Archives for September 2015

Inexpensive Fixes For Your Investment Property

Making your investment property more valuable

How desirable is your rental property? Have you recently taken an outsider’s honest look at it, the way a prospective new tenant does? It’s imperative you take periodic assessments of each investment property you own to see if you continue to offer a quality product to your potential “buyers” – your tenants. The key here is “honest.” Sometimes it’s best to look at other similar rental buildings in your neighborhood and see how they stack up against yours. Especially the ones that you find truly appealing from the curb. With a thorough overview of the rental housing stock in your neighborhood, you’ll be better able to evaluate your own rental investments more honestly.

The honest assessment

As you look at your competitors’ properties and compare them with yours, ask yourself what they have that your buildings do not. Are their walkways in excellent shape? Or are there many chips and cracks, making it unsafe for tenants? Is their landscaping up to snuff? Are there lots of neat plantings surrounding the building, making the entire property appear like a great place to live? Would you feel comfortable living there? Are there ripped awnings or rotted wood soffits or fascia boards that make the building look unattractive? (And more importantly, convey the feeling that there is plenty wrong on the inside as well!) These are the types of questions an honest assessment will yield about your own properties.

Upgrade, and the best tenants will find you…

Armed with this knowledge and honest assessment results, you should now begin to apply basic, inexpensive fixes to your properties to make them more attractive to tenants. This in turn will make your buildings more valuable, since you’ll be able to charge market rents for your units once you’ve made your upgrades. Consider making some of these relatively inexpensive fixes to upgrade and maintain your property. Once completed, they will allow you to find the best tenants for your properties. This will help keep turnover and vacancy rates low, as well as help you to obtain the highest possible market rents for your units.

Fix maintenance items

Get a handyman to make simple maintenance repairs on your building on a regular basis. Broken hinges, or doors that stick, glass windows that need replacing due to cracks, burned out exterior bulbs – these are all simple fixes a handyman can take care of, amongst many other items. Don’t forget torn screens and ripped awnings among the myriad of small items that should be on the regular inspection checklist. Develop this regular inspection checklist if you haven’t already, then have at it! Your current tenants will appreciate your attention to the small details of daily living. And happy tenants will mean good-paying tenants.

Landscaping

Be sure to address the overall curb appeal of your properties. Each one should have its own unique identity. Paying for the services of a landscaper with vision (who should also be part of your overall team of property advisors/workers) is very important. Let their professional eyes determine a unified look for the front of your property. Give them a budget to work within – and let them work their magic. They know best what shrubs will work for your area, for every season. Their eyes know proper color combinations – and when certain plants will flower at different times of year. Use their expertise. Most property investors I know certainly lack this type of knowledge, unless they just happen to be garden experts themselves – a rarity. Your landscaper will know where to get the best discounted prices on shrubs, trees and plantings. Use them to take advantage of these prices.

Walkways and driveways

Next to landscaping, having an appealing walkway up to your building (as well as around it in many instances) is imperative. It not only will look good , but it will make it more difficult for your tenants to have little accidents – that can turn into big headache lawsuits for you. Slip and fall lawsuits against landlords is a major type of tenant-landlord issue…make sure you head them off at the pass by maintaining your walkways – especially if you’re in a cold weather climate. Every Spring, do that maintenance checklist assessment for cracks and chips in your walkways. Also consider resurfacing warn or uneven driveways as well at that time. Too many property investors have very litigious tenants, and those slip and fall lawsuits are too easy when walkways and driveways remain unattended – and dangerous.

Painting

Most property investors are used to having a painter come in and repaint the interior of a unit after a tenant finishes their lease. This is especially true with tenants who have done a lot of “wear and tear” on their individual unit. But it is also important to periodically review the look of the exterior paint job on your investment property as well. Having an experienced pro painter as part of your crew for fix-up work on all your buildings is essential. They will offer you the best prices, especially with a large exterior job. Make sure they offer you a warranty on their work for a period of time (from peeling), and you should be able to have a good paint job last for many years.

Why these inexpensive fixes are crucial

Follow these simple fixes and maintenance items, and your investment properties should do more than retain their value. They will optimize their current market valuations by appealing to the large segment of good tenants available in your area. With the addition of good tenants over bad ones, you’ll find less turnover, a much greater rate of rent paid on time, as well as a decrease in your vacancy rate. In addition, you’ll stay away from deadbeats that could place you in the court system when it’s time to try to have them evicted. It all starts with maintaining each one of your properties. In this way you will increase your overall cash flow per building, as well as maximize each one’s inherent value.

photos courtesy of houstonmortgagetexas.com, hdoundationrepair.com, lawofficewalterjennings.com, tenantscreeningblog.com, ortak.com, zillow.com

Property Investing Musings: The Donald And You

In a world…

What would a world with Donald Trump as a US President look like? And more importantly here, how would it materially affect the way property investors run their respective businesses? I’ve been contemplating these two theses as the Trump juggernaut rolls through this Summer of Presidential Inconsequentiality. And my conclusions shouldn’t really surprise most pundits – or experienced property pros either. Basically, I have concluded that, for all his bombastic behavior, he’s all sound and fury…signifying nothing (sorry, Shakespeare).

Trump as cheerleader for domestic economic growth

While somewhat debatable, I think most would agree that lower unemployment in general tends to yield a more robust housing market. Employed folks are more prone to take out mortgages, and look to move to their “next” home – affording families a step up in the process. This is part of the American Dream. Any chink in the chain, as it were, will tend to break the model down. As the Dow rolls like a roller coaster, businesses tend to act more conservatively, creating a ripple effect in the economy, as job security is place in jeopardy en masse in an extremely macroeconomic way. The result: a skittish economy, with the hallmark being a “frozen” worker mentality of hold onto what you got, hunker down, don’t make waves. And whatever you do, do not take on a new, larger mortgage. The net effect has a chilling effect on the national economic picture, as the depressions years from 2009 to 2012 truly showed.

What can Trump do?

Can Trump steer the economy to a positive, cheery disposition? Well, as a cheerleader, possibly. But don’t expect him to really understand the true workings of the Federal Reserve Bank. His biggest decision would certainly be his choice for Fed chairman. He claims to know who best to place in positions of power…I’m not convinced, based on his track record in business, if that is necessarily true. Ultimately, I really don’t feel he – or any other potential candidate for that matter – will singlehandedly be able to somehow change the course of the US economy. Business cycles tend to run independent of politics. Even with a Republican President and a Republican Congress, you still have that pesky Democratic majority in the Senate to contend with. More gridlock? I think that’s assured…

Trump as tax code reformer?

While I think Trump can create a more positive spin for our economy due to his bluster (as opposed to a candidate that appears catatonic by comparison…well, yes, Ben Carson does come to mind), I don’t think he can change the course of any true business cycle. And I certainly don’t feel he will be a champion of heavy changes in the tax code that will place the well-off in any serious mode of panic about higher tax rates for the rich (despite his bombast to the opposite). With these two components in mind, I truly believe he will have little effect on interest rates. They will most assuredly be going up very modestly within the next three to six months with the aid of the Fed. But by next year’s election, rates should be stabilized for another year. I do not believe Trump, or any candidate in either party, will be able to unilaterally create an environment of lessening of national regulations from the Frank-Dodd Act for banking institutions. Thus, look for current tight credit to remain rigid overall nationally for mortgage seekers…including property investors.

Taking his act on the road…

While Trump may be entertaining as all get-out, I (along with most political experts) think his buffoonery will ultimately do him in. The honeymoon with the American public can last only so long, after all. The “act” that is his actual boorish personality will get old. It won’t get old fast. It’ll just get old…in a slow, grindingly offensive way. I wouldn’t be surprised if a candidate not currently in the race now in either party suddenly pops up within the next few months (and I don’t mean Biden). Regardless, the institution of the American Presidency is only a figurehead nowadays…a giant cheerleader for the country. Save for appointments to the Supreme Court, there is simply not as much power imbued in the Presidency nowadays compared to past decades in US history. And certainly, the US economy is a train that the President tends to have little control over of late.

photos courtesy of barnorama.com, cnet.com, gazelleindex.com, theswash.com, dailykos.com

How Does Rent To Own Work?

