Leasing
Fair Market Rent Evaluation
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In my post “I Know You Have Questions“, I asked the readers of my site to send me questions or topics that they are just dying to ask or are confronted with often. John Gall asked: “Aside from watching asking prices for rents on places like Craig’s list is there a good way to determine the fair market value in a given city or area for a property?” Here are my thoughts:
First off, I encourage every new investor to pick an area or neighborhood and buy your initial cluster of properties there. This will help you become intimately familiar with the area including: problem buildings, rent amounts, neighborhood snoops (these are the little old ladies that know everything about everyone’s business), and possible other real estate opportunities.
If you are looking at a new area to expand/buy into, I recommend the following tactics to further confirm fair market value rents:
- Drive around the area and call on every red and white “For Rent” sign you see. I understand this is simply the asking price for rent, but if you call on 10-20 of them, you should get a pretty good median rent amount to use for each bedroom count.
- If there are larger apartment complexes (greater than 10 units) in the area, call and book an appointment to see their units. Depending upon the age and condition of the apartments (compared to what you are looking at), these larger buildings will either be competition (they are the same age and condition as yours) or they are the upper price point for rentals in your area (they are newer in age and better condition).
- I have a couple of investor friends that use Section 8 rental amounts as their method to analyze rents. I am not convinced this is a great tool to find rental amounts as Section 8 pays the same rent in South Minneapolis as in North Minneapolis. The market rents in South Minneapolis tend to be 10-20% higher as the properties tend to be different than in North.
- Network with other investors that own property in the area. Most are willing to give out this information to a fellow investor. Depending upon what area you are interested in, I may own property there or know someone that does. Drop me a line and I would be happy to give you my opinion.
- If you are working with a Minnesota Realtor, he can use the MLS to research the rent amounts listed on the rental properties for sale in that area. Again, you should review 10-20 rentals and use the median amount as often the MLS data can be wrong.
- Once you find a property that you are interested in, prior to submitting a purchase agreement, you should ask for copies of the signed leases from the seller. Not only will this confirm the rent amount, it will give you other valuable information including lease expirations, lease terms, and the amount of the damage deposits.
- One more data point that can be helpful is stopping by the local coffee shop or any place that has a bulletin board that people can post items on. Look for “For Rent” ads.
- In Minnesota, there are several free newspapers that have cheap classified advertising and often people will use those as an alternative place to advertise their rentals.
Using these eight sources in a systematic way should allow you to quickly get a good feel for the fair market value rent in the area. The final rent amount you put on the apartment will vary slightly depending upon condition, street location, location in the building, as well as amenities (washer dryer, hardwood floors, air conditioning, landlord-paid heat). Even the time of year that you are leasing can change the rent amount slightly.
Lastly, leasing is very similar to selling houses. If you are not getting any calls on your rental advertising, your price (rent) is too high. If you are getting showings, but no one is filling out a rental application, the location or condition of the unit may be scaring your prospects away. Keep adjusting your rent until you find the sweet spot that prospective tenants are willing to pay.
Scott Ficek is a Realtor with Keller Williams Integrity in Minneapolis and helps new and seasoned investors buy and own investment property in Minnesota. He owns and manages almost 30 investment property units from single family to multi-family. Find his website at www.minnesotainvestmentrealestate.com or receive his blog via your RSS Feed or in your Email.
Scam: International Renters
Some of you may have heard about this before, but I thought it was worth repeating to get the word out. I suppose it is like that old saying: that if I save one person from this scam it was worth it!
Here is how it goes: you are advertising your rental on-line, such as on Craig’s List. You [...]
Some of you may have heard about this before, but I thought it was worth repeating to get the word out. I suppose it is like that old saying: that if I save one person from this scam it was worth it!
Here is how it goes: you are advertising your rental on-line, such as on Craig’s List. You get a response from someone interested in your apartment. They probably use incorrect grammar, but you overlook it. The email is not spam as they will respond to any messages you send them. They ask for pictures and some other details to make their requests seem credible and build your excitement.
