Here are four quick-and-dirty reasons why, if you’re in the market for a residential property manager for your investment rentals, you should hire one who has a rental portfolio of their own.
The PM understands why it's important to control expenses and improve cash flow.
If your goal is to buy and hold long-term rentals, it’s likely that your focus is on generating a decent-to-good cash flow to pocket as passive income, or use to reinvest, or rely on to quit your (perhaps not-beloved) day job real soon. A PM who owns a least a few units and has had to spend money to fix them knows a few things about expenses—for instance, when it’s better to spend more money now to prevent large expenses in the future, or to spend less now to meet more short-term cash flow goals. They’ve seen the hit to their bottom line when they hired the cheapest plumber to fix the ceiling leak and then had to go back and hire the bestplumber to fix that fix. But they’ve also seen the cost savings in buying a lesser-quality product than they would for their own homes to maximize cash flow.
Let’s talk about the common tasks you might perform as a landlord. This will give you just a sample of the kind of tasks a landlord is responsible for.
64 Tasks Landlords Are Responsible For
- Preparing a property to rent
- Collecting forms needed for the businesses
- Placing ads in the newspaper and/or online
- Placing signs in the yard
- Determining fair market rent
- Determining the security deposit amount
- Setting minimum qualification standards
- Taking phone calls from prospective tenants
- Pre-screening tenants
- Scheduling appointments to show properties
When you purchase a new rental or commercial property with investment intent, you must allocate a portion of the purchase price to improvements and the remaining amount to land. The reason for this practice is that you cannot depreciate land, only improvements. This makes sense because dirt lasts forever.
Depreciation is the reduction in value of a property over time due to the particular wear and tear on the asset. Residential properties are depreciated over 27.5 years, while commercial properties are depreciated over 39 years.
This reduction in value is a current expense, yet no money comes out of your pocket. Sounds like a pretty awesome deal, right? You get to reduce your reported income by your annual depreciation expense without actually paying for anything!
But what is depreciation really? Do you think the IRS, our favorite government agency, would let you have it that easy? I’ll give you a hint: the answer starts with the letter “N” and ends with “O.”
New York renters would be the first to tell you that rents go in only one direction: up. But after a long and relentless climb to historic highs, the momentum has stalled.
With renters unwilling, or unable, to pay ever higher sums, rents have largely flatlined. And it seems we have come to the year of the renter’s market.
In Manhattan, Brooklyn and Queens, inventories and vacancies are up, and landlords are offering new tenants discounts, like several months of free rent and no broker’s fee. In the Bronx and Staten Island, rents are holding steady because those boroughs did not experience the same rapid rent escalations or volume of new development. But that could change when new rental buildings open in both boroughs this year and in 2018.
The biggest deals are happening at the top of the market, where some luxury developments are offering as much as four months of free rent on a two-year lease. But deals are to be had in older, less expensive buildings, too. Despite these concessions, some apartments linger vacant for months. Worried that a slowdown will continue, many landlords are not raising the rent when leases come up for renewal, and some are even throwing in perks like gift cards.
Many landlords and real estate brokers attribute the renter-friendly trend to an influx of new apartments: 11,514 new rental units came on the market in Manhattan and Brooklyn in 2016, and 13,340 are expected this year, according to Citi Habitats, a real estate brokerage. The large number of condominium apartments that investors have turned into rentals has added to the glut. These apartments are mostly luxury rentals, and too expensive for many New Yorkers. So tenants with smaller budgets are fanning out to neighborhoods like Crown Heights, Brooklyn, and Jersey City.
This week veteran real estate investor and property manager Larry Arth discusses what he sees as 7 real estate investing trends For 2017.
He says optimism is strong but watch these 7 trends.
By Larry Arth
I have held many discussions with investors, builders, buyers and sellers heading into 2017, and their consensus, as well as everything I have read, leads me to this conclusion:
Real estate investing over the next three years will bring slow and steady increases similar to what we saw in 2016.
Now you may be thinking we are navigating unchartered territories with all the changes happening in the political scene. You may see a mixed bag of information making it difficult to assess your investment strategy.
Many are asking, “Why do so many people have such a different perspective on what the market for real estate will look like?”
The reason is because real estate is a broad topic and no one answer can cover such a broad question. Just as a national weather forecast is not much help in your neighborhood, you also cannot give a national real estate investing forecast. That is why you are seeing such a broad array of ideas as to what the investing landscape will look like.
Few dispute the notion that demographics drive the apartment market. When looking at demand, the most fundamental statistics that analysts consider include population, household formation and employment. While these statistics tend to move hand in hand, sometimes patterns emerge that show a chasm in these numbers, and demographers are keen to report how these chasms may explain more about the underlying apartment fundamentals than the more macro trends.
One of the more interesting findings in this expansion can be found in the demographic statistics. Data on households shows that non-family households have grown at a disproportionately faster rate than family households. Non-family households include singles, roommates and any kind of cohabitation arrangement that does not include marriage or children. The graph below clearly shows that this divergence started when the housing market collapsed, but it continued throughout the subsequent eight years. This chart illustrates the common notion that Millennials have put off starting a family and buying a home. It also explains why the apartment market has thrived over the last 10 years, expanding by 12 percent from 2007 to 2016.
As landlords, we want some amount of tenant stability; after all, tenant turnover is a cashflow killer. Very rarely will we sign a lease for a term of less than one year or allow tenants to break a lease without a very good reason. We just want the general comfort of knowing that we likely will not have to worry about that particular unit for at least a year.
Sometimes, however, tenants want to break their lease. By “break” I mean move out before the lease term is expired. The reasons for this are often quite varied and range from “I just don’t like it here anymore” to “I lost my job.” With the first example, we have to get our tenants to face the hard reality of the lease by explaining to them again that they have signed a contract which we expect them to uphold. We make them understand we really cannot force them to stay, but that there will be penalties if they do not get the OK from us to break their lease.
The second example, however, is a different matter. There are times when we will let a tenant out of their lease, and job loss is one of those potential reasons. I explain why below and also provide you with four other reasons we allow a tenant to break their lease. The 5 Legitimate Reasons to Allow a Tenant to Break Their Lease are
For many people, being a landlord is a rewarding and profitable experience, but if you are new to the rental real estate business, you might have discovered that managing a rental property is not a simple endeavor. Taking the time to gain a basic understanding of some key landlord responsibilities, property marketing tactics and areas of the law will go a long way in helping you find (and keep) a tenant, effectively manage your rental and avoid the most common landlord mistakes.
In this guide, we’ve compiled several tips for new landlords to help you succeed and get the most out of your real estate investment.
As an apartment complex owner, it is not only your responsibility to ensure that your tenants are happy, but it is also important that you make them feel safe. We are not just talking about the fact that you should be reminding your tenants to lock their doors, windows and cars; we are talking about your employees and if you use a security system or not. To make your property as secure and safe as possible, we recommend that you take into consideration the following: