Archive | 2012

Tip: Using Google Alerts to Monitor Rental Rates

30 Jul

This is a system I use to keep an eye on the fair market values of our rental property – both rent price and property value.

First, I create a new Google Alert of the street, city, and state of my investment property.  You can create a different alert for each property, or create alerts for multiple streets in the area if one street doesn’t give you enough data points. In my case I’m lucky: the entire street is lined with duplexes that get rented out and they were all built around the same time, so they interior conditions are probably similar.

Now Google Alerts will send me an email when it detects a new mention of this street on blogs or websites.  They arrive occasionally, and typically contain a combination of for sale listings, for rent listing, and garage sale announcements.

This list of Google Alerts Tips will help you refine your alerts.  For example, I could add -garage to my search query to remove garage sale listings from appearing. Or if the street name has two words, you could put the street name in parenthesis to limit the search to the entire phrase instead of inadvertently receiving listings for similarly-named streets.

As I get new rental rate data points, I add them to this on-going Excel chart:

Unit Rent Bed Bath Sq. Feet Price per Sq. Ft. Source
1 $995 3 2 1150 $0.87 hotpads.com
2 $1,050 3 2 1387 $0.76 hotpads.com
3 $1,095 3 2.5 1319 $0.83 realestate.yahoo.com
4 $995 3 2 1319 $0.75 txpropshop.com

I can then take the average price/sq. feet of the street or neighborhood and apply that to the square foot of my unit.

Using the above data as an example: $0.8925 / sq. feet average * 1199 sq. feet of my unit = $962 fair market rent. This is great news for us, because we’re currently receiving $875/month per unit. When we do impose a rate hike, we can include this information in the notice letter so tenants can see they’re getting a fair deal, and exceptional tenants can see they’re still getting below-market rent. 

An added perk of this system is that I now have a list of websites in my back pocket to use when I have a vacancy to fill.

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Rental Landscape Watering; Summer DriWater Test

23 Jul

There is a noticeable gap in rental landscape expectations – apartment complexes care for the grounds, while smaller properties leave it to the tenant. Understandably, an apartment complex can share the cost of landscaping over more units, and the continual search for a tenant provides the motivation to put their best foot forward. Still, I think we can do better. This post is a part of my on-going search to find a middle ground that allows respectable rental landscaping that scales for a small real estate empire. 

As a follow-up to my landscaping projects from earlier this summer, I continued my weekly weekend watering, but it wasn’t enough for the new shrubs.  Despite my best efforts, I’d come back a week later to find droopy, lifeless plants. In retrospect, summer was not the best time to establish a new root system…

So began my quest for a self-watering solution that could help keep these shrubs alive during the summer, with specific criteria in mind: cost-effective, a 30+ day timeline, and attractive.  Several products would get the job done, but left unsightly globes, 2-liter bottles, or water beds in the lawn.

I eventually found DriWater, a gel substance that slowly turns into water when it reacts with enzymes in the soil. There are several products with different timelines and applications, but I pieced together my own technique that lets me use the cheaper 32 oz refill packs and keeps the product hidden from view. Cost including shipping: $23.20 for 5 packs.

DriWater in action.

First, I cut a slit down the length of the plastic casing which exposed a portion of the gel to the soil, and then buried the entire product next to the plant, slit down. Cover with soil and mulch and the product is entirely hidden from view. This should provide supplemental watering for roughly 60 days, which will be enough to survive the summer. I’ll provide an update when I’ve gotten a better feel for how they’re working.

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Choosing Landscaping for Rental Properties

17 Jul

This summer we experienced the very essence of sweat equity.

Some of our shrubs were casualties of the 2011 drought, so we set out to replace them with something more attractive but durable.