The rent to own option…

From the viewpoint of a renter, rent to own homes (also known as lease to own homes) are a great deal. But in the eyes of most property investors, they represent a last resort. This is simply because any investor looking to sell their property naturally wants to get out as quickly as possible, so they can use the funds for something else – be that I was unsuccessful at it personal or for further property reinvestment. Rent to own is just a stop-gap for any property investor. It ensures that the property won’t be sold until the purchase option is actualized – at some point in the future (if at all).

Learn by example…

Property investors who have been unsuccessful at selling their property at a given price may elect to offer their building in a rent to own scenario rather than continuing to lower their asking price. I once had a single family rental that I was unsuccessful at unloading, even with several price drops. My existing tenant asked me if I would extend a rent to own agreement to him, so that he might be able to purchase the property at some point down the road.

I reluctantly said yes, because the prospect of a sale was better than no sale. This is human nature. And rent to own offers property investors that ray of hope that they will, some day, be able to sell off their property (usually, as was my case, in a down market). So my tenant and I negotiated the many terms required in any rent to own contract. And there can be quite a few terms to consider – it’s a good idea to get a feel from the tenant what their needs are first though.

An overall positive experience

My experience with my tenant and our lease to own agreement was positive, though it did not yield a sale, I’m sorry to say. At the end of the one year lease term we had negotiated, my tenant was unable to qualify for a conventional loan, and so could not move forward with the transaction. He had been paying about fifteen percent overage in market rent, and I was able to retain this fully, which helped my overall cash flow on the property. And since he was a holdover tenant, there was no vacancy down time for the building. This was a major plus.

In addition, I had negotiated the term of the rent to own as only one year, which was for myself, the maximum time I wanted to keep the property off the market, prior to trying to re-market it. I was eventually able to sell the property, along with the property I owned next door to it, a three family house, both together as a package deal to another property investor. The packaging of the two properties made the single family house acquisition much more attractive to other property investing bidders at the time.

How does rent to own work?

Most lease purchase homes agreements have a base rent with some additional “overage rent” added on. For example, if market rent is $1,000 per month, the rent for a lease option might be negotiated at $1,200 per month, with the extra $200 per month going towards the down payment from the tenant when they are able to actually close on the house. In the interim, you, as the landlord, are collecting $200 per month more each month. In cased the tenant is unable to exercise his option to purchase, you get to keep that monthly overage. In essence, that overage is the tenant’s cost to purchase the option to buy the property.

Security as down payments

In addition, some lease to own arrangements call for a down payment on the house. In my case, we made the standard security deposit the down payment. That is, if the tenant closed on the house, their security deposit would be returned in the form of an additional deposit at closing. Naturally, any rent to own contract will stipulate the purchase price agreed to by both parties, as well as the length of the lease prior to the tenant exercising the option to close on the house. Usually, this can be anywhere from one to five years.

Purchase options

Some rent to own contracts are merely purchase options. Namely, the tenant is only buying the option to purchase at some point in the future. In this case, no purchase price is agreed to at inception. Rather, the tenant is buying the privilege of a right of first refusal to buy the property at some designated time period in the future. At that time, the seller landlord can set the price he will place the building on the market for, and the tenant has the option to negotiate first with the seller. If they cannot agree, the seller can then place the property on the open market for sale.

