Tag: Rental Management

Categories
Landlords

Landlord Insurance: Key Things You Need to Know 

A man intently looking at his laptop
Photo by Bruce Mars

Are you new or considering property rentals? If that’s the case, chances are you haven’t even heard of landlord insurance. You might be thinking that it’s just another excuse for insurance companies to take your money or that you have another type of insurance that can cover rent-related issues. 

But it’s about protecting your investment and financial gains.

Skipping on landlord insurance is a rookie mistake you don’t want to make. With financial gains as your main objective, it may be tempting to cut costs. But if doing so compromises your investment’s security, you might end up spending more than you save.

To help you make wise investment decisions for your rental properties, we’re going to cover what landlord insurance is and why it’s a necessity. 

What is Landlord Insurance?

Landlord insurance protects your rental property from damages and financial loss. When your property gets damaged during the occupancy of a renter, landlord insurance can cover these expenses in the condition that the damages that occurred are covered under the terms. 

External and uncontrollable factors such as natural disasters, accidents, or other kinds of destructive events can damage your property. Landlord insurance can cover expenses resulting from these events, saving you from financial losses.

Landlord vs. Homeowner Insurance

Landlord and homeowner insurance cover similar kinds of damages brought upon by external and uncontrollable factors, but they can’t stand in place of each other.

Homeowners insurance can only be used if the owner of the property is the current occupant. In other words, you’ll have to be living on your property. That said, homeowners insurance can’t cover damages under rental occupancy. Insurance companies can only cover these damages if the property is under landlord insurance.

To put it simply, the kind of insurance required for the property is determined by who will stay in it.

Another notable difference between the two is their prices. There are higher risks of accidents in rental properties resulting in higher landlord insurance prices. Compared to homeowners insurance, landlord insurance can be 15% to 100% more expensive.

What your Landlord Insurance Should Cover

External factors that pose a threat to your property investment will depend on your location. For instance, the state of Michigan’s most common natural disasters are storms, floods, wildfires, and tornadoes. Considering what natural disasters occur in Michigan, you want to get an insurance plan that specifically covers these types of possible, unfortunate situations.

Here’s a list of guide questions to help you find a landlord insurance plans that suits your property:

  • What does the plan cover and what are the limitations? (Pro tip: Clarify any vague statements)
  • Will insurance claims be settled with cash value or replacement costs?
  • Can the insurance cover lose rent, water damages, and other highly possible incidents?
  • Can landlord insurance protect me from liabilities of house structure-related accidents?

To help you further assess if the landlord insurance plan you’re considering provides comprehensive coverage, take a look at this infographic:

Photo from Pinterest

The point is to avoid being hasty in choosing your landlord insurance plan. Your plan must provide protection against property damages, liabilities, and rental income loss, among many other things that may happen on your property.

Keep It Safe, Keep On Earning

Taking care of your property investment enables you to keep earning so you can use your money for future investments. By taking care of your investments, you also keep your financial well-being secure.

Getting your property investment insured is a surefire way to keep it safe and profitable, so take the time to study what accidents are most likely to occur on your property investment. Getting a comprehensive insurance plan that meets your needs will save not just money, but save you from unnecessary stress too. 

Aside from landlord insurance, consider requiring your tenants to get their own insurance as well. Read more about it in our article on renter’s insurance, and get in touch with us if you need more clarification.

Categories
Landlords

Tips and Tricks for Managing the Property Maintenance of Your Home

poorly maintained rental property
Photo by Payam Moghtader

Nobody wants to live in a dilapidated home. We all want a place where we can come home to an environment of relaxation and comfortable living—certainly not a messy, broken-down house that’s far from being stress-free.

This means that, as a landlord or homeowner, you need to treat your property with care to ensure it lasts for decades to comes. Tenants won’t want to occupy your rental property if it’s falling apart and neither will you. You need to perform frequent maintenance on your rental property, and do everything you can to protect your hard-earned assets in the long term.

In this article, we will discuss some tips and tricks to keep your property in tip-top shape.

5 Tips for Maintaining Your Rental Property 

First thing’s first, maintaining your property is mandated by law. If you are located in Michigan, you are liable under the warranty of habitability law to keep your rental property liveable. 

The law states that a landlord must abide by 3 factors:

  1. The property and all common areas must be fit for use.
  2. The property must be kept in reasonable repair while under a lease. 
  3. The property must comply with health and safety regulations. 

If you don’t follow the warranty of habitability law, tenants can either withhold rent until you make the repairs (no income for you!) or resort to repair and deduct—where they’ll make the repairs themselves and deduct the costs from rent payments. It may deceivingly sound convenient, but experienced landlords know that leaving repairs to tenants likely means cheap fixes and short-term solutions.