Similarly affected plants in the neighborhood

Hubby with power tools

The bulk of the old shrubs were extracted with a reciprocating saw.  Removing the roots was quite a feat, but made much easier by the wise advice of Mike’s Backyard Nursery. With only a spade and spud bar, we removed all 5 well-entrenched root balls in about an hour.We turned to the city’s guide to native and adaptive landscape plants for replacement advice; I don’t expect the average tenant to water the plants regularly.  We settled on the Golden Showers Thryallis, an adapted shrub described as “easy to grow; needs room to spread; little maintenance required” that will sprout small yellow flowers in the warmer months.

After planting our wedding ceremony tree this spring, the duplex was a little lop-sided, so we also added a second cedar elm for the other side.  I’m diligently watering the 1st tree until it gets established, so it’s no extra work to water a 2nd tree while I’m there.  I’m pleased to see that several trees have been planted around the neighborhood recently.

Total cost of tree, shrub removal, new shrubs, edging, soil & mulch: $149.23.  Hopefully this is an investment that will pay off for many years, and put us in a better position to get top dollar the next time we have a vacancy.  The next challenge will be keeping these new plantings alive!

Planted thryallis shrubs with new edging and mulch.

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Marketing Rental Vacancies with Inexpensive Door Hangers

13 Jul

cheap door hangerWhen I arrived home this evening, a door hanger was waiting on my door.

On closer inspection, I noticed it was created by hand as an affordable alternative to a printed door hanger. This method is ideal for low-quantity efforts (100 or less). Compared to online services that will print a professional door hanger for  about $.75/hanger, this can be made with materials you might already have around the house.

How to make a cheap door hanger:

  1. Print information on the front and back of a sheet of paper.  The beauty of this method is that you have complete flexibility on the paper weight, size, and color vs. black and white printing.  I believe the brochure on my door was created using legal paper, which provided a wider surface for content. 
  2. Fold the paper in thirds to create a brochure.  If I was using a thicker paper like cardstock, I would probably use a scoring board to make sure the edges were crisp. 
  3. Before stapling the door hanger together, align the rubber band in-between the prongs of the staple.

do it yourself door hanger construction

Easy peasy!  This could be a useful tool for creating some word-of-mouth by announcing a vacancy to the surrounding neighborhood.

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Lease Renewal Letter to Tenants

11 Jul

Below is a short post sharing the letter to our tenants about their upcoming lease renewal.  In this instance, the rent amount did not change.

Update – you might also appreciate these other examples of renewal letters – one emphasizing the market rate of comparable rents and one emphasizing the hassle and costs of moving.

 



Month DD, YYYY

Dear Name and Name,

According to our records, your lease expires Month DD, YYYY. We have enjoyed having you both as tenants, and we would like to extend an invitation to renew your lease for another year.

The rent terms for the new 12-month lease will remain at $x/month.

If the terms are agreeable, please sign and initial the Residential Lease Agreement, Animal Addendum, and Owner’s HOA Restrictions Addendum as indicated. We included a self-addressed stamped envelope so you can return the paperwork to us via mail. When it arrives, we’ll counter sign and mail you back copies of all the documents. If there is something you have concerns about, I’m sure we can work something out – just let us know!

Also included is an optional Inventory and Condition Form. Rest assured, we’re realistic about normal wear-and-tear of a lived in house – this is intended for any significant damages that need repair or replacement so you are protected when you move out.

Sincerely,
Name

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Repair or Replace a Rental Property Appliance?

29 Jun

A Failing Fridge
Our tenant mentioned her refrigerator seal needed to be replaced…

Me: *opens door* Where is your refrigerator door shelving?

Tenant: We’ve never had any.  Also, the crisper doors pop off if you put anything in them.

Me: That is a problem…

Tenant: The ice maker stopped working a long time ago.  We told the previous owner, but they wanted to know how often we really used ice.

Bless her heart. The sticker inside told me I had a 1999 “Tappan” brand refrigerator and gave me a model number.

