Henderson and Las Vegas Residential Property Management Articles

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Why overpricing your rental can actually cost you money!

A man looking for houses for rent online. Young man using a real estate website on the laptop

Obtaining top market rent is the goal of most property owners. And with good reason – costs of owning a rental property have risen over the last few years and the increase in market value helps offset those costs. However, there is a difference between obtaining top market rent and overpricing a property. How so? And how does overpricing a rental actually cost you money in the end?

Listing a property for top market rent means that you have priced your property within a price point that other similar properties have actually leased for. If, for example, other comparable properties (similar size, amenities, location) have obtained a rental rate between $1500 – $1800 per month, top market rent would be $1800 / month. Of course, in an appreciating market, rental property owners may price their property a notch higher, but within reason. If trends indicate continued appreciation, this is usually not a problem. A lack of interest or activity can be remedied with a relatively minor price adjustment, assuming the property is in good and rent ready condition.

However, asking a rental rate significantly over other properties can lead to overpricing a home. Even in a strong rental market, where appreciation is occurring and inventory is slim, this is possible. While there is no set formula that can tell a property owner that their property is overpriced, the higher it deviates from comparable properties, the more potential there is for overpricing it.

How would a property owner know that their property is overpriced? Simply, by interest and showing activity. The rental market is based on how much tenants are willing to pay for rent. When inventory of rental properties is low while demand from tenants is high, properties appreciate because of supply and demand. Thus, if potential tenants are not interested in a property that is in good, move in condition with no negative internal or external factors, the lack of interest can be placed solely on price point.

Listing a property at an overpriced rate can cost a rental property owner money. Lack of tenant activity leads to accruing expenses, such as utilities and maintenance, along with lost rent. Think about it: How much does one month’s lost rent translate over the course of a one year lease? If your monthly rent was $1200, that is a loss of $100 / month over 12 months. $2400 monthly rent? That is a whopping $200 per month over 12 months. And those losses don’t include expenses incurred simply from the property being vacant.

While vacancies cannot be eliminated in the rental business, they can be mitigated. Pricing a property competitively is key to reducing expenses and finding a quality tenant within a reasonable amount of time.

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Are you requiring tenants to carry renter’s insurance?

While most homeowner’s are primarily concerned with obtaining Homeowner’s/Landlord insurance, covering the property, liabilities and damages from unexpected malfunctions and disasters, some fail to keep up with their tenants renter’s insurance policy, making sure it’s current and active. While it is highly important to maintain homeowner’s insurance (or called a Landlord / Fire policy if property is a rental), what’s the advantage of requiring tenants to carry a renters policy?

Tenant Benefits

First, there are significant benefits to a tenant! For example, should a fire or water event occur within the  property, the homeowner’s insurance will typically cover the damages to the structure itself. However, many times it will not cover the tenants personal belongings and furniture. Homeowners insurance may also not cover injuries that occur, exposing a tenant to liability.

On the other hand, renters insurance is designed to cover personal property, just in case of the unexpected – a theft, fire, water damage, etc. If someone gets hurt inside the property, renters insurance can offer a measure of protection, offering liability coverage. Other covered items can include: Coverage of a tenants personal property in the event of a windstorm, frozen pipes (that eventually leak and create a major water event), vandalism or a vehicle impact!

If a tenant is temporarily displaced from the property due to these items, renters insurance can cover the cost of alternate living arrangements.

Finally, renters insurance is typically inexpensive to obtain for a tenant and can potentially save thousands of dollars in the event of an unexpected situation.

As a Landlord, requiring renters insurance adds a measure of protection and can help a tenant with unforeseen costs. To ensure that a renters policy is obtained and maintained, you can request to be added as an additional interest. That way, you are updated by a insurance company when a change takes place.

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Don’t make this mistake when owning a rental property!

Landlord’s may at times feel rushed to lease their property quickly, looking to offset a mortgage payment or prevent lost rent. And that is completely understandable. No one wants to bear the brunt of covering expenses when they can be covered by someone else – such as a mortgage. However, in their quest to cover the mortgage and even utilities, some Landlord’s will sacrifice on screening a tenant, looking to simply move in an able and willing tenant. And while it is tempting to get someone to move in right away, this is a mistake that has caused many Landlord’s headaches, property damage and more lost rent. And this mistake can be minimized, relatively simply! How?

First, think about what can happen without screening. You don’t know who the tenant is, besides for what they tell you. You don’t know their history of paying bills or rent, whether they just got evicted or if they caused property damage. A basic screening can even reveal most of that information. And in today’s tech advanced society, there are plenty of sites that offer a quick and reliable screening service.

Second, even when screened, some Landlord’s will accept poor credit, financials and rental history. While initially the Landlord might get a security deposit and first month’s rent to proceed with the move in, what about the duration of the lease? The screening process is used as an indicator of what to expect from a person based on their history. And sadly, many Landlord’s find out the hard way of how important it is to find well qualified tenants. They end up with months of unpaid rent, extensive property damage and court visits for eviction. In the end, the 2 or 3 extra weeks of rent that they didn’t want to lose becomes a drop in the bucket compared to what they now have to come up with out of pocket.

So, as a Landlord, don’t feel rushed to fill a vacancy. While it is important to lease a home quickly, it is also important to screen a tenant and find one that is well qualified for your property. And while there are no 100% certain guarantees, you can significantly reduce your risk by having a tenant who has a history of paying their obligations and caring for the homes they live at.

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What should your rental property include?

Hand trucks with household and kitchen appliances in warehouse

In previous articles, we discussed the importance of having a clean and maintained property to attract a qualified tenant. In addition, what should you include to help maximize your rent and make your rental attractive?