By following the law, you can avoid consequences and protect your properties.

To help keep in line with the warranty of habitability law, here are best practices to maintain your rental property.

1. Establish Easy Communication with Your Tenants

The first step to keeping your rental property maintained is to communicate with your tenants if you aren’t living there. Your tenants will be the ones living in your rental, which means they are the first to find any need for repairs. Plus, you don’t want to leave a problem unattended for too long, or it becomes permanent damage.

Having regular communication with tenants is important for catching necessary repairs immediately. 

Always provide a way for your tenants to get in touch with you easily. Your goal should be to make it easy for you to get ahead of important repairs before they cause major damage.

2. Perform Regular On-Site Inspections

Schedule a yearly inspection with your tenants or for yourself so you can have a frequent, in-person idea of the status of your rental. Getting an expert to help is also not a bad idea. You should look out for tell-tale signs of property damage, like the following:

  • Broken windows and screens 
  • Leaky plumbing 
  • Discoloration on walls and ceiling 
  • Burn marks around sockets 
  • Malfunctioning smoke detectors and fire extinguishers

Your goal in performing regular on-site inspections is to catch any signs of water damage or gas leaks that can lead to costly repairs down the road.

3. Schedule Periodic Pest Control Visits

Pests are one of the most damaging factors to a property. For instance, do you know that the US spends over $5 billion yearly for termite repairs? That’s a lot of money spent on dealing with termites that can certainly be avoided.

So, take a preventive approach by scheduling pest control maintenance once every 3 to 6 months. Have an exterminator visit the property and extinguish any possibilities of pest infestations, so you don’t have to worry about little damaging critters occupying your rental property.

We understand that regular pest control visits can be costly to your business. But, it’s a cost worth taking, especially when you consider the more-expensive alternative of dealing with existing creatures.

4. Opt for a Professional Landscaper 

Not only does great landscaping help entice new tenants if you’re renting it out, but it also keeps your existing renters happy and helps you avoid many problems down the line. You can always maintain the lawn yourself, but hiring professional landscapers will give you benefits such as:

  1. Preventing pests from making a home in the lawn and trees
  2. Avoiding debris accumulation that can harm your plumbing system
  3. Protecting the structure of the home from nature-related issues (e.g., falling trees or overhanging branches that pose harm)

Plus, professionals will have the skill, experience, and equipment to keep all lawns, gardens, and other green areas of the rental property beautiful and functional. Many other benefits come with maintaining the landscape, but the biggest benefit is that you’ll beautify your home.

5. Hire Heating, Air-conditioning, and Ventilation (HVAC) Specialists

One of the main systems that keep a property habitable is the HVAC system. If the system fails, it becomes very difficult to live on the property. Just imagine going through winter without any heating or sweating in the summer with air-conditioning, and you’ll know what we mean!

Moreover, if an HVAC system fails, the entire cost of replacing everything can range from $5,000 to $10,000. In other words, shouldering the costs of regular maintenance is definitely better than having to replace an HVAC system eventually.

Consider hiring professionals to perform annual maintenance and constantly remind your tenants to clean and replace AC filters whenever necessary. Your goal is to avoid having an HVAC system breakage while keeping your tenants living comfortably.

Take Preventative Care of Your Property 

Living in a rundown home is one of the worst things to experience. A home with no heating, full of pests, and faulty toilets is a nightmare no one wants to experience. Not only will your tenants leave right after the lease if you’re a landlord, but failing to maintain your property also means violating Michigan laws that will cause to recipe some financial penalties.

Instead, be more proactive. Keep your rental property well-maintained, stay on top of arising problems, and do everything you can to ensure that your property lasts a long time. The more you maintain your assets, the farther they’ll take you in terms of investment.

Do you have any other property maintenance tips that you’ve found useful? We’ll love to hear about it in the comments section below!

Categories
Shortterm Rentals

How to Choose the Right Market for Short-Term Rentals

Short-term rentals (STRs) are currently one of the most thriving sub-industries in real estate. In fact, a 2019 survey found that 60% of American tourists prefer staying in an Airbnb over a hotel.

However, if you plan on investing in an STR, you need to do your due diligence to find the best market for your property. Diving straight into it without doing any research will likely your Airbnb is empty more often—resulting in less cash in your pocket if it’s just sitting there. Plus, you might end up in an area that’s either saturated with too many excellent STRs already, or an area with barely any guests to attract.

For instance, a property in Palm Springs, Florida, could potentially earn you upwards of $125,000 a year. This figure might sound like an enticing gain for a potential STR investor, but you have to account for all the costs and potential pitfalls that you’d have to expertly navigate in the particular market.