Option 1: Repairing with Replacement Parts
Lessons Learned: (1) AppliancePartsPros.com is awesome for replacement parts and (2) replacement parts aren’t cheap:

  • 2 Crisper Drawers – $249.06
  • 2 Door Shelves & Brackets – $91.96
  • 1 New Fridge Seal – $68.80
  • 1 New Ice Maker – $69.37

I had to wonder whether it was worth it to sink $480 + shipping into a 13 year old off-brand refrigerator.

Option 2: Replacing with a New or “New” Fridge
I considered several replacement options:

New & Improved Refrigerator!

  • Scratch-and-Dent: offering new-but-blemished appliances for a discounted price. I suspect there is a greater discount for the higher end appliances, but I was unimpressed at the cost of white, top freezer refrigerators.
  • Used: there were some real possibilities here – a bit less than the cost of the repair, but buying a somewhat newer unit instead. You need a bit of luck to find a unit you want in stock (several were already missing shelves and drawers). For the real estate investor who wants to maximize profit, I would definitely recommend.
  • New: I was lucky that the current refrigerator was still operational so I could wait a couple weeks until the 4th of July sales began.  After referencing Consumer Reports, I price-shopped the least expensive ‘Best Buy’ rated refrigerator at a variety of big box stores.

Another consideration – our personal landlording strategy  to sacrifice some profit for reduced hassle.  In the end we bought a new Frigidaire with free delivery and a free ice maker for $495 + tax.  Score!

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Report: Effects of Trees on Rental Rates

17 May

Courtesy of Consumerist.com, I stumbled upon a 2010 report on the effects of trees on rental values. While there were other motivations for planting the tree from our wedding ceremony, I do plan to add more in the future to improve the property overall.

“A new study by the U.S. Forest Service found that planting trees along the perimeter of a rental property increase the rates the landlord could charge by $21 a month. Planting right on the property increase the value by at least $5 a month. The survey was done by combining the price of rental listings on Craigslist for Portland, Oregon with tree data gleaned from Google Earth.”

It’s a little dry, but in case you’re interested here’s a PDF of the full report.

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Tree Ceremony and Rental Property Improvements

10 May

The Wedding Tree Ceremony
We were married last month, and during the planning process our officiate suggested we make the ceremony longer – apparently I took my abhorrence for mushy wedding stuff a little too far.  I found a tree planting ceremony online, which fit well with our park-setting.  The tree ceremony is essentially a metaphor on the nurturing of marriage:

Tree Ceremony During WeddingLike this tree, marriage must be resilient. It must weather the challenges of daily life and the passage of time. And just like the tree that they are planting, marriage requires constant nurturing and nourishment. As they provide the sun, soil, and water for this tree, they will provide the encouragement, trust, and love needed on a daily basis to consciously nurture and nourish their connection to each other.”

Which then begs the practical question – what do you do with the tree afterwards?  Since we live in an apartment, we decided to plant it at our investment duplex.

Wedding Tree CeremonyPicking the Tree
With tenants in play, I needed to pick a variety that had good odds of living on its own devices.  I went to a local nursery to get some expert opinions with a few criteria in mind:

  1. Relatively Attractive – for both curb appeal and the wedding photos.  🙂
  2. Low Water Needs / Heat Tolerant – 2011 saw a bad drought for Texas, so this could be the difference between the tree surviving the summer or not.
  3. No Acorns or Fruit – with rental properties, this could be a recipe for disaster.

The nursery staff was crazy helpful and knew their stuff – she understood exactly what I was trying to accomplish, recommended several trees, and introduced me to some city resources on native trees suggested for the area.  I ended up picking a small Cedar Elm.  Total cost for the tree: $4.32 – what a deal!

Planting the Tree
YouTube.com is a great resource for DIY projects:

Cedar Elm Investment PropertyHere’s the tree in its new, permanent home.  Now I just need to keep it alive during the upcoming Texas summer – it sounds like the first year is the hardest and then I’m probably good. 

We intentionally planted it in the front yard so we could help supplement the watering as needed.  I expect I’ll make frequent trips to ensure it survives the summer, which will give me an excellent opportunity practice tracking my driving mileage.

