Investor Services
Show your personality at the office with socks and ties.
By Paul Branton, Director of Investor Services for Home Rental Services
I know this is stepping back into the time machine to refer to a post from two years ago but here we go… The day was January 17, 2017.
In this post, I shared my appreciation for estate sales. I also included some photos of various purchases I’ve made over the years like a golf putter, some neckties, a kitchen island and a vintage globe.
Today I thought I would tell you about my growing collection of socks. (No, my socks are not purchased from estate sales.)
The Sock Collection
The majority of my sock collection comes from a company called “The School of Sock.” (Formerly Sock101.) I really like the name, but what I like the most is that they are based “locally” out of Lee’s Summit, Missouri! You can opt for a subscription, or do what I do and order a pair or five whenever you get the urge.
Outside of my socks from “TSOS” I’ve picked up a few good pairs from Marshalls. I was also recently able to add to what I call my “Sockfolio” at our work Christmas party by way of this awesome set of pizza socks! (I now have socks of my favorite food!!!)
Tie Tuesday
Over the course of my career, I’ve had jobs that required me to wear a suit every day, and I’ve had jobs in which I could wear jeans and a hoodie. In every workplace situation, I’ve chosen to wear a tie every Tuesday of the week. In my inner-circle, this has become affectionately known as “Tie-Tuesdays.”
Some friends ask me why I would wear a tie if I’m not required to do so. My answer to them is: I do this for a multitude of reasons. For starters, I enjoy it! It’s fun for me because it provides the opportunity to express my appreciation for fashion and design. As another benefit, I believe the way you dress and how you feel about your appearance can and does impact the way that you work. If you don’t believe me, give it a try!
As I close out this post, I would invite you to let me know if you have your own “sockfolio” actual or otherwise. Perhaps your thing isn’t socks but maybe watches, coins, LEGO or artwork. I would love to hear about your guilty pleasure!
Incentives? Here are three ways to generate interest in your rental property.
By Paul Branton, Director of Investor Services for Home Rental Services
In a marketing cycle that’s experiencing fewer qualified applicants than you would like to see, what are some ways to spur new interest and activity for your rental? There are actually a number of things you can do, but for the sake of this conversation, lets focus on just a few of my favorite INCENTIVE options.
Incentive for the LEASE START DATE
In this scenario, you offer a concession on rent for a lease that starts on a certain date. This creates a sense of urgency for the prospect to sign a lease in order to secure the lower price. For example, you might be advertising your property for rent at a rate of $1,750 but advertise that you’ll drop the price to $1,650 for a lease that starts by a certain date. Another option is to offer two weeks or one month of free rent.
Incentive for the LEASE END DATE
This scenario is basically the opposite of the one above. In this situation, you’re wanting the prospect to sign a lease that will end in a better time of year based on renewals. (Typically this means May, June or July.) In this example, if you have the property listed at $1,750, you would offer a lower rate with a lease that ends in your preferred month. (Generally only offered as an option to secure a lease that is longer than 12 months.)
Incentive to provide a PROPERTY IMPROVEMENT
With this promotion, you can combine the timing scenarios above (lease start and/or end date) and instead of a lesser rent, you offer to provide an upgrade or amenity to the property. For example, with a lease that starts by _____ or ends _____ we will install a WiFi thermostat or WiFi doorbell, you pick! This is a great incentive option as the improvement becomes an added value to the property in the future.
The first two of the above incentives are geared more toward securing a new tenant. While the third option can also be utilized to secure a new tenant, we have found it’s also a great way to motivate a current tenant to renew their lease.
If you haven’t tried using a leasing incentive, I encourage you to do so. These have all proven to be quite effective for our investor clients!
“Revert to Owner” Option with Utility Companies
Did you know about the “Revert to Owner” option with utility companies?
Electric companies and gas companies offer a free service called “Revert to Owner.” This is very helpful when you own an investment property.
What happens is that any time a renter calls the utility company and asks for the electric or gas to be turned off, the utility will automatically be switched to your name (the owner) so that there’s no interruption in service.
Think about that. Your renter is moving out in December and you’re on a skiing trip with your family. You don’t want to sit on the phone with KCP&L while you’re on vacation, making sure the utilities don’t get shut off when the current renter moves out.
Even worse, if your power or gas are shut off in the heat of the summer or the cold of the winter, you might have thousands of dollars in damages due to freezing pipes or mold depending on the time of year.
All you have to do to get this set up is fill out a form with your utility company.
In an effort to get you started in the right direction, here’s a link to the utility sheets that we have for most major cities in the Kansas City metro:
Utility Sheets in Kansas and Missouri
If you own an investment property, we recommend that you get this set up as soon as possible!
Home improvements for renting? Material choices matter.
By Paul Branton, Director of Investor Services for Home Rental Services
When it comes to making home improvements with renting in mind, there are certain choices that can help reduce your maintenance costs. One of the important choices is the type of materials to use. The most common are found in the flooring department. The initial costs for “upgrading” may not be attractive at first glance. But if you run the numbers on how much longer it should last, that is where you see the value.
Here are a few areas where material choices matter:
Carpet vs. LVP (Luxury Vinyl Plank)
- Life Expectancy of Carpet = 5-10 years
- Life Expectancy of LVP = 15-25 years
Treated Lumber vs. Composite Decking
- Life Expectancy of Deck = 10-15 years
- Life Expectancy of Composite Deck = 20-25 years
Carpet vs. High Traffic Carpet
- Life Expectancy of Carpet = 5-10 years
- Life Expectancy of High Traffic Carpet = 15-20 years
While most of the “upgrade” options should last nearly twice as long, they generally don’t cost twice as much… which means you come out ahead!
Replacing a deck with a concrete patio
Another area that we’ve been helping investors reduce maintenance costs over the long haul is by way of replacing decks with concrete patios. If the deck is low enough to the ground that it wouldn’t require a long flight of stairs to reach the patio, we recommend tearing off the deck and installing a concrete patio. As I’m sure you know, wood decks require annual maintenance and deteriorate much more quickly than concrete patios. Surprisingly, they cost about the same to install.
What other areas of home improvement do you consider “upgraded” or “alternative” material choices to reduce your maintenance costs?
If you have any questions about making a property rent-ready, please feel free to give us a shout. We would love to help!
The Laws of Attraction in Investment Properties
By Paul Branton, Director of Investor Services for Home Rental Services
Over the years, I’ve been involved in hundreds of leases. It’s interesting to see how varied the outcomes are between how quickly a home is leased and the quality of tenants you attract, when compared to the state of the property. Also, it’s obvious that the condition of the property has a direct impact on the monthly rate that can be charged.
I believe in the “laws of attraction” theory when it comes to marketing your property.
In other words, updating an investment property to current standards when you turn a renter will determine:
- How quickly you lease to a new tenant
- The quality of the tenant (in terms of paying on time and taking care of the home while they are living there)
- The amount you will be able to charge each month
Here’s a more technical explanation about how these mechanics work:
- Improved Market Rate Properties attract Higher Credit, Higher Income, Lower Risk Tenants who will want the property properly maintained (higher standards) and will generally do their part to help maintain the property. (They will maintain, or even improve, the overall condition of the property either at their expense or the owners.)
- Quality Market Rate Properties attract Quality-Marginal Credit, Qualifying Income, generally low risk tenants who will not expect “perfection” but will want the property to be well maintained and may do a little bit themselves to help but just enough to keep it in the same condition.
- Under Improved Below Market Properties attract Marginal Credit, Just enough income to qualify, somewhat risky tenants. These folks typically don’t want to do much in the way of taking care of the property, but will have relatively high expectations of the landlord since they’re paying a high percentage of their income to rent the property.
- Unimproved Below Market Properties attract Marginal-Lower Credit, Qualifying Income, somewhat risky tenants who will not worry about the property as much since it appears the landlord doesn’t. This negatively impacts the property from performing well as a rental. This ends up costing the landlord more than if they had been willing to do ongoing maintenance and improvements.
With that in mind, I would suggest taking time to think about how you’re maintaining and marketing your properties. Keeping your investment property in good condition will allow you to stay in the Improved Market Rate and Quality Market Rate brackets, attracting the caliber of tenants you desire. A+B doesn’t always equal C, but the general trend is there.
If this all seems a bit overwhelming and you would like help evaluating your rental portfolio, please feel free to reach out! We would love to help!
Real Estate Investing Lingo Defined – Part 2
By Paul Branton, Director of Investor Services for Home Rental Services
Welcome back! It was about a month ago when I introduced you to some terms used in real estate investing. To get you caught up, here’s a link to that post:
Real Estate Investing Lingo Defined – Part 1
As you saw at the end of that post, I said we would be breaking down this 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?
Let’s jump right in!
Turn-Key: A “turn-key” property is basically what it sounds like… everything has been done for you. All you have to do is purchase it. This generally includes everything from the full scale renovation of the property to placing the tenant. With a “turn-key” property, you should be able to close on the property and have it be a performing asset. The advantage of “turn-key” is it removes you from holding the property during the renovation and marketing/tenant placement time.
Cap Rate: Cap Rate is short for Capitalization Rate. This is a common measure for evaluating the value of a real estate investment. The way you calculate the cap rate is by taking the net operating income and divide by the current market value of the asset. (Cap Rate = NOI/Market Value) For example, if you have a property with a NOI of $16,000 that is worth $200,000 then your cap rate is 8%. ($16,000 / $200,000 = .08 = 8%)
Forced Appreciation: Forced Appreciation is an increase in the value of the asset due to the intentional actions of the owner. (Not natural/market appreciation.) You can force appreciation in numerous ways. The most common being increasing rents and decreasing expenses… both of which will increase your NOI.
Joint Venture (JV): In its simplest form, a joint venture is a business arrangement where two or more parties pool resources for the purpose of accomplishing a specific goal. In a joint venture, each of the parties is responsible for profits, losses, and costs associated with the investment.
This is another example of industry specific lingo that can be intimidating to people getting into real estate investing. My hope is that these four terms make more sense to you after reading the definitions. If you have any questions, just give us a call! Home Rental Services has been helping real estate investors since 1989.
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?
Continue reading: Real Estate Investing Lingo Defined – Part 2
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.