You have to ask yourself questions like: 

  • How popular is the area?
  • How many STRs are already in the area?
  • How easy will it be to fill with guests?
  • What kind of guests are staying there?
  • How much are the utilities and general maintenance?
  • Can you make enough in busy seasons to cover slow seasons?

Let’s take a look at how you can choose the right market for your STR investment venture.

The Four Markets of STRs

There are 4 main types of STR markets: 

  1. Traditional vacation markets
  2. Unique locations & experiences
  3. Business markets
  4. General convenience

Each of these markets comes with its share of risks and advantages that you need to navigate. For example, an STR located downtown might have stricter laws in place when compared to a traditional vacation rental. 

Let’s compare them all to help you decide what’s best for you.

1. Traditional Vacation Markets: 

The traditional vacation market exists both regionally and nationally, relying heavily on tourism. The main difference between the two is accessibility and affordability:

  • Accessibility: The regional vacation market is usually within close proximity to cities. Visitors can reach these destinations with a short drive out of town. An example of this type of market is Panama City Beach, Florida. This beach is within driving distance of major cities in both Alabama and Florida, where Montgomery and Birmingham are three hours away and Jacksonville is a four-hour drive from the coast. 
  • Affordability: Real estate prices will usually be more affordable than the national vacation market. Additionally, the regional vacation market will have the most accommodating regulations out of the three, as these are hotspots for vacations.

Panama City Beach, for example, allows for STRs in all areas designated as commercial zones, limited multi-family zones, unlimited multi-family zones, and townhouse zones.

Another benefit of the vacation market is its resistance to the effects of a recession. Unlike its national cousin, the regional vacation market is more accessible and affordable to visitors making it more resilient against the effects of an economic recession. 

Tourists wouldn’t need to make big vacation plans to visit a regional vacation rental, such as booking a plane ticket. These locations can be reached by car ride. Additionally, the more affordable lodgings will allow tourists to visit despite an economic recession.

While regional vacation markets rely on tourism, a major hit to the industry isn’t nearly as devastating to these markets. In fact, during the COVID pandemic, many city-slickers fled cities during the pandemic. Regional vacation markets can tap into these potential customers during occasions like the COVID outbreak.  

2. Unique Locations & Experiences 

Next up are STRs located in unique areas for experiences that you can’t find anywhere else. These might be activities out in nature or just places nearby popular attractions. Some different types of STRs that fall in this category are:

  • Properties near ski resorts
  • Properties beside amusements parks
  • Vacation homes on a lake
  • Beachside villas in tropical countries

These all offer a unique experience that you can get anywhere else. Typically, this kind of rental will have an off-season because tourists aren’t usually booking all year round. However, if you can make a ton of profits in the peak seasons, this could be worth it even if it’s unbooked during the slow times.

3. Business Markets

STRs in an urban location doesn’t rely solely on tourism to generate revenue. Of course, tourists will also visit your property, but the main source of income will be from business people. These are often professionals traveling due to a variety of reasons, such as a convention or business deal. 

The metro market is potentially the most lucrative market for an STR due to the frequent turnover of tenants. A busy city will have many occasions that will see an influx of visitors, such as during sporting events, conventions, concerts, etc. 

Despite being potentially the most profitable market, an urban rental also comes with the most risks:

  • Rules and Regulations: Different cities will have different regulations when dealing with STRs. In the case of Oakland, Michigan, the city prohibits STRs except in a few select locations, such as near the airport, along the freeway, or the waterfront. 
  • Market Saturation: Another risk is market saturation. Because an urban rental is one of the most profitable markets, it is a hotbed for STRs. A lot of competition could potentially limit your revenue, especially if you can’t compete with the existing rentals in the market.

Overall, the metro market is a great avenue to establish an STR. But you should educate yourself on the risks involved with entering the urban rental market—especially in your specific city. 

4. General Convenience

The traditional leisure vacation rental is the conventional STR we all think of when we hear the words “short-term rental.” But a lot of people use Airbnbs for general purposes where a hotel simply won’t satisfy all of their needs. 

Here are some of the most common reasons people use Airbnbs that aren’t for vacation or business purposes:

  • Hospital Visits: Individuals staying in a city for hospital visits. Major cities will have the best medical facilities, which means that a patient’s family could need a place to stay while their relative is receiving treatment
  • Weddings: Hotels are expensive, so for a wedding, a lot of guests will choose to go with Airbnb to cuts costs. It also gives them a space that they can make feel like home if they’re coming from far away and turning the wedding into a vacation afterward.
  • Reunions & Graduations: Another common reason to use Airbnb is family or school reunions where, again, your guests are likely saving on costs associated with a hotel and they want a palace where they feel like they’re at home. 

If your STR is located near a hospital, a popular wedding venue, or a large university you might see more guests staying for these purposes. And if you don’t know, try asking your guest why they are staying! That will give you a lot more insight and allow you to optimize your listing in the future. 

Set Your Goals and Expectations When Deciding a Market

To decide which market is the best for you, you have to be clear with your goals. Each market comes with its share of benefits and negatives, so you need to align your expectations while keeping these in mind. 

Here’s our list of recommendations: 

  • Business Market: These are good for a steady stream of income year-round if you’re located near conference centers and in a downtown area that professionals are staying in.
  • Unique Experiences: These kinds of rentals may have more downtime, but you can often charge higher rates as they are quite specific in what they offer guests.
  • Vacation Market: These can be resilient if you’re attracting people interested in regional vacations However, for areas that have on seasons and off seasons, you need to be careful. Make sure you can stay profitable on the season alone. 
  • General Purposes: These can be quite resilient depending on where you are and if you optimize your STR listing well. Make sure you ask your guests to understand why they’re booking your rental property. 

Pick the Right Market to Reach Your Investment Goals

Deciding on where to put up your STR is one of the biggest challenges facing real estate investors. With how competitive and unpredictable the STR industry is, identifying the right market and location for your rental could make or break your investment.

But the solution is always to return to your investment goals. As long as you align your objectives to what type of income a market provides, you’ll be well on your way to gaining the highest and most consistent cash flow from your STR investment.

What STR market are you targeting? Feel free to leave us a comment below!

Categories
Landlords

Do You Have to Allow Emotional Support Animals in Your Rental?

Heres what to know if you have to allow emotional support animals into your rental property.
Source: Unsplash

Many landlords don’t allow any pets in their rentals.

Usually, it’s because the pets might destroy the home and jack up property maintenance costs with broken lamps, scratches on the wall, and leaving their smell in the carpets and furniture… These make renovations a hassle for landlords and also eat into the tenant’s security deposit—and nobody wants either of those.

But what about emotional support animals (ESAs) and service animals? Should you allow them in your rental properties? Conversely, is it legal to ban them from your rental properties, if you want to?

The answer is complicated because ESAs and service animals are technically not pets in the eyes of the law.

This doesn’t mean that you need to accept tenants with ESAs and service animals. However, it still prohibits you from denying applications due to animal assistance or implementing pet policies on the tenants.

With many regulations surrounding the topic, this article summarizes the important laws landlords need to know from the three following authorities:

We’ll show you the landlord obligations these governing authorities have and guide you on how to approach tenants with ESAs or service animals.

Laws Surrounding Emotional Support Animals & Service Animals

ESAs and service animals are legal assistants for individuals with disabilities and special conditions based on the FHA. Though they seem similar, there is a nuanced difference between the two animals. While ESAs are companion animals prescribed by a mental health professional, service dogs are assistance animals trained to do specific tasks that help a person with disabilities.

As a landlord, you don’t need to concern yourself over differentiating between the two. The bottom line is that both are considered medical devices instead of household pets, with similar laws that protect them.

Since they’re medical devices, these are some of the implications for landlords:

You can’t discriminate against them.

Rejecting an applicant just because they have an ESA is a type of discrimination. Even if the reason is that they did not disclose their ESAs before your approval (which they’re allowed to do), you’ll find yourself in a lawsuit if you try to rescind your approval.

The only time you can refuse is if the animal poses a direct threat to the health and safety of others. Even then, you’d need to show proof that they are indeed a threat, beyond their breed or size. 

You can’t implement pet policies.

When it comes to tenants with ESAs, you can’t implement pet policies against them, because they’re still medical devices, instead of household pets. So even if you are allowing pets in your rental, you can’t charge these medical devices with extra rent, a pet deposit, or fees to cover possible property damages.

Think of it this way: You can’t charge a wheelchair fee to a tenant just because it might scratch your hardwood floors. Likewise, you can’t charge an ESA or service animal fee, either.

You can’t decline reasonable accommodations.

Regardless of your pet policies, you may have to make “reasonable accommodations” for tenants who rely on their ESAs. The situation is similar to how the ADA requires rentals to accommodate wheelchairs. 

There are a lot of reasonable accommodation requests tenants with disabilities can ask for. Still, one of the most significant impacts to landlords is the obligation to waive any no-pets policies for tenants to live with their ESA or service animal.

The process typically goes like this:

  1. A tenant who is blind approaches a landlord with their seeing-eye dog.
  2. The tenant asks for reasonable accommodations on the rental property, such as lower doorknobs and light switches for their service dog to reach with its mouth.
  3. The tenant waits for the landlord’s response. Landlords must act promptly, as an unjustified delay is equal to failure to deliver reasonable accommodation.
  4. Landlords evaluate requests on a case-to-case basis, but always with the criteria that the accommodations should bring tenants closer to an equal opportunity to use and enjoy the rental.
  5. If the accommodations are reasonable, the landlord is then required by law to grant the tenant’s valid requests.

Another point to note is that tenants with disabilities are allowed to make property modifications for full enjoyment of the premises. For example, they can open the closed patio for their emotional support labrador to leave home and look for help in case of an emergency.

As the landlord, you won’t have much control over justified fixes that help a tenant function better with disabilities. While it might seem inconvenient, think about it this way instead—by making your unit more accessible, you’re actually expanding your potential tenant pool in the future. You’re also within your rights to make the tenant revert the unit back to its original condition upon MoveOut (at their own expense).

Conclusion

After scanning through laws and requirements, it seems that the simple answer is yes—you do have to allow emotional support animals into your rental property. And if you don’t, you could face some unpleasant repercussions. 

The main reasons are that:

  • The law prohibits you from discriminating against and denying tenants who have ESAs.
  • ESAs are medical devices that tenants with disabilities need and rely on every day.
  • ESAs are part of “reasonable accommodations” that landlords are mandated by law to grant.

Stay on the right side of the law and be more compassionate towards people with disabilities by welcoming ESAs and service animals as extensions of their owners—your potential renters.

Do you have any other reasons to allow ESAs and service animals in rentals? Drop your thoughts below!

Categories
Flipping

How an S Corp Election Can Help Flippers

While house-flipping is potentially very profitable, there’s an expensive catch.

You might have to pay a self-employment tax, which is a whopping 15.3% of your profit. That’s a significant amount of money that can go to your next vacation or property you want to flip!

Nevertheless, there is a way to set up your business in such a way that you’re not required to pay the tax. Let’s take a look at how an S Corp election can help you pocket more of your flipping profits.

Why House Flipping is Subject to Self-Employment Tax

While the usual real estate investments such as buy-and-hold are considered a passive activity, flipping homes conducted in a limited liability company (LLC) are active transactions—required to pay self-employment tax on top of the income tax.

Let’s define these two things that come with flip-and-fix projects.

Active Income. Active income applies to anybody who runs a business where one earns ordinary income from performing a service or selling a product. Business owners must pay the 15.3% self-employment tax up to a net profit of $128,400. (Beyond this threshold, you’ll only pay 2.9% as the Social Security portion of the self-employment tax is removed.)

Self-employment Tax. In essence, self-employment tax is similar to payroll taxes withheld from an employee’s wages. For self-employed individuals like house flippers, however, they must cover both the employer and employee portion of the tax. In addition, members of an LLC taxed as a partnership are considered self-employed individuals—which means their earnings will be subject to self-employment tax if they participate in the partnership’s trade.

The 15.3% self-employment tax of your gross salary does chip away at every dollar you earn. Moreover, 15.3% comes in before including the marginal tax rate from the federal and state perspectives. For example:

So, naturally, we want to find a way to save on taxes. One way is to run your flip-and-fix business out of an S Corp instead of an LLC or C Corp. Let’s talk about how you can do this.

How an S Corp Election Can Save on Taxes

First, set up an LLC or C Corp, then elect to have it taxed as an S Corp. Said structure is a tax entity or federal tax election—not a legal one. It’s not for asset protection but for reducing your exposure to tax.

By conducting your business this way, self-employment taxes only apply to a “reasonable salary,” and you’ll pay the remainder of your income as a dividend—not subjected to self-employment taxes. 

Here’s how it’ll go: Set up the S Corp, set up payroll, and begin paying yourself a W2 wage. The self-employment tax will only apply to the W2 wage, and the rest of the income will be considered a cash distribution or cash dividend. Of course, you can only do this with an S Corp route.

Take a look at how the situation now changes and how much you can save:

If you earn $100k with no S Corp (either as a Sole Proprietorship or an LLC), you’ll report your income as Schedule C. You’re going to pay $15,300 on self-employment taxes even before the marginal tax rate or state taxes come into play.

However, if you’re taxed as an S Corp, you can pay $50k to yourself as a W2 wage and have the other half as a cash dividend. With the $100k split up, half of it won’t be subject to the 15.3% tax—and you can pocket $7,650 just like that.

Just remember to never pay yourself the entire profit in W2 Wages. The whole point of setting up an S Corp is to help you reduce taxable income!

Conclusion

There are so many other factors that will come into play, so make sure that you talk to your accountant before considering this tax election for your flipping business. You may be able to amend your LLC to take advantage of this technique or establish a new LLC to start conducting your business as S Corp from the get-go.

Either way, it’s a good strategy to save on taxes legally!

Image courtesy of Jopwell

What do you think of this technique? Any additional tips on how to save on taxes?

Categories
Landlords

How Landlords can Easily Raise Rents

Many landlords dread raising rents on their tenants for fear of the tenants moving, or the landlord just finds the whole process unpleasant. So, it’s not uncommon to find landlords that haven’t raised rents in 2, 3, or more years. 

Raising rent is actually a regular (albeit not the most fun) part of being a landlord. A landlord should raise rents as the market dictates, because: 

  • Keep up with inflation
  • Be able to afford rising maintenance costs
  • Accommodate property tax & insurance increases
  • When you’ve renovated a property to a higher standard

When that time inevitably comes, you need to know the right way of increasing your rent. Doing it the wrong way might cost you, tenants, leading to longer vacancy periods and costlier turnovers. Plus, no landlord wants to feel like the bad guy, so it’s important to show you’re being fair by handling rent increases diplomatically.

This article will teach how you can raise rent amounts and generate more income while communicating the situation professionally to your tenants. We’ve even included a sample rent increase notice that you can use for informing your tenants as amicably as possible. 

How should you approach a rent increase?

Depending on local and state laws, the required notice period for rent increases can range from 30 to 120 days. In Michigan, you have to give 30 days’ notice, but if you’re raising rent by 10% or more, you have to inform the tenant 60 days ahead of time.

Most people draft a letter informing tenants of the increase (like the one we’ve included below) and send it out to them, but there’s another way to approach this: 

  1. Go on Zillow, the MLS, or Rent-o-Meter to find what the market rent for this property is.
  2. Compare that to what the tenant is paying.
  3. Submit that information to the tenant and ask them what seems fair in terms of an increase

Note: At this point, you haven’t told them the rent was going up, but you’ve implied it. You’ve also involved them in the decision, so they’re more willing to accept it, making this a more subtle, non-aggressive approach to raising rent.

  1. The tenant’s response will typically be to offer 50% of the full increase, although some will say they don’t want to pay any increased rent at all. A good way to address either of these scenarios is to ask: “Why do you think that low of an amount is fair?” Make them defend it. 
  2. Then they’ll explain why they shouldn’t pay an increase (personal emergencies, poor maintenance on your part, etc.). Then you can ask: “Are you sure that’s your best offer?” 

The best part about this is that it lets you raise rents without TELLING the tenant there will be an increase, but rather including them in the process.

Tenants may even surprise you by offering more than what you expected! 

How much can you increase?

Ideally, you’ll want to keep the raise to less than 5% per year. Any higher, and your tenants will most likely move away—even if the rate is similar to your competitors in the market.

Why?

Think of the other rule of thumb that’s often used in screening tenants: rent amounts should only be a third of the tenant’s monthly income. This means most people can’t afford to spend an additional hundred dollars a month on rent payments – unless the tenant base in your area is on the up and up, like because of new employment opportunities or developments nearby.

Jacking up the amount too high without good reason will therefore jeopardize your rental income, as tenants will struggle to pay fully and on time. 

Plus, once a tenant has been there a while, they feel entitled to zero rent increases forever. If you raise it from $800 to $900 overnight, they’ll freak out. Even if the rent in the area is $1,100, they can’t afford it. So you’re better off with consistent smaller rent increases, like $25 a year, rather than waiting 3 years and increasing your rent all at once to reflect current market value.

On top of this, some cities have rent control laws in place. These maximum rent caps on what landlords can charge and are implemented by the government. Be aware of your local regulations before implementing any rent changes (just FYI, rent control isn’t allowed in the state of Michigan, but it is common in markets in New York and California).

Sample rent increase notice

When you’re ready to implement the raise, here’s a sample rent increase notice that Colleen F. shared in the BiggerPockets Forums. This letter is great because it helps tenants understand the landlord’s own financial obligations and view an increase in rent as a necessary business decision, rather than thinking you’re just being greedy.

Feel free to use it as a basis for crafting your own notice:

Dear John Tenant,

Thank you for being a tenant here at 123 Main St, Apt 1. Our goal is always to provide a nice place to live, at a fair price. Whenever the prospect of raising rent comes up at any property, we take a good hard look at it to make sure it’s necessary.