 

 

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Choosing an Investment Property to Purchase

7 May

Q: I’m an aspiring investor looking for my first property. Lately I’ve been frustrated because I can’t seem to find properties that meet my criteria AND generate the cash flow I’m looking for. Could you share your experience of how you found your first property?

Glad to be of service!  This post details the process we used to select our first investment property. Now I should start by saying there will be exceptions to all of these rules of thumb, but this logic seemed to work for us and I would use it again in the future:

    • More units = Easier to cash flow.  Generally a duplex will usually be easier to cash flow than a single-family home, and a fourplex is easier than a duplex, etc. Because of this, we started with duplexes and removed single family homes from our search entirely. In a perfect world we’d have moved straight to a fourplex but our down payment wasn’t large enough.
    • 25% Down. Because this was an investment property that we would not be living in ourselves, we were required to put a down payment of 25% the purchase price to get financing. While that amount of money is a pain to save up, this really helps the cash flow equation because with a large enough down payment pretty much any property can cash flow.
    • Our Strategy: we went into this process with a few assumptions – (1) we’d be managing the property ourselves (2) we weren’t exceptionally handy (3)  we’d both be working full time in other careers for the foreseeable future. This meant that the ideal property for us would be in good condition so reduce maintenance/tenant hassle.  I’m a firm believer that the better the property, the better the quality of tenants it will attract. As a result, we weren’t looking for the very best cash flow possible – instead we got additional quality in exchange for slightly reduced cash flow.
    • Alternative Strategy: I have a coworker who went into their investment property purchase with a very different assumption: they would use a property management company from day 1.  Now not only is their hassle factor reduced, but they need to maximize cash flow to off-set the cost of the property management fees. This resulted in a very different property purchase. There isn’t a “right” strategy – it’s more important to pick the strategy that’s right for your situation.
    • Investment Property Realtor. We had the good fortune of finding a realtor that specialized in investment properties. Before then we had spoken to a few others, and it was clear in retrospect that they didn’t know what they were doing when it came to investment buys. Buying an investment property has unique financing options, down payment requirements, and evaluation metrics that many realtors just don’t have experience with. Once we found an investment property-savvy realtor, the process went very quickly.

Our realtor sent us a chart of the top 20 properties in the area terms of current monthly rent / asking price. Because this encompassed different cities with different property taxes, I created a modified rent/asking price ratio by accounting for HOA fees and monthly taxes. The formula for this modified ratio was:

Modif. Ratio = ((Monthly Rent – (Monthly Taxes + Monthly HOA Fee)) / Price

Then the list was sorted by modified ratio to see which properties rose to the top. We drove around to see each property/neighborhood in person, which allowed us to eliminate some options immediately. Then we scheduled some time with the realtor to see our top picks, and we ended up buying one of those properties. Because of the lower-hassle strategy I described above, our pick was in the middle of the pack.

Here’s our property-comparison chart for reference (our unit is in pink):

Price Taxes Rent Modified Rent Modified   Rent/Cost Ratio
$170,000 $4,090 $1,700 $1,359 0.800%
$175,000 $3,227 $1,650 $1,381 0.789%
$165,000 $3,727 $1,600 $1,289 0.781%
$174,900 $3,626 $1,650 $1,348 0.771%
$175,900 $4,482 $1,725 $1,352 0.768%
$174,900 $3,990 $1,650 $1,318 0.753%
$192,500 $4,877 $1,843 $1,437 0.746%
$178,000 $3,433 $1,590 $1,304 0.733%
$181,350 $4,226 $1,750 $1,348 0.743%
$204,900 $4,887 $1,900 $1,493 0.729%
$175,000 $4,023 $1,550 $1,215 0.694%
$189,950 $3,630 $1,620 $1,318 0.694%
$214,990 $5,018 $1,850 $1,432 0.666%
$217,900 $4,226 $1,850 $1,448 0.664%
$200,000 $4,131 $1,650 $1,306 0.653%
$178,000 $4,143 $1,500 $1,155 0.649%
$259,400 $4,237 $2,020 $1,667 0.643%
$239,000 $5,720 $1,990 $1,513 0.633%
$185,000 $4,190 $1,500 $1,151 0.622%
$215,000 $4,352 $1,700 $1,337 0.622%