Rent to own as safety net

Property investors who are in difficult financial positions find rent to own a viable option for short term cash flow. Whether you are offering your rent to own homes in NY or rent to own homes in CT…wherever you offer them, you can increase your monthly income by allowing for over-market rent collection. Rent to own allows you to pay your mortgage and other bills while a tenant remains installed in the building…thus helping to protect your asset, as opposed to having a vacancy while trying to market the house for sale. On the down side, property investors should realize that tenants interested in a lease to own contract may have poor credit, and may not qualify for a conventional loan. Otherwise, they would be searching for a straight home purchase directly. So as a property investor, it helps to do a rent to own contract with a current tenant, who you know pays his rent in a timely manner, and has a good track record with you.

photos courtesy of rentuntilyouown.com, craigslistrent2own.info, whyrentfl.com, leaseoptionjacksonville.com, buysellaustinarea.com, lianejamason.com, aqcinc.biz

The Abandoned Properties Game

High risk property investing…

If you’re into high-risk property investing techniques that may return higher yields than the more traditional forms of property investing, then by all means consider investing in abandoned property. Since these are typically houses that have fallen into disarray due to owner neglect and ensuing abandonment over a lengthy period of time, they will not be on the market for sale. So your real estate agent will not be able to help you out in your searching. In fact, locating a potential money-making abandoned property will eat up much of your valuable time, since you’ll have to do all the search work yourself. However, if you happen to pass by areas with what look to be abandoned houses, then by all means try using these techniques to scope them out further to see if they can be potential cash cows.

Spotting an abandoned house

First, when you spot an abandoned house, simply walk up to the front door and see if there is in fact anyone living there. You’d be surprised how many neglected houses look abandoned – but are not! If you’ve made several attempts at knocking on the front door at different times of the day on several occasions, and still no one answers, it’s a good bet the house is abandoned. Next, you’ll want to run a simple search using your county’s public property assessors web site and find out who the owner is, as well as their legal address. You can then proceed to contact them through mail, or by looking up their phone number online using a reverse address listing.

Contacting an abandoned property owner

When contacting these owners, be straightforward, no-nonsense, and respectful. Clearly, they either are in the process of being foreclosed upon, or have some dire reason they have left their house in such disarray. So they may not be in the most pleasant of moods when you’re successful in reaching them. Just be prepared, and you’ll be fine. While being humble and respectful, simply offer them a way to get out of their financial bind. Remember – you’re their savior – the solution to their financial problems. If they have a mortgage, offer to pay it off as the sales price for the house. If they have an assumable mortgage, ask if you can take it over. On the other hand, if they own the house free and clear, and are wasting money on paying taxes and insurance on the property, ask for them to hold the paper on your offer. Depending on how dire their circumstances, they may be able to finance the full amount of your offer – or at least, a very large percentage. In addition, they may be very lax in asking for credit reports from you, making it easy to qualify for their owner-financed loan. You could have a tremendous opportunity.

Bracketing your potential expenses

Keep in mind, like investing in foreclosures, the house is probably going to be in just as rough shape inside as it is outside. So you’ll need to bracket your fix up costs to anticipate the absolute worst when trying to either flip the property, or rent it out. Also consider, if you’re going to rent it out, there are a number of government grants you can investigate, that are specifically related to multifamily renovating, such as the Rental Rehab Program. With this particular program, the government will require you to install section 8 tenants after renovations are completed, but it could be an excellent way to create a very positive cash flow on a currently-abandoned property.

Working with difficult locations

Your other main concern, besides locating and proper numbers crunching, will be location. Usually, most abandoned properties tend to be in poorer, more crime-riddled areas of metropolitan areas. However, if you also look at up-and-coming lower income areas that are in the process of gentrification of late, you may be able to spot several abandoned properties worthy of further inquiry with their owners. It’s worth a shot.

Always be on the lookout

Abandoned properties, whether they be abandoned properties in CT, NY CA…you name the state…are certainly worth investigating. Just keep your laptop or pen and paper handy to write down their addresses as you pass by them when driving. It’s a good idea to take photos of these houses from the street for easier reference back to them later, as you cull through the most viable ones for investment. In addition, be wary of going inside any abandoned property without permission. Abandoned property law still considers it trespassing if you don’t have the express OK from the owner to go inside.

photos courtesy of buildingmoxie.com, nakedphilly.com, holidayapartments101.com, easyinsure.ca, shouldersofgiantmidgets.blogspot.com, barnettassociates.net