In that light, we have decided it is necessary to raise the monthly rent on your unit, effective September 1, 2020, to $1,050 from $1,000. This is partly to offset the increasing cost of property taxes, insurance, high heating expenses, maintenance costs, and upgrades since our purchase of the building in 2010.

Even after this increase, we believe we are still at or below the average market rent for a unit of this type. Rather than pay an increase, you may choose other housing. Should you intend to vacate at the termination of your lease, the original lease agreement states that you have to provide 30 days written notice of your intent to move. If you choose, signing this form checking off that you will not renew and returning the form to us 30 days in advance of your expected renewal will be considered your written notice.

Sincerely,

Management

Conclusion

There’s no guarantee that your tenants won’t complain about an increase in rent. However, if you increase your rent fairly and strategically, you can manage their expectations and prepare them ahead of time to budget appropriately. 

When they’re prepared and you communicate openly with them about the situation, your tenants won’t see you as the bad guy for increasing their rent. 

Any other concerns related to increasing rent amounts? Leave a comment below!

Categories
Landlords

How to Find Good Contractors for Your Rental Property

Contractor for your rental property
Finding good contractor for your rental property

There are many shady contractors out there! Finding a trustworthy contractor to work on your rental property can be tough. You want to make sure that you find one who will do good quality work, is licensed, and won’t rip you off.

To ensure you get the best contractor for the job, here are 5 steps you should follow.

1. Gather Your Options

There are several places you can go to look for contractors that can serve your area:

  • Ask for referrals: Ask your friends, family, and colleagues who have had the same kind of work done for any recommendations. Many contractors rely on word-of-mouth advertising to build their client base and reputation, which makes it easy for landlords to ask around.
  • Read neighborhood review websites: Popular sites like Nextdoor give you several leads, all with contact information and recommendations for your area. You can also check Angie’s List (now Angi) or Yelp for more client reviews.
  • Post on social media or advertising sites: Posting on your social media platform may get you connections and recommendations from people outside your circles.
  • Ask hardware and supply centers: Your local hardware store or building supply center will likely have a list of plumbers, carpenters, electricians, and more. You can ask the customer service representative for their details. 

Our pro tip? Seek out the hustlers. Visit Home Depot at 6 AM on Saturday to find hard-working contractors. 

While others are sleeping in on the weekend, these hustlers will be wide awake and ready to work. You want contractors like this, who work beyond the usual 9-5 on weekdays, as your tenants are usually available for repairs only when they’re not at work themselves. You don’t want to pay contractors “overtime pay” for coming in on weekends! A good contractor will be greedy—grabbing opportunities to work even on odd hours, and some of them won’t even charge more for doing it. 

2. Research Them Online

If you’ve done your research, you’ll likely end up with a long list of contractors. Shorten your list by doing an initial sweep online—conduct your own background research for any shady activity or active disputes by certain contractors. 

Pull up Google and type in their name, their company’s name, and your city. Add keywords such as “scam,” “complaints,” or “court” to reveal negative information against the contractor.

3. Initial Interview

After the initial screening, choose the ones you’re comfortable with and schedule an interview. You’d want to ask questions about their services, such as:

  • How long have you been a contractor?
  • How long has the company been in business?
  • Is the team familiar with this kind of work before? How often?
  • Does the team have references that I could see?

Narrow it down to a handful of contractors. The next step will determine who’ll make the cut.

4. Verify with References

By this point, you’ve talked to the contractors themselves. This is the time to talk to the client references to verify service quality and performance.

Call former clients and ask the following:

  • Was the work done in a complete and timely manner?
  • Was the work done according to the agreement?
  • Was the contractor well-organized and professional?
  • Did the contractor charge fairly? Were there additional costs?

After this, you should have a shortlist of contractors that you want to proceed with. 

5. Screen Them Thoroughly

Schedule a meeting with each contractor to discuss the work in more detail. See how they feel about the proposal, and get a sense of their work ethic as well.

It’s important that they are experienced, knowledgeable, and officially licensed to carry out the work. Clearly outline your expectations, as you’ll be relying on them for both basic and emergency property maintenance.

The key questions you need to ask are:

  • When are you available and what locations do you serve?
  • What type of work would you say your team is most capable and skilled at doing?
  • Can you walk us through a typical job and the communication you provide?
  • How often do you send pictures and videos of the work? Are they clear and detailed?
  • What are your licenses and insurance to complete this particular project?
  • Can you pull permits, or would I have to?
  • How are your estimates and invoices created and delivered?
  • What is your preferred payment schedule?

