Archive for September, 2007

Are You Leaving Money on the Table?

If you’re new here (and you like what you read), you may want to subscribe to my RSS feed. Thanks for visiting! ScottHow did you decide what to charge for rent in your apartments?  Do you rent them quickly or do you show them to dozens of people only to get a tenant once [...]

How did you decide what to charge for rent in your apartments?  Do you rent them quickly or do you show them to dozens of people only to get a tenant once you lower the rent?  Maybe you need to check what the other comparable properties are renting for in your neighborhood.  Here are a few ideas on how to confirm you are maximizing your rental amounts and minimizing the apartment’s time on the market:

• Drive around the neighborhood and call on some “For Rent” signs.  In fact, introduce yourself, tell them which buildings you own, and give them your phone number.  We all need to help each other as landlords.
• Use Craig’s List to quickly see what landlords are offering their apartments for.  Also check out the “seeking housing” section to see what tenants are willing to pay.
• Ask your existing tenants what they think about the rent amount you are planning to charge. 

Even if you think you have the rent amount correct, watch how quickly or slowly your apartment rents once you start advertising.  If it is taking a long time to rent or you are experiencing a low call volume, lower the rent sightly.  You may also need to change your rent amount based upon the time of the year, changes in the neighborhood, and the condition of the unit while showing it.

Check your rent amounts at least yearly.  Setting your rent amounts correctly will help you rent your apartments quickly which will help you minimize leaving money on the table. 

Scott Ficek is a Realtor with Keller Williams Integrity in Minneapolis and helps new and seasoned investors buy and own investment real estate. He owns and manages almost 30 investment property units from single to multi-family. Find his blog at www.minnesotainvestmentrealestate.com and his website can be found at www.mnirea.com

Landlords: Read your Leases!

Landlords, when is the last time you read your standard lease from start to finish?  Should I dare say that some of you have never read it?  Your lease is your contract with tenant.  I assume you spent a considerable amount of time working on your purchase agreement (another contract) for the purchase of that investment [...]

Landlords, when is the last time you read your standard lease from start to finish?  Should I dare say that some of you have never read it?  Your lease is your contract with tenant.  I assume you spent a considerable amount of time working on your purchase agreement (another contract) for the purchase of that investment property.  Why are you now just coasting along with any old lease?

Regardless of whether you buy your leases at an office supply store or you found one on the Internet and print it off your computer, here are some items to put in your leases and some to take out:

• Require at least 60 days written notice for the tenant to vacate the premises even at the end of the lease.  The 60 days notice should start at the beginning of the next month; so you should get a minimum of 2 months notice.
• Rent is due on the 1st, but late on the 6th.  Most tenants look at that as the rent is due on the 5th.  Make sure they understand it is due on the 1st.
• Consider raising your late fee to a large enough amount to make it painful for the tenant to be late (check if your state has a legal limit).
• Put in a clause like the following:  “All drains, waste pipes, and plumbing are accepted as clear by the tenant at the time of occupancy and any material blocking them after occupancy shall be repaired by the tenant except blockages caused by roots or backups from the streets.”  This should put a end to late night blocked toilet calls.  I do recommend, however, supplying a $6 plunger to alleviate any potential problems!
• Remove any automatic 1 year renewal clauses in your lease.  At first it may seem like a good idea, but this clause can backfire on you when the tenant simply refuses to return your calls and the renewal notification window expires, leaving you bound to re-rent to this tenant. 
• Include the following language:  “Payment of rent may be made by personal check until first check is returned unpaid.  Thereafter, tenant will be required to pay using certified funds or cash.”
• Confirm your lease has the following regulation:  “Use of property for business is strictly prohibited”.  What if your tenant opens an auto repair shop in the garage or is using the basement as his warehouse?
• Specify the number of adults, children, pets, and automobiles in the lease and set requirements for notification if the number of any increases. 
• If you accept pets, make sure to have a pet deposit and some of it should be non-refundable for additional wear & tear on the house and/or carpet cleaning.  Also include the type and/or size of the pet (I have seen a tenant start with 3 approved dogs (10 pounds each) and then after a year upgrade to three 50 pound dogs.  They were still in compliance with the lease!
• Consider requiring the tenants to make any repairs under a certain dollar amount, depending upon the type of property you are renting.  You may also make them responsible for some or all pest control costs (depending upon the building).
• Do not allow any move-outs during November to March as these are the most difficult times to lease properties.

