Rental tracking with Zilpy

Technology is a glorious thing. Zilpy, not to be confused with Zillow (which I have always found unreliable), is a new website that tracks rental rates and statistics across the country. It just might be the answer to the age old question of how much to ask for rent on a unit. They pull these statistics from all over the internet from sites such as backpage.com and apartmentfinder.com and use them to populate a surprisingly versatile site. Read more

Writing off one bedrooms

When many investors are looking for their next rental property they have a tendency to ignore a vast majority of the current inventory on the market. The trait that these properties share in common is that they are single bedroom units. Landlords tend to shy away from them for fear that they won’t be able to pull in the rents they desire. If you can relate to this standpoint, just as with avoiding duplexes, you could really be missing out on some great buys. Read more

Rents on the rise

Despite the gloom and doom touted by the media, right now is a great time to be a landlord or real estate investor. You’re going to have a tough time if you’re trying to sell, but the current buyers market is opening up some real deals. But this fact is by no means a secret. What seems to be less recognized is how much our local rental market is improving in response to these current market changes. Read more

Raising rents doesn’t make you a jerk

According to forecasts.org, as of today, the rate of inflation in the United States is 4.12%. That’s really high! Whether you live in St. Louis, the East Coast or Juneau Alaska this affects everything from the cost of a gallon of gas to your taxes. Money is worth less so it takes more of it to buy any product. Read more

Cleaning up your act

Trash is never-relenting enemy in urban areas. Your tenants can be the cleanest on the block, yet trash will find a way into your yard. Those “free” newspapers that seem to appear out of nowhere on your front porch are a particular pet peeve of mine. Regardless of where it comes from, it needs to be taken care of. You’d think people would realize that by now, but I find myself constantly astounded at how many rental property yards are just covered with junk. I don’t know if its dirty tenants or lazy landlords that are to blame, but its a problem that can be found throughout the St. Louis area.

Trash in the yard of your properties or in the basements or on the porch is unsightly and draws household pests. When prospective tenants take a look at your vacancy and see trash all over the place, you’ve just made a bad impression. The same goes for prospective buyers if the property is for sale. Its also bad for tenant retention and tends to get you on the City’s bad side.

This is a never-ending battle, fighting the pileup of this trash, and you need to keep on top of it. When you visit your property to collect rent or fix a sink, you need to pick up the trash. When you cut the lawn, you need to pick up the trash. Even if you have to make a special visit to do it every couple weeks you need to pick up the trash.

Landlords who have their properties professionally managed seem to have the biggest problem with this. For some reason, it seems like all the property managers in town seem to think that keeping their clients properties clean isn’t their responsibility. If you have a manager in place, check up on how they are doing with this issue. If you stop by and the place is filthy, call them out on it. You’re paying for their service, and if they can’t provide something as basic as picking up the trash, you might want to look elsewhere.

Whether you’re doing it yourself or have someone else do it for you, picking up regularly around your properties should be of major importance to you in maximizing th profitability of your investments. Dirty buildings draw bad tenants and we all know how that can turn out.

Maximizing the potential of your shotgun units

Shotgun-style units are a dime a dozen in South St. Louis. I don’t understand how anyone ever thought they were functional, regardless of the era they were built. I guess we take privacy for granted these days.

The question is what to do with these units today. You can rent them, for sure, but not having a private bedroom can be a major drag on your rent potnential. Seeing as this business is all about profits, that’s an important concern. One solution that a surprising amount of owners seem to gloss over is reorienting the layout of the unit. And its not really that hard.

The best time to do this is if you need to replace your drainage stacks in the building. At that point its simply a matter of moving the stack from the far end of the building to the middle. You’ll have to rework the plumbing and move the kitchen cabinets, but its not too big an ordeal. The costs are minimal and when you’re done you’ll have a private bedroom, which will bring increased rents and up the value of your property.

If you have shotgun units in your buildings, the next time you plan on replacing the stacks, make sure you take advantage of this great opportunity.

Cash-for-keys as an eviction alternative

Getting unwanted tenants out of your apartment units can be one of the most frustrating experiences a landlord can go through. Whether you want to give them the boot to rehab the unit or want them out because they aren’t paying their rent, its not a fun experience. The most common method used to do the job is the eviction. An effective method, for sure, but an expensive one. Legal fees, rent loss and value-of-time costs tend to rack up in a hurry.

The next time you need to move out a tenant, consider an alternative: cash-for-keys. This method, commonly used by banks in foreclosure situations, can be very fast and relatively cheap. The basic premise is that rather than going the route of eviction, you offer a cash settlement to the tenant if they are out of the unit by a specified time. Of course, the actual amount of the settlement depends on the situation. At first glance, many landlords scoff at the idea, for many reasons. Such an attitude is, however, rather shortsighted. Consider the following:

• It’s fast - This method can potential get the tenant to move out in a matter days due to the financial incentive. Compare that to the three months a knowledgeable tenant can stretch an eviction out.
• It’s cheap - Offering a tenant $250 to move out is far cheaper than any eviction. Paying a professional to handle the process will run you $300 alone. If you account for lost rent and tenant damage accrued during the eviction process, the choice is obvious. Even if you have to offer more than $250 to get the tenant to move.
• It’s easy - Going through the process of eviction not only takes time and money, its a pain in the butt. Especially if you are representing yourself in the eviction. It’s also easier on the tenant. Many tenants would be willing to cooperate with you and move out, but they don’t have the money to make a down payment or move to a new place.