Some landlord’s don’t want to add anything more than the basic necessities, working to limit expenses. And that is understandable. Owning a rental property is about generating rent income and cost prevention. Nonetheless, there are some items that add value and make a property attractive to qualified tenants, allowing it to rent quicker. Those items are appliances.

When it comes to appliances, most tenants typically need them. Granted, some may have their own refrigerator, washer or dryer. However, most don’t typically carry those around. Therefore, it is best to have a property equipped with them. A refrigerator, range/oven, microwave/vent hood, dishwasher, washer and dryer are typical appliances that are expected and can lead to the property leasing faster at a competitive rent.

When you purchase an investment property, you may notice that the range/oven, microwave and dishwasher are already in, however, the refrigerator, washer and dryer are not. What can you do? You may be able to wait on those until you find a qualified tenant. If a tenant happens to have their own and wishes to use them, you can choose to allow that. Otherwise, be prepared to place an order at your local home improvement store. Don’t forget to allow time for delivery so that the appliances can get in on time. Not having them on the day the tenants take possession can postpone a move in and/or reduce your rent income, adding cost, lost rent and a stressful situation. Since most tenants will request them, you may choose to get ahead of the curve.

Be a proactive landlord. View your rental property as an investment rather than a quick buck to be made. Have the essentials to make a rental property successful and profitable.

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Is Real Estate A Good Investment?

A single family home illustrated

Is real estate a good investment? With many seasoned investors looking for a place to invest their money, real estate has always been at the top of the board. Or perhaps it’s a real estate enthusiast, first time potential investor looking at their options. The simple answer is: As with any investment, there are variables and there are risks. In this article, we’ll discuss residential rental investments.

Why do many investors decide on residential rentals?

For some, it’s where they will get the most return for their investment. If an investor has cash saved, they may realize that keeping it in a savings account or even higher yield CD (certificate of deposit) will only give them a limited return. However, investing that into a rental property may generate considerably more income and the investment has the potential for appreciation and profit. As a result, a rental property looks appealing.

What are the risks?

Of course, the risks have to be evaluated as well. Many rental owners put down minimal down payments and as a result, end up with a higher mortgage payment and PMI (private mortgage insurance). As a result, the rent they generate may not cover the monthly expenses, which would also include taxes, insurance and possibly HOA dues. As a result, they may be unprepared to cover the difference. A 20 or 25% down payment can eliminate PMI insurance and lower the monthly mortgage payment as well. Of course, in the end, it is best to confer with a property manager to see what rent potential a property has to be better prepared to absorb the costs.

Finding the right property

The type of property will also determine the profitability/cash flow of a property. For example, an older property may have a number of components nearing the end of their life expectancy. HVAC systems, hot water heaters, roofing and appliances can add a significant price tag to the operation of a rental property. Of course, once replaced, those items can last for many years. However, can an investor absorb those expenses since they will be real, cash expenses, even if the property is priced to reflect updates needed? On the other hand, a newer – or brand new – property may ask a higher purchase price. However, there may be limited maintenance expenses in the first few years of operation. These are things to consider when embarking on a purchase.

Be prepared for vacancies

Finally, as an investor of rental property, there will be times when a vacancy occurs and repairs have to be made. As a result, not only will there will be a lack of income but repairs that will cost money. Is this something that you will be able to absorb? Will you be able to save enough each month when generating income to cover those periods of time? Those are difficult but necessary questions to ask yourself. Additionally, market conditions fluctuate and real estate and rental values change. Some rental property owners have had to keep their rental properties for an extended period of time because of that, waiting for values to rebuild perhaps to sell their investment. Other long term investors, who had no plans of selling, had to be patient to see rental rates rise.

When planned correctly, a rental property can be a great investment – and has been for countless property owners. However, calculating the cost and type of investment is an integral part before embarking on being a rental property owner.

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How to Avoid Disputes in Property Management

Being a mediator can be one of the most challenging aspects of property management. Avoiding disagreements is key to good management.

Running a property management company is not the easiest job out there. Yes, there are a number of moving pieces. For those familiar with property management, you know all too well that when managing a house, your involved in the advertising and leasing process but also the day to day management – the inspections, the unexpected maintenance, HOA violations, insurance claims, bookkeeping and accounting. There is a lot to do.

The challenge

But you also have to be a mediator – and that’s challenging at times. Figuring out who’s responsible for a repair, for example. Is it the owner or tenant? Addressing disputes is perhaps the most challenging aspect of being a property manager and requires know how. Opinions from vendors are necessary. What did they observe? In their professional opinion, do they believe wear and tear contributed to an issue – or was it neglect. What condition was the item in question before? And this is where it can get tricky at times.

How does a property manager or Landlord handle this?

It takes skill and many times reasonableness.

Since property managers are not technicians or contractors, the opinion of a vendor is important. As a homeowner with a rental property, detailed reports are very helpful. A vendor can many times evaluate the age of an item and determine if the wear and tear was the leading cause of failure. For example, if, as a Landlord, you get a call that the dishwasher is leaking, you might wonder if its a pump, seal or something else. A qualified repairman can provide you with a report addressing the specifics – was it a seal on a 15 year old dishwasher? Was it a newly dented door? Those are key details to determine if a Landlord will pay for the repair of if it was caused by a tenant – perhaps due to an accident – and become their responsibility. The same can be applied to air conditioning issues, landscape problems, blinds, flooring issues, other appliances, etc.

While this may seem like a simple concept, many times, those details are not provided. And so, this leads to disputes and hard feelings between tenant and Landlord. So, take the extra step. It might require talking with vendors to get those details documented. Documentation is key. And remember, pictures are worth a thousand words. If you plan on assessing a charge, back it up.

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