Here are a few others that you should consider using in the right market and circumstance:

• Specify the apartment or entire building as smoke free.  Have the tenants initial or sign a “smoke free addendum”.  This will save you some repainting and cleaning costs.
• Require the tenants to call a locksmith at their expense if they get locked out or lose their keys.  At least set a comparable price ($50-75) for you to unlock their apartment. 
• Have all tenants sign a “Non-violence” and “Drug Free living” document with the threat of eviction if violated.

Making these easy changes will make your leases and your position stronger when working to aleviate problems with tenants.  They should also save you money and frustration in the long run.   

(Confirm any of the above changes will work in your state and market.)

Scott Ficek is a Realtor with Keller Williams Integrity in Minneapolis and helps new and seasoned investors buy and own investment real estate.  He owns and manages almost 30 investment property units from single to multi-family.  His blog and website can be found at http://www.mnirea.com.

Why Buy Investment Property anywhere but Minnesota?

I know I am going to get some comments from readers in other parts of the country about this title!  My point is not that anywhere BUT Minnesota is bad.  It is just that I often get the question from new investors that ask:  “I read investment property in [insert any state here] is a [...]

I know I am going to get some comments from readers in other parts of the country about this title!  My point is not that anywhere BUT Minnesota is bad.  It is just that I often get the question from new investors that ask:  “I read investment property in [insert any state here] is a great buy, should jump in?”.  My answer is always NO.

Buying and owning investment properties take time and work.  Obviously, how much work is dependent upon how many properties you have, their age and condition, and even the type (single family versus multi-family).  In the end, there is some time and work required to own investment property.  Owning property in another state is probably 10 times more work and I would argue not as great of a buy as you have been told.

• When buying investment property, you should be familiar with the market and even the neighborhood you are buying in.  How familiar are you with that out of state neighborhood?
• You will need to find a Realtor and potentially a new mortgage broker.  Where will you find them?
• How are you going to show the property to potential tenants?
• Who will fix anything that needs repair?
• Who will you call in an emergency at the property?
• Can you get to the property at least quarterly to check on the tenants and condition?

The only answer to owning out of state is to use a management company, but that is not an excuse to simply forget about the property:

• They will typically charge 7-15% of your monthly rent and then charge 1 month of rent to find a new tenant.  Is that factored into your cash flow equation of this “great buy”?
• Even with a management company, you should plan to check on your property at least every quarter to make sure the management company is keeping the property maintained and the tenants are not destroying the place.
• If the property becomes vacant, how do you gauge how hard your management company is working to get your property filled?

Lastly, there are plenty of amazing investment properties for sale in Minnesota.  Whether you want to do a flip, a short term hold, or a long term hold, we have all the “great buys” you would ever need, right here.

Scott Ficek is a Realtor with Keller Williams Integrity in Minneapolis and helps new and seasoned investors buy and own investment real estate.  He owns and manages almost 30 investment property units from single to multi-family.  His blog and website can be found at http://www.mnirea.com.

Stop throwing money away at your rental properties!

Do you just write those expense checks every month for your investment properties without thinking about if the bill is correct or could be lower and/or eliminated? Although you typically can only raise rent every 12 months, it is never the wrong time to work on reducing the expenses of your investment properties.
Here are [...]

Do you just write those expense checks every month for your investment properties without thinking about if the bill is correct or could be lower and/or eliminated? Although you typically can only raise rent every 12 months, it is never the wrong time to work on reducing the expenses of your investment properties.

Here are a few areas to explore:

• If you are paying the heat bill, is there any way to install a new furnace or boiler in the other unit(s) to shift the cost to the tenant? Can you install electric baseboard heat for one or more units and shift the expense to the tenant?
• Does the building only have one water heater (that you pay for), but each unit has its own gas meter for cooking? Can you easily install a water heater for each unit and shift the expenses to the tenant?
• When is the last time you really analyzed your water bill? Call your municipality and find out how many gallons a typical household should use per month. If your building is using more than that, check for dripping faucets and running toilets. A dripping faucet can cost $50 per year and a running toilet can cost $100 per month!
• Older buildings that have been converted into apartments often have electrical systems that were not converted properly. Turn off the main breaker to the common areas and see if any tenants complain that they lost power. You could be paying to run your tenant’s television!
• If you live in a colder climate, like Minnesota, make sure the storm windows and inside windows are closed during the winter to minimize heat loss. Consider adding weather stripping to the doors.
• Making sure your boiler/furnace and water heaters are cleaned and tuned up at least every 2 years will not only save money, but will lengthen their life span.
• Are you paying too much for services to mow the grass or take care of the snow? Can you find a teenager in the neighbor that would love to do it (for less)?
• If you have a property manager, are you getting your money’s worth out of them? Can you take on some of the management for a reduced price?

