it for another property. With the help of the great team at Group O’Dell, the home went under contract and sold in 40 days. The investor then took his equity by way of a 1031 exchange and was able to put about 25% down on the purchase of TWO rental properties.
In summary, here are the highlights of this transaction:
- His equity is no longer tied up in the form of 40% of one property. (Better Leverage)
- He now has ownership of two properties instead of one. (Better Diversification)
- He took his gross rent of $1,700/month and turned it into a gross rent of $2,650/month. (Increased Income Potential)
If that doesn’t resemble “real life monopoly” game play, then I’m not sure what does! If you ever find yourself wondering what you should do as a next step with your real estate investments, please give me a call!
Real World Scenario: What to do when your tenant drives through the living room?
One of our goals in writing blog posts every week is to provide useful education. We recently saw an excellent article on BiggerPockets.com that talked about “What to do when your tenant drives through the living room?” BiggerPockets.com is a website devoted to helping real estate investors.
Paul, our Director of Investor Services, checks articles on BiggerPockets.com every day, looking for helpful information for our investment community. We’ve learned a lot from the articles we’ve read and conversations we’ve had related to BiggerPockets.com.
In this article, Nathan Miller talks about the real world scenario where one of his tenants accidentally drove a car into the living room of their rental property. It was a 16 year old child and an unfortunate mistake. Nathan goes on to talk about the steps he followed to figure out what needed to happen next.
Three Steps to Take when a Tenant Causes Property Damage
- Talk to your tenants.
- Call your insurance provider.
- Contact your tenant’s insurance provider.
We liked this approach for a few reasons:
Communication is key whenever there is a situation. Talking with your tenants to understand what happened gives you the opportunity to set the tone. If they’ve been good tenants for a long time, it could be an opportunity to demonstrate that you are all in this together as you work towards fixing the problem. It would be understandable if you were upset and nervous about the damage… but talking with your tenant while in that frame of mind probably wouldn’t be helpful.
Calling your insurance provider is a great next step. You want your insurance provider to know there has been an event that could result in a claim. In this case, the tenant’s auto insurance provider would be responsible for covering the damages, but what if the driver was not insured? This story might also be a good reminder to double check with your provider that you have the appropriate coverage in place for a rental property. If you haven’t done so in a few years, we encourage you to call your agent for a quick review.
Finally, contacting your tenant’s insurance provider in a timely manner is the next step. This should happen as soon as possible once you’ve been made aware of a problem involving damage to your property.
We’ve never had a tenant drive a car into a property we manage. Knock on wood. But we thought it might be helpful to share it with anyone that owns an investment property because it makes you think about, “what if?” Making sure you have the right insurance in place before you have a problem could save you many thousands of dollars due to a claim that isn’t covered.