Then, get into the details of how you want them to serve you by asking the following:

  • Will you add us as “Additionally insured”?
  • Will you agree to estimating and quoting by the job instead of hourly?
  • Will you allow payment within seven days to allow time for inspection?
  • Will you sign waivers for all payments?
  • Will you agree to a background check?
  • Will you sign a W-9?

Once you’re confident with a contractor, draw up the contract and close the deal. The document should include all the important information, including the start and end dates, payment schedule, materials required, description of the work, and specific instructions on how to handle any changes to the project plan.

Conclusion

With a good selection process, you’ll have a whole roster of trustworthy contractors in your arsenal, ready to meet the quality you expect from the best of contractors.

Gradually build your list of contractors you’re happy with, and keep their details easily accessible. You’ll never know when you’ll need to call them!

Image courtesy Tima Miroshnichenko

Categories
DIY

Landlords: Tenant-Proofing your Rental Properties

Tenant-proofing your rental properties is kind of like baby-proofing your house–it saves both of you from unnecessary headaches. The key when tenant-proofing is to identify the things that get abused the most, and think about how you can minimize damage to these areas, or eliminate them altogether. This is especially true for properties in low demographic neighborhoods, whereas problems like these rarely occur in higher-demographic areas.

Here are some other things you should avoid if you want to minimize the risk of extra damage costs:

  1. Avoid Garbage Disposal – Have you ever watched a movie, and the characters threaten to drop something meaningful into the garbage disposal by the sink? Yes, it’s true, people love to put all types of things down that drain. It’s handy–but also very easily clogged. It’s a piece of high-failure, time-consuming equipment to fix.
  1. Avoid Air-Conditioning Units – This may seem necessary, especially during the sweltering summers in Michigan, but AC units are not a requirement. Repairs are pricey and window-mounted models often disappear in the hands of thieves. Leave it to your tenants to buy one for themselves!
  1. Forbid Wall-Mounting – People like putting up decorations on their walls, but strictly avoid any nails or screws that put ugly holes in the walls. There are plenty of adhesive hooks in stores that tenants can use as an alternative, and walls with adhesive residue are easier to repair than those with holes. If you do allow nails, plan on deducting repair costs from the security deposit, because most tenants won’t repair the holes themselves (even if it says so in the lease).

Instead, install features that can help keep your rental properties clean and easy to maintain:

  1. Install Durable Flooring – Vinyl flooring is your best bet here, as it’s affordable, durable, simple to install, and it’s easy to remove any stains that a renter would leave. Although having carpet is a preference for some, it gets old and stained easily, with some stains refusing to come out at all, and absorbs odors from pets and smoke. Similarly, hardware floors – while a great feature to have when selling a house – can easily get scratched or damaged, and cost thousands to replace. With vinyl floors, all you need is a mop and bucket of soapy water, and you’re pretty much good to go. 
  1. Install Door Stoppers – Doors swing open and close multiple times a day, and many people (especially kids) won’t care if the doorknob puts an indent in the wall. Installing door stoppers is a must-have in rental properties, as it will save both your walls and your doors from unnecessary damage.

There are a surprising variety of door stoppers on the market, from baseboard stoppers and ones affixed to the back of the door itself, to wall-mounted handle stoppers and magnetic stoppers. One of the best options is the hinge pin stopper, since it has less chance of getting overworn through constant use (or played with by children).

  1. Install Window Coverings – Blinds, drapes, or curtains might seem like an added expense (and another thing to replace if damaged by a tenant), but it’s a good idea to install some kind of window covering to avoid giving thieves or squatters a clear view inside the property. Cheap coverings will do the trick, and if they’re damaged when the tenant moves out, you can deduct the replacement cost from their deposit.
  1. Opt for Durable Fittings – Some things, like faucets, can be bought as cheap plastic pieces, costing in the region of $40. While this may seem like a good cost savings in a lower-demographic rental, these cheaper fittings usually break down quickly and will need to be replaced every 2 years, on average. Investing in a more expensive, more durable option, like a $120 metal faucet, will mean that fittings can last for up to a decade before wearing out, saving you more money in the long run.
  1. Keep Pests Out – When doing property turnovers, consider conducting routine checks for pests and take preventative action, if necessary. Pests and insects hide well, and pest control services can add up to a fortune if the problem is left to worsen. So better to discover any potential infestations early, and fight back with rodent traps, chemical-free solutions, and an exhaustive scrub-down between rentals.

Follow these tips, and you should have a property that’s as tenant-proof as it’s possible to be. Of course, there will always be repairs and maintenance that need to be carried out at the end of every lease, but by planning properly, you can minimize the chance of incurring additional expenses for damages that could have been easily avoided.

Image Courtesy of: Ksenia Chernaya

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