Eventually, they will tell you that they are located out of state or out of the country and that they will take the apartment site unseen as they trust you (again a ploy to make you feel good). They offer to pay the first month’s rent and deposit (possibly first two months up-front). The scam artist will tell you that they are going to send you a cashier’s check for several thousand dollars more is needed and for you to wire the money back to them.
If you were to take the bait, you would receive a cashier’s check that looks official. You deposit the check in your bank account and wire the difference to some distant place. Two weeks later your bank calls and tells you that the cashier’s check you deposited was fake. You are now out the money you wired to them!
Craig’s list has posted some samples of the common scam letters. See it here. Remember to screen your tenants and trust your instincts.
Scott Ficek is a Realtor with Keller Williams Integrity in Minneapolis and helps new and seasoned investors buy and own investment property in Minnesota. He owns and manages almost 30 investment property units from single family to multi-family. Find his website at www.minnesotainvestmentrealestate.com or receive his blog via your RSS Feed or in your Email.
Expiring Your Leases
Even though I own a lot of investment real estate, I had never put much thought into when my leases expire. I focused on not having multiple leases in the same building expire at the same time and, whenever possible, never expiring a lease between November and February. With these safeguards in place, I thought [...]
Even though I own a lot of investment real estate, I had never put much thought into when my leases expire. I focused on not having multiple leases in the same building expire at the same time and, whenever possible, never expiring a lease between November and February. With these safeguards in place, I thought I could cut down on multiple vacancies at the same time. What I found out was that I still have to worry about advertising, showings and my upcoming vacancies almost every month.
The old saying is true - you really do learn something new every day. This week I met two longtime investors who have most or all of their leases expire May 31st. They had some very good reasons:
- You only need to work on leasing at one concentrated time per year.
- Your advertising dollars go further, as you can place general ads in the newspaper. Because you have multiple units to show, you can accommodate almost any prospective tenant.
- By setting your lease renewal dates in the spring (preferably June 1), you’re targeting the strongest time of the year to lease your properties.
- Your existing tenants may have more options if they wish to move to another apartment in one of your other properties.
To begin the lease consolidation process, change the expiration dates to line up with May 31st as your renewals come up. There is no law that all leases must be 12 months long (with the possible exception of Section 8 tenants), so why not a 17 month lease? Longer is better for both you and your tenants. All the tenants I talk to don’t really care how long the lease is when you tell them it is locking their rent for the term!
The process to move your leases to June 1st start dates may take a year or more, which works out fine for me because I can’t physically work on all my properties at the same time. In the event that more than a few existing tenants do not renew, I plan to make some of my leases expire in May, some in June and some in July, which allows me time to work on each unit.
Scott Ficek is a Realtor with Keller Williams Integrity in Minneapolis and helps new and seasoned investors buy and own investment property in Minnesota. He owns and manages almost 30 investment property units from single family to multi-family. Find his website at www.minnesotainvestmentrealestate.com or receive his blog via your RSS Feed or in your Email.
My $2000 Tenant Screening Mistake-A Happy Ending
At the end of October, I wrote a post about how I cut a corner in my tenant screening process and that mistake was probably going to cost me $2000 in lost rent and/or advertising/placement fees. You can read the full article here, but in summary I failed to connect with the prospective tenant’s Section [...]
At the end of October, I wrote a post about how I cut a corner in my tenant screening process and that mistake was probably going to cost me $2000 in lost rent and/or advertising/placement fees. You can read the full article here, but in summary I failed to connect with the prospective tenant’s Section 8 coordinator on the phone. If I had, I would have learned that the prospective tenant’s voucher had been changed from three bedrooms to two bedrooms. Consequently, she could now not afford the apartment and had to move out 3 weeks after she moved in. I was left with 1 week to rent a 3 bedroom apartment for $1000 per month at one of the tougher times of the year (November).
