Archive | August, 2013

Tip: Matching Touch Up Paint to Existing Wall Color

29 Aug

We faced a dilemma recently when our rental property needed make ready work, including touch up paint. The color on the walls and trim when we purchased the property was an off-white color, which meant a pure white paint off the shelf would stick out like a sore thumb.

We couldn’t leave the walls in the condition they were in, we didn’t know what color the touch-up paint should be, and we didn’t want the expense of repainting the entire room (or unit) the same color.

I had observed a similar situation at work, where a painting crew literally cut out a square of the dry wall to determine a color match. I was less confident in my own wall patching ability.

My sister-in-law came up with a clever solution – remove a hidden section of trim and bring it to the store instead.  After searching inside closets, we couldn’t find a strip small or inconspicuous enough.  We did find a small door.

Door

Our git-r-done paint sample

The door belonged to a HVAC closet, which could be removed and replaced using standard door hinges. This particular door was not full sized, which made it easier to transport.

After some chuckles, The Home Depot paint department reconfigured their equipment to accept a door-sized color sample, determined the existing sheen, and created a quart of touch-up paint.  A test run was applied to the door and dried with a hair dryer before leaving the store – a perfect match!

Custom Color Match

We now have the codes required to order this color again in the future. If you aren’t the sort to file away paint codes, The Home Depot lets customers register custom colors under descriptive names (for example: duplex living room) that can be referenced later using a cell phone number.

I hope this tip saves somebody else unnecessary headache and expense!

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Property Management Company Decisions, Part 2

26 Aug

This is the 4th installment of my Property Management Company series. The previous posts focused on the benefits and costs, followed by our selection process and company decision.

A Change of Plans

Contrary to our original intent, we decided to hire a property management company for only for our second investment property, for several reasons:

  • Compared to our suburban property, our rural property is farther from us and generates less gross rent – which equates to cheaper property management fees. We’ll be exchanging more hassle reduction for less property management cost = better value.
  • Because this property has higher margins, we purchased with the understanding that we could afford a property management company.
  • A significant portion of the leasing fee pays the commission for the broker who brings the new tenant, which would be cost-effective for our rural property. However I believe it is likely wasteful for our suburban property, which rents quickly. Thus far I don’t see a lot of flexibility adjusting the leasing fee based on whether an MLS listing is necessary.
  • There is nothing stopping us from including the other property later. Until then, we’re going to beef up our rental emergency fund with that additional positive cash flow. So far we’ve been successful with our goal of paying all expenses directly from rental income, and we’d like to keep it that way.
  • By continuing to manage our first property, we can keep growing our own skills (and blog) at a slower learning curve.
  • We have difficulty finding independent contractors to work the rural location. The company we chose already manages other properties in the same area, and has an established network of plumbers, painters, etc.

Cost Breakdown

  • Management fee – $1,745 rent/mo. = $174.50 fee/mo. = $2,094 fee/year
  • Leasing fee – $537/vacancy = $1,074 assuming 2 vacancies
  • Releasing fee – $268.50/renewal = $537 assuming 2 renewals

At those costs, hiring a property management company will cost us between $2,362 – $3,168 a year depending on vacancies and renewals.

To put it into perspective against our balance sheet – that would subtract $197-$264 per month, leaving about $547-$614 in positive cash flow.


Price is what you pay. Value is what you get. – Warren Buffett

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Property Management Selection Criteria and Decision

22 Aug

This is the 3rd installment of my Property Management Company series. The previous posts focused on the benefits and costs of hiring a property management company. 

Comparing Property Management Companies

We focused on the criteria most important to us:

  • Cost – management fee, leasing fee, renewal fee
  • Ability to manage both rental property locations
  • Option to perform our own repairs to save costs
  • Positive reputation / trustworthiness
  • ACH rent payments & distributions

We started with the hardest factor – which property management companies will service both of our rental locations? Our second property is somewhat rural, so that eliminated many companies immediately. I also used their websites to make an initial judgment about the professionalism and legitimacy of each business. That left us with 3 serious contenders – we’ll call them Company A, B, and C.

Company C had the lowest management fee at 6%, and I liked that they had an in-house maintenance company to provide low-cost repairs compared to hiring independent contractors each time. However, Google reviews indicated 2.7 out of 5 stars (7 reviews) and highlighted a bad habit of yelling or hanging up on tenants in frustration. This was enough for me to eliminate them from consideration entirely.

