Archive for category Property Management
PROPERTY MANAGEMENT DYNAMICS AND ECONOMIC DRIVERS
Posted by patandkrislarkin in Property Management on January 11, 2012
So what drives the property management industry? Let’s talk first about what property management is: basically, it is managing a real estate asset for the owner of that property. It is driven by that owner purchasing a property, whether it be a commercial, industrial, institutional or residential property, and then hiring someone . . . a property manager, to do all the things necessary in order for that property to continue to be a viable and income producing asset.
At any given time, there are a certain number of properties out there in the marketplace which are in service and being managed by a property manager. That number is going to change very little. If anything, though, over time, the number will tend to increase.
What creates income property or rental property as you might call it? The commercial, industrial and institutional markets are driven by new buildings being built or sold. In the residential market, which is the primary focus of this book, a change in use or a sale of property are primarily responsible for creating rental properties. Another, very minor contributor to the rental property market is new construction. Depending on your locale, new homes or condos may or may not be at a price point to compete with the resale of homes.
Our experience with our owners was that most of them created new rental property by purchasing a home for the specific purpose of creating a rental property investment. Others would purchase a new home for themselves and move out of their old home and put it in service as a rental.
OK, I went through all of that rigmarole to say this; with my background in home building and land-development, I have been through some pretty gnarly economic times. Consequently, I tend to view things through my worst-case glasses. So when I look at the residential property management industry I ask; so what will cause this industry to slow down or crash? In home building the vitality of that industry is tied primarily to jobs and interest rates. If people are not secure with their jobs or if interest rates are too high, they don’t buy as much. But what about property management? Do people quit renting when the job market gets sucky (sucky is a technical term!)? Not directly. But if the job market is horrible, as in, jobs are moving out of your area, then rents will slow down and the rental rates will trend downward. But the real story is that if the job market gets sucky, people are less inclined to purchase a home, but they will rent instead. What about interest rates? Same story. People are more inclined to rent a home and wait out the interest rates. Remember . . . they have to have a place to live.
The two places where we have seen vulnerability in the property management business are: softening of rental rates when the job market is soft and a sell off on the backside of an economic downturn. What the heck does that mean? Picture this scenario; property owners are continually buying and selling their rental properties . . . for various reasons . . . life happens. When the economy gets nasty and property values take a nose dive, owners (unless they are in dire circumstances) stop selling their properties. This is due to a couple of reasons: 1.) They are upside down on their property . . . they owe more on their mortgage than the property will sell for. 2.) They don’t have to sell and to sell in a down market causes them to lose money. They will simply wait the market out. And wait the market out they do!
Our experience is that once the market returns, or at least starts to improve (the backside of the economic downturn), owners who chose not to sell earlier are now incentivized to sell. It is a sort of a mini pent-up demand for selling. Property values are now finally high enough that they can sell and pay off their mortgage, or, their loss will be less.
In a recession, in which at its worst, property values dropped 25 to 28%, we experienced a 10% sell off of properties on the backside of the downturn. Not great, but had we been the owners of all that real estate, we would have been looking at much greater losses.
The key: continue to increase your business with the static market during the downturn. That way, if you do experience a sell off, you can hope to end up where you were prior to the economic downturn. If not . . . you have 10% more business . . . WOO-HOO!!
CAREER TRANSITION . . . PROPERTY MANAGEMENT
Posted by patandkrislarkin in Property Management on January 10, 2012
MANAGE TO MAKE MONEY . . . With a Career in Property Management
Managing properties for someone other than yourself.
The following post is an excerpt from our new book: “Manage To Make Money . . with a Career in Property Management”. I will be posting various excerpts from it as it is a great resource for re-tooling your career for one in residential property management.
The property management company which we owned and operated was started back in the early eighties. It wasn’t necessarily a deliberate or planned event . . . it was more by default. The woman who started the company was a real estate broker and was selling homes and condos around The Orange County, California area to the many professionals there. After a few years, these professionals began to move up the corporate ladder and their companies began to transfer them around the country and the world. Knowing that if they sold their home in this expensive and forever appreciating market, and ever wanted to come back and buy another home it would be very difficult for them. They contacted the lady who sold them the home in the first place and asked her to keep an eye on their property for them and keep it rented while they were away for the next two or three years. They agreed on a fee and the company was born. Now, this was a one-at-a-time sort of deal. But over the years, with her doing the excellent job she did, her reputation spread throughout these companies, and as more and more people were transferred, they sought her out. After several years, her property management firm was managing 120 privately owned homes and condos!