Quickly I put my standard advertising plan into action including posting the apartment on Craig’s List, taking out an ad in the Star Tribune, putting a sign in the yard, and even reverse prospecting on Craig’s List. I then took extra steps including: calling my current tenants and offering them an incentive to refer a new tenant, agreeing to pay a leasing company the first month’s rent to find a tenant, and posting signs at some of my other buildings that are on busy roads.
All this activity did produce some showings and some no shows. I quickly had two roommates ready to sign a lease, but because I had learned my lesson, I quizzed them hard only to find out that they did not have the security deposit and were hoping to get the first month’s rent from emergency assistance. I explained that having both the security deposit and first month’s rent was a requirement to signing the lease and that I would rent the apartment to the first party that had those and an approved application.
A friend of mine (who owns about 60 rental units) called and said he had an extra tenant that he did not have an apartment for. We set up a time to show her the apartment the next day. The prospective tenant arrive early, she walked through the apartment and liked the updates that we recently did. I quizzed her looking for any red flags and she filled out an application on the spot.
I processed her application and signed a lease with her 2 days later, on October 30. She went to emergency assistance with the new lease the next day, the coordinator called when while the tenant was in her office and confirmed they would pay her security deposit and first month’s rent. I met the tenant and gave her the keys on the November 1.
Despite costing me some money to run the ad in the Star Tribune and beating myself up for my mistake, the situation worked out. In fact, I leased the apartment for $50 more per month to this new tenant than the 3 week tenant. It is a happy ending!
Scott Ficek is a Realtor with Keller Williams Integrity in Minneapolis and helps new and seasoned investors buy and own investment property in Minnesota. He owns and manages almost 30 investment property units from single family to multi-family. Find his website at www.minnesotainvestmentrealestate.com or receive his blog via your RSS Feed or in your Email.
My $2000 Tenant Screening Mistake
**Update 10/29/07*** After you read this part 1, read about the Happy Ending***
I have been leasing apartments for some time and like to think I know what I am doing. Last week I even wrote about screening tenants. I own a large number of rental properties in Minneapolis and other suburbs.
My goal in [...]
**Update 10/29/07*** After you read this part 1, read about the Happy Ending***
I have been leasing apartments for some time and like to think I know what I am doing. Last week I even wrote about screening tenants. I own a large number of rental properties in Minneapolis and other suburbs.
My goal in making the confession below is that even with years or experience, we all make mistakes. We must learn from them to be successful. Many newer investors get down on themselves when they screw up. In fact, some of those mistakes actually turn newer landlords sour on the prospect of continuing to own investment properties or to buy more. Hopefully you can learn from my recent mistake and continue to be successful!
I pride myself on being detailed oriented and never making mistakes, but I am quick (and humble) to admit when I make one. Here is my confession: “I cut a corner and didn’t follow my own advice in doing my tenant screening and now it is going to cost me probably $1000-$2000 in lost rent and advertising/placement fees”.
Here is the story:
A tenant in one of my 3 bedroom apartments decided not to renew her lease. I have been leasing apartments for years and I have a standard way of advertising them: I put out my standard sign, put an ad in the paper and in Craig’s List. I had some showings, but no one was very interested as this apartment had not been renovated in several years and it showed poorly.
I received a call from a woman interested in seeing the apartment, about 10 days prior to the current tenant moving out. We set the time for the next day, she arrived promptly, I showed her the apartment, I asked her all my questions looking for Red Flags, she said she liked it and filled out a rental application. When we met, she said she had a 3 bedroom voucher from Section 8. I have worked with Section 8 tenants (and coordinators) for years so I am happy to have a new tenant with Section 8.
I processed her application that night and everything was within my guidelines. The next day I spoke to her current landlord, where she had lived for 4 years, who gave her a good review. I then spoke to her boss, at the job she held for little over 3 years, and he was happy with her work and said she was a good employee. I called her Section 8 coordinator and left a message.