When you come down to it, there is no reason not to try this method. It’s cheaper, it’s faster and it’s quite simply a better arrangement for both you and your tenants. It doesn’t always work and it isn’t for ever situation, but its always worth a try.

Analyzing the profitablity of investment real estate

One of the most important things every investor needs to do before purchasing a property is a profitability analysis. At first glance, many deals seem great, but upon further review turn out to be less than ideal.

I’m not going to write a long article on what makes a good deal, but I will provide you with a tool that can help you figure this out for yourself. If you have Microsoft Excel, I have a financial spreadsheet, which I find particularly useful when scrutinizing deals. You can download this spreadsheet for yourself by clicking on this link: Rental Property Analysis.

The nice thing about this sheet is that it figures out most of the math for you. Simply enter the rents, expenses and financing and it figures out how profitable the investment will be. Of course, this is a very simplified spreadsheet. It does not account for major repairs, appreciation or tax benefits. However, it should give you a realistic snapshot of an investments potential.

I like to pay particular attention the the cash-on-cash return. Some people tout using cap rates, but they do not take financing into account. The percentage cash-on-cash return tells you how much money you will get back in a given year for the money you put it.

Try it out and see what you think. If you have any questions, comments or suggests I welcome them.

Rental unit reality check

One of the most frustrating things I come across in the rental business is poorly managed apartments. I’m not talking about bad property management companies (that’s a whole other story), but bad landlords. The biggest issue is that everyone seems to want to have their cake and eat it too. Too many landlords seem to be under the impression that they can put a run-down, dirty rental unit on the market and get paid a premium rent. Time for a reality check.

The rental market is very strong right now. Units over $600 a month have seen a particularly big jump in interest lately, but people expect a quality product when they start spending that much money for an apartment. Outdated kitchens and bathrooms, broken radiators, window ACs, landlord white walls and stick-down tile do not a quality unit make. If your property is located in an area that can handle high quality units, you’ll need to bring your units up to that level of finish if you expect to rent them out. You can’t lose track of the fact that you are competing with other landlords for tenants. If a prospective tenant can get a better unit two blocks away for the same price, why would they rent yours? Get familiar with your local apartment market through the newspaper or internet ad sites such as craigslist or backpage (you can find links in the menu to the right) to avoid this problem. Educate yourself so you don’t waste your time overpricing or under improving your units.

So what’s the moral of this story? If you want to attract quality tenants at a premium rental rate so as to maximize your profit potential, you need to pay the price for it. Otherwise, you can’t blame anyone but yourself if your buildings sit vacant.

When it comes to quality rental units, the little things count

*NOTE - This article was originally written in May of 2007 for the newsletter.

Working with investment real estate offers me an opportunity to talk shop with all kinds of landlords and view all types of apartments, across St. Louis. One thing that always astounds me, is the lack of quality rental units in town. There seems to be a perception that there is no market for quality apartments. In my experience, that simply isn’t true. Putting those careful touches on your units can go a long way.

As an example, I’d like to use a couple of 4-families I own together with my own family in the Shaw Neighborhood. All the units in these buildings were totally rehabbed in the early 90’s. When we bought them last year, the floors had been upgraded to hardwood and some of the kitchens had been redone. At the time, all the occupied units were filled with Section 8 tenants paying rents from $650 to $685. All in all, the buildings were in pretty good shape.

Many landlords would have just left things as they were and continued to run the building in its purchased state. However, we decided that we wanted to run these buildings at their full potential. Nine months later we are feeling the effects of this decision. Even though we have lost many a weekend due to our labors at the property, we couldn’t be happier with the results.

We haven’t had to do anything major in any of our units, but each time we have a new vacancy it takes weeks to get these properties running at our quality level. Those nicks in the walls and paint splatters take time to fix. That horrible, uncaulked, quarter-round trim takes time to replace. Broken closet door hardware has also been a consistent problem. A kitchen has needed to be redone here and there.

The key is treating quality units as if they are going to be sold as condos. The little things that many landlords skip over for sake of time have to be addressed. You also need to get creative with the painting. White, beige and light yellow don’t make for the most attractive setting. In our latest unit, we took this concept to a new level. Bright green, orange, and multiple shades of blue were the colors of choice. The paint costs the same as the more traditional colors, but the effect on the appeal of the unit can’t be easily measured.

This extra effort has made it much easier to find new tenants and push rents. There has been so much interest that we are already pre-leasing units, which will not be ready for almost two months. Our initial rental efforts were going for $725 per unit. The most recently completed units are reaching as high as $760 a month in rent. This high level of interest not only puts more money in our pockets, it also allows us to be more choosy of the tenants we allow into the building.

Of the eight units in these two 4-families, we still have three more to bring to our level of finish. Additionally, we are also finally getting the chance to address some the exterior issues that were untouchable during the winter. When we’re finished, we’ll have a couple of buildings that will require little to no attention to keep up, and eventually fetch a hefty price at resale. Taking that extra time to make sure you dot every “I” and cross every “t” can pay off. The next time you have a vacancy, don’t just patch and re-rent, bring it up to the level it should be.

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