Archives for April 2014

Cautionary Landlord Advice

More landlord bad behavior

I’m always amazed when I come across yet another way in which some landlords try to take advantage of their tenants. The list keeps growing, and this latest one has me more in awe of the horrendous lengths some landlords will go to increase their cash flows. As reported in The New York Times, (“Effort to Remove Landlord Who Made Units Unlivable,” by Mireya Navarro, 4/24/14), this scheme involved landlords scheming the system to try to take advantage of local municipal credits for renovating their property.

Problem is, they went about destroying their existing rental units in order to qualify for the upgrade reimbursements. All while they had tenants in place, living in these units. In effect, they sent in “repair crews” to effectuate repairs. But these crews were actually demolition crews, who were dismantling existing, working plumbing systems in the units. Thus, it left tenants with no running water, and no ability to use their kitchen or baths. It is truly too insane to believe.

The reported tale of woe

As reported in the story, you can start to see the unraveling of the scope of this insanity…“In a case that Gov. Andrew M. Cuomo is holding up as an example of “egregious harassment,” New York state and city officials are moving aggressively against a Brooklyn landlord accused of wrecking the kitchens and bathrooms of occupied apartments to drive out longtime tenants.

Officials with the New York City Department of Housing Preservation and Development announced on Wednesday that they had gone to the city’s Housing Court seeking to remove the landlord, Joel Israel, from managing a six-unit, rent-stabilized building in Bushwick, and to have the court appoint an independent administrator for the property.

The department had already sued the landlord over numerous violations at the building, at 98 Linden Street, but the most recent action is a more aggressive tactic to access city and federal money for repairs and to bring relief to the tenants almost a year after their basic services were destroyed.”

Landlords behaving badly

So why do some landlords feel they can mistreat tenants? Because they’re natural bullies, of course. Let’s face it – some bad landlords tend to give all landlords a bad reputation by inference. The story goes on to say: “Tenants in at least four of the buildings have complained of actions taken by the landlord to create hazardous conditions and render their units unlivable under the guise of undertaking repairs, state officials said.

In some cases, the officials said, families with young children and elderly members were forced to move to a homeless shelter; in others, the landlord engaged in intimidation tactics, including locking out some tenants.” It seems impossible that a landlord would knowingly wreak such misery on their tenants. But, alas, some still do just that.

Trying to gentrify an area

The article then notes that “housing advocates and city officials who have rallied behind the tenants and pressed for more aggressive action over the last months argue that strong-arm tactics are typical in gentrifying areas of the city where unscrupulous landlords seek to evict longtime tenants to renovate the units and charge higher rents.” Clearly, some landlords just don’t get it. It would be nice if they could themselves be subjected to what they are dishing out. Maybe then they’d clean up their act once and for all.

Not simply a matter of money

The article sums up the situation with a quote from Gov. Andrew Cuomo: ““It’s not only unconscionable but it is flat-out illegal for any landlord to subject families to living without running water or a functioning bathroom or kitchen,” Governor Cuomo said in a statement.” I think most reputable landlords would agree with this basic philosophy. Tenants deserve your proper care. It’s not simply a matter of dollars and cents. All landlords must do the right thing.

photos courtesy of the leonardlawoffice.com, trashitman.com, vimeopro.com, lagliv.blogspot.com

Best Investment Property Repairs

The Most Cost Effective Improvements

When acquiring residential rental property, you should always be asking what improvements can you make that carry the greatest return on your investment. Obviously, the more attractive your property, the more attractive it will be to prospective tenants, and the more rent you can theoretically obtain. Your main concern should always be your competition, and what like rental units in your neighborhood look like, and can fetch in terms of rent.

Always ask if your property absolutely needs work. If so, what should be replaced and repaired? Upgrading a rental unit should only be done with an eye toward the incremental income to be derived from the upgrade. If yours needs work, then consider these repairs as allowing the greatest return on your property investment dollar.

Landscaping

Never underestimate what a little landscaping can return in terms of bringing in a better type of tenant to your building. A freshly spruced, attractive exterior will make a great first impression for any potential tenant. You want multiple applicants to be fawning over your unit. This will ensure you maximize the rent for that unit. If you can create a renter’s bidding war because of the desirability of your building, all the better.

Updating a kitchen

If your rental unit has a kitchen that’s over twenty years old, you’ll need to decide if you want a complete kitchen renovation, or something simpler. If you can get away with simpler, by all means do so. Re-sand and paint the kitchen cabinets. Change the lighting fixtures from fluorescent to track lighting. Simple laminate countertops can replace old and outdated ones. Also consider replacing the kitchen sink and faucet together for a more up-to-date look. A trip to your local home improvement store will help give you ideas for some low cost solutions.

The bathroom upgrade

A very inexpensive way to modernize the look of a bathroom is too replace only the simplest of items in it. Consider upgrading faucets, toilets, towel racks, bars and accessories first. If the bath is older than 20 years though, you’ll definitely have to consider changing out the vanity, bath tub and/or shower fixtures. In either case, make sure you coordinate any upgrade with other rental units, or, at the very least, do the kitchen and bath together in the same unit. Then, you’ll apply economies of scale when hiring a plumber to come in and do both projects concurrently.