The prospective tenant and I met on the 27th to sign the lease. She brought the Section 8 paperwork and said she would fax it into her coordinator immediately. Section 8 is traditionally very slow, in Minneapolis, to respond so I know it will be 2-3 weeks before the paperwork is processed and didn’t think anything more about it. She gave me her deposit, moved in and everything is great.
On the 18th, I receive a call from my new tenants Section 8 coordinator. I am expecting the coordinator to go through the standard questions and ask me where I want the check sent. Unfortunately, she begins to tell me that my new tenant no longer qualifies for a 3 bedroom voucher (she now has a 2 bedroom voucher) and can only pay $835 per month (this is $165 less than the monthly rent). If you don’t know anything about Section 8, the tenants can only pay a percentage of their monthly income to rent. They are not allowed to go over that even if they wanted to. Even if my tenant had an extra $165 per month from whatever source, Section 8 would not allow her to rent this apartment and I will not take money “under the table”. According to the coordinator, the only solution was for the tenant to move out immediately.
Consequently, the tenant must move out of the apartment only 30 days after moving in. I now have 2 weeks to rent a 3 bedroom apartment in the more difficult time of year. In addition to putting my standard advertising process into action, I called a friend that owns a property management company and gave him the chance to fill it. The advertising/placement could cost me as little as $164 for the ads to as much as $1000 for the placement fee (one month’s rent). If I can’t fill it by the 1st of the month, I could also lose that month’s rent ($1000).
Because I cut a corner and did not follow up with the coordinator PRIOR to renting the apartment, this mistake could cost me up to $2000. Understand that I am not telling you this story to frighten you off from owning investment property or think poorly of me. It is simply an example of why you must always follow your guidelines, whether for tenant screening, rent collection, or any other procedure you use when owning investment property. This will help you from having to learn expensive mistakes!
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 family to multi-family. Find his website at www.minnesotainvestmentrealestate.com or get his blog via your RSS Feed or in your Email.
Reverse Prospecting for Tenants
Hopefully, as a landlord, you are already using Craig’s List to find new tenants. This is a free and powerful tool to quickly advertise your apartment openings. I have good success for most of my properties using Craig’s List, but depending upon the area the apartment is in or the time of year, I may have to [...]
Hopefully, as a landlord, you are already using Craig’s List to find new tenants. This is a free and powerful tool to quickly advertise your apartment openings. I have good success for most of my properties using Craig’s List, but depending upon the area the apartment is i
n or the time of year, I may have to take an additional step that I call: Reverse Prospecting for Tenants on Craig’s List.
As you know, on Craig’s List, there is the section that you post available apartments in, but have you ever looked in the section labelled “Housing Wanted”? There are 1000’s of entries in this section and with probably 20-50 being added every day. All these people are looking for places to live, but most people will post something on Craig’s List and only come back once per week. Why not do some simple searches on this list and see if anyone may be looking for what you have available and contact them?
To do Reverse Prospecting, go to the “Housing Wanted” section of Craig’s List. In the header section, there is a search area. Type in the city in which you have an apartment opening. If the initial search of the city name does not turn up any leads, try neighborhood names and try adjacent cities/neighborhoods. Read each one of the results. If any are close to what you are offering, click on their “Reply to” address and send them a quick email that says something like this:
Hi. I found your ad posted on Craig’s List in the Housing Wanted section. I have a 3 bedroom apartment in Minneapolis with large bedrooms, a new kitchen, garage, and washer/dryer. The rent is $1100 and it is available November 1. Here is the link for the apartment: http://minneapolis.craigslist.org/sha/453132627.html
Are you still looking for a place? If so, please reply to this email and we can discuss it further.
You will be surprised how many people will at least reply to you (positive or negative). You will be further surprised how many prospective tenants you can pick up this way. Give it a try the next time you are striking out on finding a new tenant.
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 family to multi-family. Find his website at www.minnesotainvestmentrealestate.com or get his blog via your RSS Feed or in your Email.