Roll up your sleeves and look at all your expenses for 60 days. See if you can reduce or eliminated any. It will not only bring you more cash flow, it will make your investment property more appealing to a buyer when you sell it.

Get your Properties Ready for the Snow!

It never fails….the State Fair is over, Labor day was here and gone, the kids are back in school and within days the high temperature is not getting above 70 degrees!  Here in Minnesota it seems like the seasons change fast and the snow is just around the corner. 
Time to get your investment properties ready for [...]

It never fails….the State Fair is over, Labor day was here and gone, the kids are back in school and within days the high temperature is not getting above 70 degrees!  Here in Minnesota it seems like the seasons change fast and the snow is just around the corner. 

Time to get your investment properties ready for the winter.  Every year I say I am going to do it earlier in the fall and I end up waiting until November (and do it when it is an emergency).  Why not tackle those projects and prep items when the weather is still relatively nice and you have time.  Even if you don’t live in Minnesota, here are some items to review at your investment properties before the weather turns any worse:

Inside the building:

• Remove all window air conditioners.  Take a hose and clean out the inside and outside condenser fins.  A/C units should be cleaned every single season as a clogged condenser can increase power consumption by 150%
• Close all storm windows.  Close and lock all interior windows to insure tight weather proofing.
• Start the furnace or boiler.  If it has been more than 3 years or there has been construction or pets in the unit, consider having the furnace or boiler professionally cleaned.  Confirm it is working correctly.  Check the unit for any corrosion or damage.
• Buy a large supply of furnace filters and leave them at building.  Ask the tenants to replace them for you.
• Make sure your smoke detectors have new batteries in them.  Consider installing carbon monoxide detectors in each unit.
• Test all exterior doors and make sure you can’t see light around the edge of the door.  If you can, add necessary weather stripping.

Outside the building: 

• Confirm who is responsible for removing snow at each of your properties.  If you have driveways, make sure your snow plow guy/company is still around and planning to do your building.  Who is responsible for shoveling the sidewalks?  Do you have a shovel and salt ready at each building?
• Clean out any gutters on your properties (best left until the majority of the leaves have fallen).  Make sure the down spouts point away from the building and hopefully away from any walking areas.
• Turn off the inside valves to any outside faucets.  Drain them down and remind the tenants to not use them until spring.  Remove the hoses from the faucets, blow the water out of them if possible, and put into storage.
• Trim shrubs and cut the grass one last time.  Remember now is also a great time to plant new shrubs and grass (and those items are generally on clearance at the hardware store).

These easy items can be done now at your leisure over the course of the next couple week.  They should save you having to go out to light a furnace on the first cold night of the fall or having a frozen outside spicket.

Financing Your Flip

Assuming you don’t have a pile of cash under your mattress to buy that house to flip, you will need to get it somewhere. These are the most common ways to finance your flip:

Hard money lender-These are individuals in the market that finance investors/rehabbers for short periods of time (less than 1 year and [...]

Assuming you don’t have a pile of cash under your mattress to buy that house to flip, you will need to get it somewhere. These are the most common ways to finance your flip:

1. Hard money lender-These are individuals in the market that finance investors/rehabbers for short periods of time (less than 1 year and typically for 6 months) for higher than bank’s interest rates or a large percentage of the flipping profit. They will generally take a creditor position against the property to protect their investment. Your closing costs will be lower as their is no bank involved to charge fees. If you chose to hold the property, you will replace the hard money lender with a traditional mortgage.  They can also make a great advisor for your first house flip.
2. Construction loan-This is generally the best was to finance your flip to secure as you should be able to borrow not only the initial purchase amount, but much of the rehab costs also. Often you will need to contribute 5-10% of your own money and can then borrow 80-90% of the repaired value of the property. This method is typically easy to convert to traditional financing if you chose to hold the property. The initial construction loan also traditionally has lower closing costs.
3. Traditional loan with flipper infusing cash-Many first-time flippers will make the mistake of using a traditional financing product to purchase the property. They will then spend their own money to fix up the house, waiting till it sells to recoup their cash investment. This method requires the flipper to have all the necessary funds available up front to not only rehab the property but to also hold it during the sales process. Then, if you decide to hold the property, you will no choice but to refinance to pull your cash out to continue doing other flips.

There are many other complex and interesting ways to finance your flip which are beyond a short blog post, such as: self-directed IRAs, credit cards (yes, many people do it!), limited partnerships, and borrowing against the cash value of your life insurance.

Researching your different options for financing your flip in advance will make this process much smoother and should help you put more money in your pocket.