Talking about plumbers…

As long as you’re hiring a plumber, you should also consider if your building needs any major overhauls. This might include having him check all your pipes for corrosion, as well as wear and tear on your hoses and connectors to all your appliances in the building. Having him repair and or/replace faucets and other items now, may help prevent problems down the road.

Should you replace the carpet?

If your floors are looking ragged due to worn carpeting, it most certainly is time to replace it. While carpeting represents the least expensive way of updating your flooring, it also is the quickest to wear out. Consider commercial grade carpet. Another way to go is engineered wood flooring. It will last 25 to 30 years, cleans up well and easily, and looks excellent. However, if you have old pine or oak floors under existing worn carpeting, you might also consider having them refinished. Gleaming hardwood floors are a great way to attract more upscale tenants, since they are so in demand right now. Consider replacing old, peeling kitchen tiles with newer, updated tile or linoleum, or as mentioned above, wood-engineered flooring.

Is it time for repainting?

If your interior walls are looking worse for wear, then repainting in a nice, light shade is always a good idea. Keep ceiling white, but consider off-whites and beige shades for the walls. Neutral colors always work best when renting your units. They’re also easiest to repaint when it comes time to find a new tenant and spruce up the unit. Make sure all rooms are painted the same. As for the exterior, keep the color in harmony with the neighborhood, with nothing outlandish. Remember, your building must appeal to the greatest number of potential tenants possible, in order to maximize your cash flow by keeping demand high for your units.

If you follow these most basic of investment property repairs, you will certainly keep your repair costs down, as you continue to appeal to the greatest number of tenants. And the best tenants at that. This will help keep your building in a positive cash flow for years to come.

photos courtesy of blakehomeimprovements.com, telegraph.co.uk, diynetwork.com, aglasgowskeptic.blogspot.com, apachemoving.net, bandspainting.com, roofingcontractordouglasvillega.info

Investment Property Basics – Furnished Or Unfurnished?

The only case for furnished rentals

Unless you’re going to rent out vacation property, furnishing your rental investment property unit makes no financial sense whatsoever. Whereas tenants expect vacation rentals to come fully furnished, for obvious reasons of ease and comfort in the vacation process, stay away from furnishing your rental units for any other type of residential rental. The reasons are legion. And most importantly, logical. Here are some of the major ones:

Wear and tear

If you’re providing a furnished rental unit (whether an apartment or single family house), the amount of wear and tear on your furnishings will be tremendous. The abuse alone on a living room set of furniture by tenants will be great. The fact that tenants looking for furnished units that are not vacation-goers means they a) have no furnishings themselves and b) probably can’t afford them and c) most assuredly will treat your furnishings with something less than great care, normally reserved for one’s own furniture. You’ll find yourself replacing your furniture in your investment property on a very regular basis – most probably every one to two years. Bad tenants can really do your furniture harm – and you won’t find out until after they’ve moved out. And their security deposit will probably only cover a small fraction of the wear and tear they will have on your furnishings.

Short termers

Most rentals for furnished apartments are traditionally short term. That is, 3 to 12 months at best. Sometimes, less. And, these tenancies tend to come with no written leases, and are month to month (if not week to week. Again, you can be assured this will attract a steady type of tenant that will not be “A-rated.” Expect poor or no pay, problems with the tenants (including noise, unwanted attention by law enforcement, as well as shoddy treatment of your unit – both furnishings and fixed equipment as well. So too, with short term rentals, while you may be able to charge a higher going-rate for your unit than an unfurnished unit, the costs involved in depreciation and turnover and vacancy will more than make up for any increase in rental revenue. In the long run, you’ll come out way behind.

Keep your unit unfurnished and long term

So you really should steer clear of short term, furnished rentals. Stick with longer term (that is, one to two year lease minimums), and stay unfurnished. This will naturally attract a better type of tenant. You’ll also have a much lower turnover and vacancy rate in so doing. And that will translate into a higher cash flow, and better overall bottom line for your property investment.

photos courtesy of absolutelofts.com, trexglobal.com, readharding.com.au, tenantchecker.com

The Best Property Investing Advice

Creating The Buffer Zone

All start-up businesses are plagued by the same problem: a lack of sufficient capital to get through the initial rough period where cash flow is crucial, and tends to be almost non-existent until the business hits a critical mass of revenue. The same applies for any beginning foray into the property investing field. The best advice I can impart is that you set aside an adequate amount for reserves to get you through your first couple of years of operation. This means, you’ll need self-restraint in order to not want to tie up all your available capital in the most expensive, or the biggest projected money-making endeavor. If you leave 15%, 20% or a bit more in adequate cash reserves, you will be able to deal much better with the obstacles that are sure to befall you as any beginning property investor would encounter.

Holding back

Sure, you’ll want to use up your full capital reserves to maximize your return. But don’t. Hold back. Keep that extra amount in the bank for the proverbial rainy day. It may appear so attractive to utilize the maximum amount of your investments to gain an even better deal, an even better (or greater) mortgage amount – but don’t do it. Restraint, restraint, restraint. This will ensure you create a safety net for yourself. Until you know how the business will go, and you’ve acquired sufficient knowledge to be able to predict better how each succeeding property acquisition will perform, lay back, and keep that certain rainy day amount in reserves.