As I said, the start up of our firm was clearly by default. Little did Lynn, the founder, know when she started managing properties that the area which she was operating in had two very key elements present that are very helpful for a property management firm: 1.) the area she was operating in has one of the highest education levels per capita of any major metropolitan area in the county and 2.) this area also has the highest percentage of non-owner-occupied homes (Owners who don’t live in their property) in the State. As it turns out, those proved to be a couple of very important ingredients to her success. Now that doesn’t mean that you have to have those ratings in order for your property management endeavors to be successful, but . . . you will want to be sure that they are at least, present in your demographics. The more they are present, the better the chances for success you will have.
If this positing has been helpful or interesting to you and you would like more to discover at your own rate, the book “Manage To Make Money . . . with a Career in Property Management” (along with many other resources) is available at our website: http://www.ManageToMakeMoney.com
Renovating your Rental Property – Getting the Most Bang for your Buck
Posted by patandkrislarkin in Property Management on April 2, 2011
Renovating your rental property is all about well . . . marketing. The goal in marketing your property is to make the property “POP” for your prospective tenants when they first walk in the door. When you are renovating or updating your property how do you make it POP without breaking the bank or spending unnecessary cash? This article will walk you through some strategies for getting the most bang for your renovation buck.
When you are updating or renovating your Rental property, you are also committing to make a substantial investment. Think about the term “update”, it actually means bringing the property up to date so that you can charge the maximum rent for it in a competitive market. You want to be sure that you put your money where your prospective Tenants will appreciate it most.
First and foremost, get that cottage cheese (acoustic) off of those ceilings! Now, this may involve some asbestos removal but it is well worth it for the major change it will make to your property. An option to scraping the ceilings is to “skin” them. There are actually some lightweight products out there that you can apply over the acoustic. You tape, texture and paint it just like drywall and again, the effect is great!
Next is to restore those tired and dull fiberglass tubs and showers with epoxy paint. This is a simple process and they can fill any chips, dents or cracks. You will have a wide selection of colors to choose from and the cost is very reasonable . . . around $150.00 per tub or shower. You will want to have a professional do your tub restoration as the product is highly toxic. Just look for tub restoration on line or in the yellow pages.
Now, it’s time to resurface your double dark 1970’s cabinets with a lighter color. You can do this the traditional way with enamel paint or glaze and that works well enough. We have found though, if you are going for a solid color, ask your tub restoration guy to do it for you. The epoxy paint will last longer and will not chip and crack like enamel paint is inclined to do.
Next, hardware; update all the old door knobs, towel bars and toilet paper holders with the latest finishes; bronze or brushed nickel (note: be sure to do this BEFORE you paint). You can typically replace all of the hardware in a 3 bedroom, 2 bath home for between $200.00 and $300.00 from a big box store.
Now you are ready to update your light fixtures. When you match them to your new killer hardware, it ties the look of the property together in a great looking package that your prospective tenants will love. Our experience is that the big box stores are your best resource for these products for price and selection.
In conclusion: Remember that renovation is part of marketing your property for lease and you want to make the best impression that you can. Be sure to get the most bang for your buck by putting your money into the things that will WOW your prospective tenants the most!
If this information was helpful to you, see our short video on the same subject: http://bit.ly/hVxBKr
Rental Property – Demographics – Which Property Should you Buy?
Posted by patandkrislarkin in Property Management on March 29, 2011
Buying or even thinking about buying a rental/investment property brings up a lot of questions: What area should I buy in? What rental price range should I go for? Who is the best renter to rent to? Hopefully, the following article will help to answer some of these questions.
What Properties Should I Consider?
While this is a personal decision, I want to share some pros and cons I have observed in this area. I am not at all making a character judgment about any of the groups listed below. These are simply my observations made as a result of experiences in working with all of the groups.
White Collar Properties;
Better defined as high end properties, can attract very good renters. These renters have typically owned expensive homes and as a rule will take very good care of your property.
On the other hand, my experience is that the high end renter can have a very entitled mentality and can be “challenging” to work with. Things like requesting and scheduling maintenance, seemingly pretty simple things can become very challenging with these Tenants.
Another aspect of the high end Tenant is that if you don’t meet their expectations, they do have the resources to come after you legally.
The white collar renter will typically have more financial resources and are executives or self employed. You will find them to be fairly well insulated from an economic downturn.
Gray Collar Properties:
These are properties in the middle of the economic spectrum, usually rented by the gray collar worker.
What is a gray collar worker? It is typically a middle management person; the manager of the local electronics, or grocery store.
This renter is generally conscientious and will take good care of your property. They are typically regular people and most all adults in the home are working full time. They are generally easier to work with than the white color renter when it comes to requesting or scheduling maintenance work.
Gray collar renters possess moderate financial resources and will be somewhat insulated from an economic downturn.
Blue Collar Properties:
This renter is at the lower end of the economic spectrum.
Typically, working in the trades, construction worker, car mechanic or truck driver. Generally, all adults living in the property work full time.
They are regular people and are generally easier to work with than the white color renter when it comes to requesting or scheduling maintenance work. They possess more limited financial resources and are typically the first tier to be affected from an economic downturn.
These are gross generalizations of people groups and of course there will be many exceptions to the comments made above.
Also, try to remember, that we are all very different people and each of us is better suited to deal with a particular people group than perhaps, another. If you seem to get along best with people in the “white collar” segment then you need to consider that seriously. You always want to play to your strengths.
Pat Larkin, together with his wife Kris, owned and operated one of the largest residential property management firms in Orange County, California. Additionally, he has been successfully building, developing and managing properties for over 30 years.
After selling their property management business in 2009, Pat and his wife founded and developed “Manage To Make Money” which is a resource for property managers providing Books, Documents and Forms, Live Seminars, E-Books, Free Webinars, Tips and Private Consulting. Visit their website at: www.ManageToMakeMoney.com
Property Managment Fees – Know What to Expect
Posted by patandkrislarkin in Property Management on March 4, 2011
Managing rental properties is not for everyone. When you make the decision to hire a property management company to manage yours, the information can be overwhelming and confusing. This article will help to “untangle” the sometimes convoluted fee structures property managers use.
When you bought your rental property, more than likely, you did your homework to try and figure out whether or not it was the right deal for you. Similarly, when we bought our property management company, we did a lot of due diligence also and learned that there are two basic types of property management fee structures out there: 1.) Low Base Fee and 2.) The All-Inclusive Fee. Which one you choose has a lot to do with what services you may need.
The Low Base Fee is just as the name implies . . . it is a low fee for minimal services. This fee structure provides for collecting rents, screening Tenants, writing leases and paying you, the owner, any funds left over at the end of the month. The range of rates charged for this type of a property manager is between 4% and 6% of the monthly rent. For a property Renting for $2,000 per month, assuming a rate of 5%, the fee adds up to $1,200 annually ($2,000 per month X 12 months X .05).
The thing to watch out for with Low Base fee structure is the “Lease Up Fee” or “Leasing Commission” as many refer to it. Most Low Base Fee property managers do NOT include this cost in their fees and they can double your property management fees right off! If you figure a 5% leasing commission (which is common), that is another $1,200 per year just for the lease up fee! Another thing to watch out for is that some of the Low Base Fee property managers may also charge a fee for any payments they make on your behalf; mortgage, property taxes, HOA dues, so do your homework!
The all-inclusive fee structure on the other hand, pretty much includes all of these fees in it’s single fee. Now, don’t misunderstand me, at 8% to 12%, the all-inclusive fee structure usually will be higher than the low-base fees structure at first glance. But when you add up all of the extras and compare them most times the all inclusive fee structure will work out to be less money.
One other thing to consider when assessing property management companies and their fee structures: the all-inclusive property manager typically pays the lease commission out of their pocket… up front. So, they have a vested interest in finding you a good renter who will stay in your property for more than a year.
On the other hand, the property manager who charges extra for a lease-up fee or leasing commission each time they rent your property, has a vested interest in the other direction… to have you pay them the commission every year. This could translate into more of a cavalier attitude about finding you a long-term renter.
In summary: If you will be performing some of the property manager functions like leasing your own property, paying your mortgage, insurance and property taxes then, the low-base fee structure may be best for you. Conversely, if you don’t plan on having anything to do with managing your property, for instance if you will be living out of the area for a while; the all inclusive fee structure may be better suited for your needs.
If you found this article interesting, you can view a short video at: http://bit.ly/eWcFid
After selling their property management business in 2009, Pat and his wife founded and developed “Manage To Make Money” which is a resource for property managers providing Books, Documents and Forms, Live Seminars, E-Books, Free Webinars, Tips and Private Consulting. The website is: http://www.ManageToMakeMoney.com
Eviction Attorney – How Do You Find a Good One?
Posted by patandkrislarkin in Property Management on February 23, 2011
If you are serious about managing rental property, you will need a good eviction attorney on your team. This article will give you some tips on just how to find a good eviction attorney. In a previous article we posed the question: How do you collect rent? And the answer was three things; !Get a Good Eviction Attorney, 2. Get a Good Eviction Attorney and 3. Get a good Eviction Attorney! Gee, that is all well and good but how do you find a good eviction attorney? Let’s start there.
We recommend that, if at all possible, you need to go from personal reference; from a friend or your local Board of Realtors or Apartment Association. If that isn’t a possibility for you then check your local yellow pages or search the web in your area. Once you have the names there are three things you will want to make sure of: 1. That they only do evictions (unlawful detainers) or at least it is a regular part of their business. You don’t want a family law attorney who will do one for you “this time”.
Your eviction attorney should be well versed at the ins and outs of evictions, changes in the law and so on. if they are not, when pitted against a “professional Tenant” (a Tenant who know the laws and how to navigate between them) they will lose you valuable time in getting your property back. Next, check their references. You want to make sure that they have done a good job for others they have done work for. Remember, you aren’t necessarily looking for a “nice” eviction attorney…they need to be tough and assertive. Our eviction attorney wasn’t particularly nice to us…but he was good at his craft! Finally the third thing is to have your eviction attorney in place BEFORE you even rent your property . . . or at lease before you need them. As we discussed in our article “Collecting Rent” having the eviction attorney is essential in collecting rent if you have a Tenant that is slow to pay…he will help to back up any threats (promises) you have to make to your Tenants.
In summary: when looking for an eviction attorney, just you would in any trade; you want to find the best expert you can to be on your team. Be sure they are well versed in evictions (or unlawful detainers).
To view a short video on this same subject go to: http://bit.ly/eopPc1
Rental Property – Collecting Rent
Posted by patandkrislarkin in Property Management on February 23, 2011
Collecting rent is really the “Ground Zero” of managing your rental property. If you are not receiving rent from your Tenant, then you can’t pay your mortgage, do maintenance (at lease not from your rent revenues) . . . . it can put quite a strain on the whole rental property system.
Collecting rent is really one of the main focuses of managing rental properties. After all, if you are not collecting rent, then a whole other set of actions have to come into play, like evictions and so on. But before you get to that point, when your tenants are not paying their rent on time, many times, they need some prodding or “encouragement”. The form of this “encouragement” that I recommend is issuing a “Three Day Notice to Pay Rent or Quit” which, essentially is a threat. I am telling my tenant that if you don’t pay rent within three days, I am going to evict you.
First of all, let’s talk about what the three day notice to pay rent or quit really is; as I said before, it is a threat. I like to think of it more like a promise . . . here is my resolve . . . this is the hill that I am willing to die on. This is my business, and I am sorry if you are having problems paying rent but if you don’t, then I will have to start the eviction process. The Three Day Notice is really much more than a threat or a promise; in many states, it is a legal requirement. In many states you cannot start the eviction process unless you can prove that you have served the Three Day Notice AND three business days have passed since you did serve the notice.
We are all familiar with the mother who makes the ever-familiar threat to her kids: “I’m counting to three . . . don’t let me get to three!”. She is threatening them with who knows what if she should ever get from 2-1/2 to 2-3/4 all the way to three! Just like that mom, we have to be prepared to act on our threat or just save ourselves the effort and let the Tenant be in charge of paying rent whenever they please. This is why I strongly recommend that you have a good relationship with a reputable eviction attorney . . . to back up your threat should you need to.
We have initiated the eviction process many times but followed through all the way to a full eviction very few times. Again, having that relationship with a good eviction attorney is worth it’s weight in gold when it comes to showing your resolve to your Tenants. Keep in mind, now that we have started the process, we have incurred some attorney fees and the Tenant will have to pay his rent, any late fees AND whatever the attorney fees at that time in order to be reinstated and stop the eviction process.
In summary, you will have to show your resolve to your Tenants when it comes to collecting rent. Having a good eviction attorney on your team is a good way to show them you mean business!
To view a short video on this same subject go to: http://bit.ly/du4p43
The subjects of collecting rent, three day notices and eviction are covered extensively in the new Property Management Training Program; Manage to Make Money . . . . the Real Estate Series. This new series has been developed around the book: “Manage to make Money . . . Your Guide to Profitably Managing Rental Properties – 2nd Edition” written by Pat and Kris Larkin.
DON’T “UNWITTINGLY” ALLOW YOUR TENANTS TO MOVE IN EARLY
Posted by patandkrislarkin in Property Management on February 14, 2011
Few of us would ever allow our Tenants to move in before their lease begins but . . . many of us do unwittingly!
Would you ever knowingly allow your Tenant to move into your property early? Perhaps unwittingly.
Think about this scenario for a minute: You have rented your property and the lease begins on the 1st of the month which is a Sunday. For our convenience, many times, we may be inclined to give the Tenants the keys on a Friday or Saturday, so that we don’t have to do it early Sunday morning. What happens so many times is that the Tenant is excited about their new place and now that they have the keys they go by just for a look . . . just to “breathe it in”. When they get there, they remember those two boxes in the back of the car . . . “Gee, if I get those out, then I can start with an empty car on moving day.” Once those boxes go from their car to the house or condo, technically, they have “moved in”!
Now, let me ask you, what is the effective for their renter’s insurance? Chances are, it doesn’t take effect until the 1st. why would it start sooner? Without that date (the now NEW move in date) being covered in their lease or their renter’s insurance being in effect . . . you, the Landlord, are liable for any damage, or injuries they may occur during that time between when they moved the boxes in until the lease start date on the lease!
To solve this issue, we always wrote the lease to begin on the day we gave them the keys and, required the Tenant to have their renter’s insurance effective on that date also. You don’t necessarily need to charge them for the extra days rent . . . just cover yourself legally and from a liability perspective.
In summary, think through the date relating to move in dates and “possible” move in dates. You might just save yourself some heartache.
To view a video on this same subject click on this link: http://bit.ly/flzcQR
24 HOUR NOTICE OF ENTRY
Posted by patandkrislarkin in Property Management on February 14, 2011
What do you do when need to access your rental property but are unable to coordinate schedules with your Tenants? There are times when you need to get into your property to make repairs, show it to prospective Tenants, show it to prospective buyers or just to inspect the property and you can’t get a hold of your Tenants. We suggest that you go by the property and post it with a “24 Hour Notice of Entry” This is a legal document which tells the Tenant that in approximately 24 hours, you will be coming into the property to; and then you state your purpose.
Now you have to be judicious with the use of the 24 hour notice and not use it every week to go into your property. Your Tenant is entitled to the quiet use and enjoyment of the property. If you are using the notice to have repairs done… always accompany your workmen into the property. Also, it is a best practice that if/when you enter a Tenant’s property, that you have someone accompany you. In our our litigious world, this is for your own protection. It is also a good idea to try to contact your Tenant “one more time” before you enter the property. Also, document all the attempts you made to reach them or access the property.
You will be amazed at how when your Tenant receives their 24 Hour notice, they are miraculously available to meet you there!
In conclusion If you can’t reach your Tenant for access to the property, post a 24-Hour Notice of Entry, document all attempts to communicate with them and be sure that you accompany your workers when you/they go in.
For our 24 Hour Notice of Entry form or more down-to-earth tips on how to effectively manage your rental property, visit our web site at: http://www.ManageToMakeMoney.com or call at 949-689-4344.
To view a short video on this same subject go to: http://bit.ly/fiFr1T
PatandKrisLarkin.com 