By Greg Gardner
"What can I rent it for?" "What are the rents comps?" If I had $1 for every time I've heard these two questions, I'd be a rich man.
The answer to both is: IT DOESN'T MATTER! One and two bedroom apartment rent comps in my area are $350-450 per month. My apartments rent for $550 and $650 per month and my vacancy rate is less than 3%. Yes, my apartments are nice, but not that much nicer. So what is nicer that worth higher rent? Two things: The fellow tenants and the landlord.
There are good reasons for some investors to stay away from rental property. These are NOT some of them:
"I don't want the headaches."
"I don't want to be fixing something all the time."
"I don't want my property damaged."
"Short of eviction, I can't get them out if they don't pay."
"They leave in the middle of the night and trash the place."
If you handle your rental business like a business, it will make you money as any business should. Properly priced and managed, rental property makes you money. Poor management and pricing costs you money. The following are some ideas I use to keep tenant maintenance to a minimum and prevent some typical problems before they happen. Nothing's perfect, but rental property can provide a worthwhile active or passive income to investors.
Treat Tenants with Respect - This is the most important piece of information anyone can give to a landlord. If you respect your tenants and treat them well, they are much more apt to treat you and your property with the same respect; plus they're more likely to make on-time rent payments to landlords they like and who like them.
So before talking about getting higher rent and keeping tenants longer, we have to address how you demonstrate respect for tenants .(who are probably "financing" this particular real estate investment of yours):
1. Repairs - When something is broken, fix it fast. I had just gotten home one evening when a tenant called to say their water wasn't working. When I went to their apartment and checked things out, it turned out the city turned their water off (for non-payment). Embarrassed and apologetic, they offered to "pay me for my gas." (Had I been in my thirsty truck instead of on my motorcycle, I'd have been tempted to accept!)
The lesson here is mutual respect. I took time to find out what was wrong. Tenants respect landlords who go the extra mile; and they're more likely to respect that landlord's property. Question: When was the last time a tenant offered to pay for YOUR Gas?
2. Communication - Keep tenants informed: Upcoming maintenance, a termite inspection, an up-coming annual walk-through, anything relating to "their space"; and never increase their rent without asking them what they can afford. Here are some examples:
If a rent increase is going to be forthcoming then, after complimenting Joe on being a good tenant, I tell him we need to talk about a rent increase and add, "I don't want to lose you so I need to know what you think you can afford". If my goal is $10/month, I'm going to ASK if he could handle $20/month. In the end, I hope to net more rent and still hold on to a good tenant.
If you were in the retail rather than rental business, you'd probably have a customer or two you could do without, maybe even one you'd turn away. But most of them you would appreciate and treat with respect. Our tenants are our customers. They're the reason we're able to make a living. Question: So who's the real problem, them or us?
Rent Comps - Realtors and Property Managers can give you rent comps. They have a fairly accurate idea of what other landlords are charging. However, these figures don't HAVE TO DICTATE WHAT YOU CHARGE. Charge what your property's worth, and that includes the value of renting from you instead of someone else.
Sell yourself to the tenant. Explain why they're better off renting from you.
1. What makes your property worth more than others'? YOU DO! It all goes back to respect and upkeep. If you are better than the average landlord, your property is worth more, in which case you should be paid more.
2. When they say your price is too high, tell them why your property rents for more. Sell yourself to them, not by bad mouthing other landlords, but by emphasizing positive expectations they in fact get from you because it's policy:
People rent for a variety of reasons. A large majority simply can't afford to own their own home. Some could handle the monthly payments, but poor credit is a problem.
There are about as many reasons for renting as there are folks who rent: Just moved to the area; only going to be in the area a year or less; sold old house and new one's not finished; recent separation/divorce; soon to be married; lost roommate and need cheaper place; got roommate and can afford nicer place; retired but not ready for rest home; recently widowed; single and plan to stay that way.
The bottom line is people's lives and circumstances change. You keep tenants and you lose tenants. But if you're a good landlord, if you respect your tenants and treat them fairly, they'll stay with you as long as they can. If you don't, they're out of there the first chance they get. Conversely, if they disagree with you about rent or any matters determined by you, the tenant/landlord relationship is probably damaged beyond repair and its best if they "move on".
Keep your Tenants - Your goal is to stand out from everyone else. You want to be different from other landlords in the area. While everyone else does 6 Months or 1 Year leases, you don't have to follow the crowd. Don't lock your tenant into that. Besides, if they want to leave, they will. Your goal should be to keep them from leaving without giving you a 30-Day Notice.
Instead, give them something if they stay. If a tenant has already given you a deposit, from the viewpoint of many tenants, they're not "losing" anything if they leave they just aren't getting anything back. Some have past experiences where they "already lost" their deposit. However, if you promise them something if they stay, they are less likely to leave until they get their gift.
Free Gifts; Month-to-Month Leases; paying tenants if repairs are not made "in a timely manor"; etc., these things let them know you're not the ordinary landlord.