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Preparing Rental Property Taxes: The Good, The Bad and the Ugly

2 May

Tax preparation for our investment property has always been intimidating to me.  Lots of things weren’t in my favor: decoding depreciation vs. deductions, repairs vs. improvements, 1-time expenses incurred while purchasing the property, and 50/50 ownership (and income distribution) between myself and my fiancé.  But being a do-it-yourself kind of individual, I was determined to put on my big-girl pants and figure it out.

Every Landlord's Tax Deduction GuideFirst I brushed up on the basic of rental property investing with the help of this great book, Every Landlord’s Tax Deduction Guide.  I really recommend this book – it explains a niche area of tax code in a very easy-to-understand way.

I planned to rely heavily on my go-to tax software, TurboTax.com. They offered a “Premier Investments and Rental Property” service for $74.95 that seemed ideal for my situation. I also appreciated their handy (and free) Real Estate Tax and Rental Property page to organize my expense categories.

The end result: I fought the tax law and the tax law won. For the first time in my tax-preparing life, I raised the metaphorical white flag and took my taxes to a professional.  Honestly if I hadn’t read the book, the TurboTax.com product probably would have sufficed, but I realized the step-by-step online guide wasn’t asking me everything I felt I needed to satisfy the level of detail the book recommended. For example, I knew gift expenses were deductible to a max of only $25 per unit, but Turbo Tax didn’t question whether any of my expenses were gifts – so what else wasn’t it asking? Maybe it was user error, but I was pretty confident I was about to screw this up.

I found an accounting firm to prepare my taxes through yelp.com – first looking for a large number of positive reviews and then evidence of real estate investment experience. I called my chosen accountant and explained the situation, and she gave me some basic instructions about what information to provide her.

Pulling together expenses was relatively easy because I was already in the habit of putting all rental property receipts in a manila folder as they come in, and then I cross-referenced that with a rental-only checking account that would remind me of anything else I’d forgotten. One twist I wasn’t expecting was the requirement to separate the expenses and income by unit, not by property, so that all expenses for Unit A are separate from Unit B. This will affect how I purchase supplies in the future, including going through the check-out line twice in order to separate expenses at the time of purchase.  Dividing sales tax based on what % of the receipt is for which unit is… unpleasant.

As a reminder, we closed on our duplex in October 2011, so here’s our 2011 income:

Side A Side B
October 2011 Rent $310.40 $301.53
November 2011 Rent $875.00 $875.00
December 2011 Rent $875.00 $875.00
Security Deposit Interest $0.82 $0.76
Total $2,061.22 $2,052.29

And 2011 variable expenses, which doesn’t count insurance/taxes/and mortgage payments:

Payee Side A Side B Both
Amazon.com – 9/13 $26.39
Property Inspection – 9/14 $495.00
Office Depot – 9/17 $16.22
Appraiser – 10/6 $575.00
Office Depot – 10/19 $5.73
USPS – 10/20 $1.08
USPS – 10/20 $1.68
Office Depot – 10/22 $17.31
Safeco of Indiana – 11/9 $8.00
USPS – 11/9 $1.48
Walmart – 11/19 $5.38
Lowe’s – 11/19 $66.45
Lowe’s – 11/19 $17.99
Toys R Us – 12/16 $26.95
Jo-Ann – 12/16 $26.95
The Home Depot – 12/23 $25.94
Total $94.48 $79.77 $1,143.30

Something I vow to do better in 2012: recording the driving mileage to and from the investment property – otherwise we’re just leaving money on the table. I acquired an inexpensive vehicle mileage book from Office Depot and it lives in my glove box.  The trick will be remembering to use it.

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