Here is the high-level, side-by-side comparison of Company A & B:

 Criteria Company  A Company B
Management Fee 10% 7%
Leasing Fee 60% 75%
Renewal Fee 30% $150
Contract Details Contract cancellation
w/ 30 days notice
1 Year Lease
Req. Liability Insurance $100,000 $250,000
Reputation Google Reviews
4.8 stars out of 5
(21 reviews)
No online reviews

Our Decision

We chose Company A, the more expensive option. Our bet is that the higher cost and positive review history will result in a better experience and property care. I have heard enough first-hand property management horror stories to be wary of choosing the least expensive option, compounded by lack of 3rd party reviews for Company B.

At one point I asked Company B whether the broker commission was mandatory for our fast-renting property.  Could we split what we would have paid a 3rd party realtor between us instead? He replied:

“As a management company we have to be fair to all of our owners and treat each one the same as the others or risk having problems with the Texas Real Estate Commission.  We can’t waive the fee for one owner and not for others”

That doesn’t smell right to me – his own contract says he can change the commission amounts without notice, and will provide “up to 50%” of one month’s rent to the tenant’s broker.  I notice his leasing fee isn’t “up to 75%” – I suspect he only offers a finder’s fee when he needs to, and pockets the brokers fee the rest of the time. It really put a bad taste in my mouth about Company B’s trustworthiness.

In short, I’m willing to pay a premium to hire a company that I trust. Imagine I was deciding who would manage $150k in cash instead of $150k in property – this duplix is still a significant investment that needs to be managed well.


Trust your own instinct. Your mistakes might as well be your own, instead of someone else’s. -Billy Wilder

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The Costs of Hiring a Property Management Company

19 Aug

This is the 2nd installment of my Property Management Company series which details my selection process and hiring experience.

Now that I’ve explained the benefits of hiring a property management company, it is only fair that I lay out the costs too – in all its painful glory.

The actual numbers will vary by company, but I’ve included some ranges that I’ve personally encountered in my research. Property management companies make money at least a few different ways:

  1. Property Management Fee – 6%-10% of monthly rent
  2. Leasing Fee – 60%-100% of monthly rent
  3. Lease Renewal Fee – flat rate of $150-$250, or 20%-30% of monthly rent
  4. Late fees – keeps 50%-100% of late fees collected
  5. Interest – earned from holding security deposits in a trust account
  6. Evictions – the time to prepare and defend in court is included for some, but I’ve seen $25 an hour for others
  7. Other – the cost for mileage, copies, and other miscellaneous items is included for some, but passed along for others

For this hypothetical, I’m going to assume the most expensive company we’re considering for both of our properties. Your mileage may vary.

Property Management Fee (10%):

  • Property 1 – $1,745 rent/mo. = $174.50 fee/mo. = $2,095 fee/year
  • Property 2 – $1,905 rent/mo. = $190.50 fee/mo. = $2,286 fee/year
  • Total: $365 fee/mo. = $4,380 fee/year

Note: some companies don’t charge the property management fee when the unit is vacant, since a 6%-10% of monthly rent is $0.

Leasing Fee (60%):

  • Property 1 – $537 fee/vacancy
  • Property 2 – $597 fee/vacancy
  • Assuming 4 vacancies a year = $2,268 fee/year

The leasing fee is only applicable when there is a vacancy; this compensates the company for additional tasks like make ready work, MLS listings, photography, broker commission, showings, lease negotiations, and move-in coordination.

Lease Renewal Fee (30%):

  • Property 1 – $523 assuming 2 renewals/year
  • Property 2 – $571 assuming 2 renewals/year
  • Total (assuming 4 renewals) = $1,094 fee/year

The lease renewal fee is half the leasing fee. Needless to say, this will change the approach used when determining future rent increases. A renewal tenant has always been valuable, but is more so now.

Late Fees:

  • $50 initial fee + $10 for each additional day, paid by tenant

This isn’t much of an “expense” for me personally because we have yet to collect a penny in late fees. Most of our tenants pay automatically using eRentpayment.com.