Move in Gift - Anything free is good. A free gift, worth twenty-thirty bucks means a lot to a tenant who's living paycheck to paycheck. My tenants get something:
1. A Move In Gift of a DVD/VHS Player. My tenants are thrilled. Most have a DVD player, but now they have one for the bedroom too. Then I tell them about the next gift they get.
2. The One Year Gift, which they get when I do my annual Walk Through, is a "Big Screen TV". (23" Color TV from Wal-Mart for $149) Is it worth $149 to keep you tenant one year? What is it worth to keep them for two? That's a small expense to keep from having to find a new tenant.
3. Three years is worth A New Computer System, which I pick up for $199 from www.TigerDirect.com. Again, this is a small price to pay to get someone to stay two years.
4. I haven't been a landlord four years yet, so this gift has not rolled around, but I have one tenant that I am going to send on vacation soon. For less than $300, I can send this tenant to the beach for a weekend, with accommodations and dinner for two. My tenant already knows he's getting this and has asked what he gets for 5 years.
In three years, I've spent $400 to keep a tenant. If I have one vacant month, it will cost more than that. My tenants are thinking about that next gift.
Month-to-Month - This is the hardest item for most landlords to overcome. "They can leave whenever they want to and I can't do anything." All you need to do is keep them from leaving without notice. If you have 30 days notice, you can have someone ready to move in, as soon as that tenant leaves. The landlord is still protected. If the tenant moves out without a written 30-day notice, you keep the deposit. 30 Days is plenty of time to get a new tenant ready to move into your property.
This is how I keep my vacancy rate low. As soon as my tenant says they're moving out, I start marketing the property. It takes about two weeks to find a tenant. They're ready to move in when my current tenant leaves. My property is usually vacant just long enough to have someone do a "walk through" and take care of incidentals.
Repair Penalty - Most tenants have lived somewhere that the landlord neglected them and the property. That's always a fear in the back of their minds. Let your tenant know that you will charge them, if they don't pay their rent on time, but they can charge YOU if you don't fix things in a timely manor. For example, plumbing and appliance repairs should be 24-48 hours. Electrical and HVAC repairs could take 72 hours. Don't get scared, if it takes longer, you're covered.
IF the repairs are going to take longer than usual, I notify my tenant, in writing, with the reason and the expected completion date of the repair. As long as I do this, in writing, I am not going to be penalized; however, if I don't make the call and I don't write the letter, then the tenant gets a $10 per day discount on the rent for that month. This is their insurance policy that their needs will be attended to quickly.
Repairs - My tenant is responsible for the first $50 of any repair, no matter what the cause or who is at fault. HVAC goes out; they pay the first $50. If their child puts a toy car in the toilet, they don't just pay the first $50, they pay the entire bill because their child's treatment of my property is their responsibility. My lease covers repairs and who pays for what.
1. Plumbing - If the problem is above the floor, the tenant pays the whole bill. If the problem is below the floor (in the main drain line) the tenant pays the first $50 and the landlord pays the balance. However in three years, I have never had a problem that has been below the floor of my houses / apartments.
2. Other Repairs - Some items in a house will wear out over time but if the tenant is wearing them out, they should be responsible for the repairs.
Rent - One of the biggest concerns is getting rent paid on time. What is "On Time"? Your contract outlines what the rent is and when it's due. It also outlines what happens when rent is late. Rent should be due on the first of each month, but. It’s not late on the 5th, it's late at 5:01PM ON THE 1ST!!! If you give the tenant until the 5th, they will take it.
1. Due Date - MY rent is due on the 1st day of the month, by 5:00PM. If the first is a weekend or a holiday, the tenant is responsible for having the payment made early. If the payment is made on the following Monday, it's late.
2. Late Date - Late is any time after 5:01PM on the due date. And if it's late, there is a late charge. My charge is $50.
3. Eviction Date - I start eviction proceedings on the 2nd. A letter goes to the tenant stating, "You're late and you're going to be evicted if you don't pay." Most of the time this is enough to motivate the tenant to pay. If it doesn't, I'm ready to file papers on the 5th (when some landlords are just saying it's late).
4. Rent Discount - My goal is NOT to evict. My goal is NOT to get a late payment fee. My goal is to get my money - ON TIME. I encourage them to pay early, by offering a discount. If I want to rent my apartment for $550 per month, I increase that to $600 and offer a discount for paying early. If they pay "on time" rather than early, then I get $50 more.
Conclusion - Land lording is easy, however, so many investors shy away fro properties because they don't want to be landlords. For those that are willing to rent or lease-option a property, there are whole neighborhoods that are available. But, if you don't treat rental property like a business and clients with respect, you will have a horrible experience and walk away with your tail between your legs.
Tenants are like children, if we allow them to get away with something once, they will want to do it again. "Train a child up in the way it should go.”
Credit & Attribute,
Greg Gardner
http://www.webuyhousesusallc.com/
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