Sleeping better

When interest rates go up, or the market tanks, or your tenants don’t pay on time, or your taxes skyrocket suddenly, you’ll be able to sleep better knowing you’ve planned for emergencies. The last thing you’ll want to do is go back into the borrowing pool to finance an already-extended property. That’s where things get disastrous fast. Especially when you can’t make your mortgage payment (see financial crisis of 2008 – 2011), and are forced to either go through a short sale , or worse, a foreclosure on your property. Or possibly worse – being forced to place your investment property on the market at a fire sale price in order to unload it quickly. Very, very hazardous, and not for the faint of heart.

Socking cash reserves away

So play it safe. Put those cash reserves away, and know it’s OK to make mistakes. Mistakes that I can guarantee, you will definitely make as a beginner property investor. You’ll certainly be best prepared for entering the property investing arena in this fashion. Finally, always take your time crunching your numbers on each potential property acquisition. The more conservative the numbers for rent and expense items you plug in, the better equipped you’ll be to handle any market downturns and surprises that will hit you financially.

photos courtesy of quickenblog.com, appraiserjobs.com, lincolntrustco.com, worldpropertychannel.com, usnews.com

Investment Property Buying Tips

What the pros know

Beginning property investors often ask me for advice on how to obtain the best “deal” on any piece of real estate investment. The problem is that this assumes there actually is such a thing as a “deal” on investment property. In reality, there are smart moves one can take to place yourself in the position of acquiring a specific piece of investment property at below its current market value. That is all that you can hope for…since there is no magic formula for making an investment property “deal.” So step one – forget about trying to find such a thing as a “bargain.”

No substitute for numbers crunching

I always suggest that there truly is no substitute for doing your due diligence on any given property – and simply crunching accurate (and not estimated) numbers on the actual income and expenses on the property. If you do have to estimate (for example, if you have a vacant apartment in the building, and need to input a number for estimated rent), you damn well better have done your research and checked out rents for like apartments in the area. Otherwise, you’ll just be deluding yourself into a “hoped-for” number that may not be realistic. The same theory goes for all expense items as well. Everything needs to be verified.

Once you have your accurate numbers, and you run a simple cash flow analysis (see prior articles here on how to achieve this), you’ll be able back into a number that you’re comfortable with for acquiring the property. In essence, you determine what is a good “deal.” And what’s good to you may not be good to me, and vice-versa. That’s why the concept of a bargain is bogus. I always say that your top limit on what you should offer should not be affected by even a dollar. So, if you think you should only go as high as one hundred thousand dollars on a property, your line in the sand is one hundred thousand and one dollars. Let someone else buy it for that. You’ve already made your decision not to crack your upper limit. Setting limits is terribly important in property investing. It’s called having buying discipline.

Throw out emotionality

Closely aligned with buying discipline, is the ability not to get emotionally attached to any given property. Once you bend your rules, especially your upper limit rule, you’ll be overspending. While it’s definitely OK to re-run your numbers to double check your upper limit, it is not OK to fudge some of the numbers during the re-check process in order to make the upper limit soar…just so you can actually acquire some kind of “trophy” property. That’s called being emotional – and a great way to eventually lose money.

Find a buyer’s agent to work with exclusively

Who do you think is going to hear about properties that are just being placed on the market for sale? Real estate agents, of course. As a crucial member of your “crew” (see my articles here on crew formation), you’ll need to work with one exclusively, preferably acting as your buyer’s agent. In this way, you’ll get calls, emails, texts, etc. as soon as your agent hears about anything that hits the market that he or she thinks would be a great fit for you. The more you work together, the more opportunities will be sent your way. In addition, they will offer their expertise in research and negotiating that will prove invaluable over time.

Using time to your advantage

In any competitive bidding situation, let time be your ally. You can make better “deals” by having done your research and numbers crunching well before your competition. A seller that receives a lower offer from you today may not want to wait for a hoped-for buyer’s offer tomorrow that he thinks might be higher. He’d rather agree to your offer today. The adage “a bird in the hand” definitely applies here. When you can act fast to place an offer, you tend to make acquisitions happen – faster…and at a better price.

Consider attending property auctions

Auctions have the potential to allow you to purchase investment property at below market values. However, I suggest you attend a few without the intention of buying anything first. Just observe the process. There’s a lot to take in. And your competition will be fierce. The expert property investor really knows how to work an auction. In addition, you’ll usually need a cashier’s check for some minimum amount just to gain entry into most real estate auctions. And, as mentioned above, you’ll really need your numbers crunching to be exceedingly accurate, and your discipline (especially for that upper limit) has to be well-honed. With auctions, the best attitude is: let this one go, there’s always the next one to bid on. If you have this disciplined approach to auction buying, you should never get burned financially.

photos courtesy of anchoragehomesearch.com, thelastembassy.blogspot.com, yaerd.org, quickenloans.com, ericksonsdrying.com, thomsonlawplc.com