Interest:

  • I hold $3,650 in security deposits when at full occupancy
  • At .75% interest I would have earned $27/year

The Bottom Line:

Looking at only the primary predictable costs: property management fee, leasing fee, and lease renewal fee – hiring a property management company for both properties will cost us between $5,475 – $6,649 a year depending on how vacancies and renewals shake out.  Ouch.

To put it into perspective against our most recent balance sheet –  that would subtract $456-$554 per month, leaving about $257-$355 in positive cash flow.


“Time is money says the proverb, but turn it around and you get a precious truth. Money is time.” -George Gissing

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Benefits of Hiring a Property Management Company for Our Investment Properties

15 Aug

This is the 1st installment of my Property Management Company series which details my property management selection process and experience.

Lately I’ve been itching to free up time in order to dedicate energy towards other projects (this blog included). To that end, I began researching property management companies for our two rental properties.

While there are other perks of using a property management company, these are the benefits that are the most important to me:

  • Experience – one of my latest newb landlording mistakes was actually the impetus of looking for a property management company. I’ll live and learn and do it better next time, but how nice would it be to benefit from the experience of a property management professional who has already refined their own process for success. Just through the vetting process, I’ve already learned a few fun facts about lease stipulations commonly used in some of their leases (“Tenants agree to that?!”) that I wouldn’t have considered on my own.
  • Stricter Lease Enforcement – I often sympathize with our tenants, which tempts me to bend my own rules. Rules that were put there for perfectly good reasons in the first place. An objective point-of-contact to look out for my interests would prevent me from inadvertently being taken advantage of by a tenant.
  • Objective Eye – I tend to care more about my properties than I probably should, and sometimes I have difficultly differentiating the slumlord -> rental property -> home owner spectrum when it comes to repairs and improvements. I’m never quite sure if I’ve done enough or too much. It would be very helpful to get a 3rd party assessment of what an unattached professional recommends.
  • Better Follow-Through – the leasing process in particular has a lot of moving parts while also being one of the most critical decisions to get right. The consistency of my process wavers depending on what other demands are on my time at that moment, and it would be nice to have a team working in the background during those times when I’m bogged down.
  • Vendor Relationships – a property management company will have their own little black book of plumbers, handymen, cleaning services, etc. that increase the odds of a job well done. They also have the benefit of buying power – a soured relationship with them will mean a lot more to a service professional than a soured relationship with me. Additionally, we’ve had past projects that were “too small” to bid on, but I could see property managers having more influence. (Note: we will still have the option of choosing which repairs we want to do ourselves to save costs, and delegating the rest).
  • A Partner in Crime – I’m looking forward to having another individual I can reach out to for questions and second opinions. When contemplating this benefit, I’m a little surprised at the void I feel without it. As with anything new and a little risky, being a landlord can be downright scary at times – it would be nice for somebody else to have the answer every once in a while.
  • Eliminating Tenant Calls – I hate phone calls in general, and I really hate late night emergency repair phone calls. Being honest, most tenant requests aren’t all that bad or frequent – and then out of the blue you get that dreaded 10pm call about a broken A/C unit.
  • Tax Deduction – property management fees and leasing fees are tax-deductible; the value of my time is not.
  • More Flexibility – my repair process is currently limited to independent contractors who can make appointments evenings and weekends since I work elsewhere during office hours (not counting vacant units, which use a lock box).
  • Scalability Through Delegation – our intention is to expand our little real estate empire over time, and I don’t want frustration with day-to-day demands to cause me to second guess or delay this plan. On paper, this is still a strong investment for us long-term.
  • Travel Freedom – we traveled to Germany and Prague last May on a belated honeymoon, and had to coordinate our state-side emergency contact with each tenant. This would be a non-issue moving forward.
  • Less Work Discrepancy – because of conflicting work schedules, I end up covering the vast majority of weekday rental demands, which frankly adds up over time. Using a property management company will distribute that burden a little more evenly moving forward.
  • Security & Privacy – I know from personal experience that it only takes one disgruntled tenant to make you double-check the deadbolt at home. Having a primary point of contact off-site would reduce (but not eliminate) that risk. Our names will still be on the lease until we setup a LLP someday.

In the end, all of these points really boil down to the reduction of stress.


“I’m  going from doing all of the work to having to delegate the work – which is  almost harder for me than doing the work myself. I’m a lousy delegator, but I’m  learning.” -Alton Brown

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