The Case for Investing in Low-Middle Income Rentals

Since the collapse in the housing market almost 10 years ago, we’ve seen a steady increase in the demand for rental properties. Here are some startling facts:

  • In this time frame, the number of rental units has soared from 34 million to 43 million, in 2015. By 2025, it’s expected to top 46 million.
  • The largest percent of that growth — 80%! — has come from the conversion of single family homes into rental properties.
  • Demand has grown in all income ranges, but particularly in households earning less than $100,000/year.
  • Because of the rising demand, rents are going up, while incomes are not keeping up. Renters are spending a larger percentage of their take-home pay toward their rent payments than ever before. But even so, we’re expecting continued growth in our rental markets throughout the US.

With no end in sight for the continuing demand on rental properties, investors are diversifying their portfolios and putting their monies in real estate. Indianapolis is a very desirable rental market; our economy is growing, yet our prices are reasonable compared to the rest of the country.  We have investors from all over the world who’ve decided this is the place to be … especially in the low/middle income markets, there are still great returns to be made.

Onward and upward!

 

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Renters and Social Media

Many employers today turn to Facebook, Instagram. LinkedIn, and Twitter to get the “inside scoop” on applicants. Those social media sites provide a broader view of a person than the bare facts of job history/performance.

Property managers also go to those sites to learn more about potential renters. Facebook, for example, can verify some of the info contained on the rental application. These sites also can provide insight into they type of renter the applicant might be: are there pets not reported on the application? Is the person into throwing wild parties? Are there other lifestyle concerns?

It’s important to know that if you choose to use these sites to help you in your tenant selection, you must use them equally with all applicants, so that you’re not in violation of Fair Housing laws. And another thought — can you be fair about your opinions after you’ve checked out someone on FB or Instagram? It’s very possible their taste/opinions/political or religious beliefs may be drastically different than yours. That doesn’t mean they wouldn’t be fantastic tenants. You have to remain neutral if you decide to use these extra means of screening. If you can’t, maybe just stick with the written application!

I’m pretty open-minded, so I’m going to start using social media as an additional screening tool, if the applicants’ accounts are public. Better screening can help me find better tenants, and I’m all for that!

Onward and upward … 😌

Indianapolis Tops Another List

I came across this Zillow article today and was pleasantly surprised. Yes, we know our rental market is strong and will continue to flourish. But for many would-be homeowner/investors who’d like to rent their homes, they find the costs associated with owning that house aren’t covered by the rental income they receive. This is especially true on the east and west coasts, and in many larger cities. But not so with Indy! Here’s the article:

Return on Rent: In Most Major Markets, Most Homes Can Be Rented Out For A Profit – Zillow Research

As this article shows, more than 98% of homes here can be rented out for more than their monthly expenses, i.e. mortgage payment, insurance, taxes, maintenance, major improvements, etc. So, more and more homeowners are considering jumping into the world of real estate investing. And, what better time than NOW?

Onward and upward ……  🙂

 

Best Sealer/Primer

I’ve tried them all … from Kilz to Zinsser. Most of them are too thin, even the oil-based ones. I stumbled upon the best one ever, made by PPG. I have an account there, and I love their Hi-Hide brand of interior paint. I had a major “issue” to take care of at one of my rentals, as seen here: my tenants decided to have a painting extravaganza (unbeknownst to me), with these horrifying results.

(Don’t ask me what that red thing in the corner is — I have no idea.) Anyway, the PPG rep suggested I try their Seal Grip Universal Primer/Sealer. They even tinted it to match the color I was going to use in the rooms. It’s water base and doesn’t have that annoying toxic smell that some do, so I was happy to give it a try. I’M SOLD. It’s nice and thick and only required one coat before moving on to my normal paint color. Here’s what it looks like:

The house is back on track and ready to rent, and I’ve discovered another great product to add to my long list of “faves” I share with my readers!

😎 Onward and upward ….

Delightful Aussies

These two brothers contacted me a few months ago, through a site called Bigger Pockets, which is a huge networkiing site for real estate investors everywhere.

They had searched out several attractive cities here in the US, all of which have strong rental markets. Indianapolis won out. We emailed back and forth quite a bit, they read my book, and then flew over and spent about 10 days here with me, checking out homes and neighborhoods. Both of them hope to purchase up to 20 rental homes here. They’re back home now, and are trusting me to take it from here. I appreciate the trust they’ve placed in me, and I intend to find them some “gems” that will provide steady income and long term investment for years to come.

They’re enjoying some loaded cheese fries at Outback Steakhouse in the picture … LOL! They found most of us to be kind and helpful — thankfully — and they couldn’t believe how green everything here was. One person did ask them what language they speak in Australia. (OMG.)

They’ve bought one property, and lost a few — I’ve continued to look, and have put in offers for them, and the difference in time zones has duped us a couple times. They’re 14 hours ahead and it’s a bit difficult to jump on a great deal if they’re asleep. But considering the fact a 1500 square ft. home over there in Brisbane sells for around 400-500K, they’re pretty thrilled with our prices. The Aussie dollar is a bit weak against the American dollar right now, but they can still make it work.

I love their “buy and hold” strategy, as that was my goal when I started investing  23 years ago. I’m so excited to be part of their journey, and I look forward to growing their investment portfolio. Welcome, “mates!”

 

Major Fail

I do my best on the screening side with my tenants. For my low-income demographic, I don’t run credit checks; many of them either have no credit, or poor credit. But this doesn’t necessarily disqualify them. If someone has a solid job history, a good recommendation from their prior landlord, I generally give them a chance. And I, of course, do apartment checks, to ensure they’re taking care of the place.

But things don’t always work out. I did my first walk through on these people about three weeks after they moved in, and I was NOT pleased. I warned them, in writing, that the situation needed to improve fast, but — fortunately — they neglected to pay rent the following pay period, so I immediately filed eviction. (Here in Indianapolis, the court date is two weeks after filing, and the judge orders them out five days after the court date.)

So, in that three week period, things deteriorated further and the video above shows  what I faced after they moved out. Luckily, this doesn’t happen very often! But when it does, I get to work right away … no tenant = no income. This place was up and running within a week, and my new tenant has been delightful.

Onward and upward!  🙂

 

When That “Friend” or “Cousin” Stays Too Long

We landlords can’t be policing our rentals 24/7. Sometimes our tenants invite unauthorized   people to share the apartment with them, and we have no idea this has happened. Often, the tenant explains it away by telling you, “Oh, they’re just my cousins, visiting me from Chicago for a few days.” And you have no way of knowing the truth …

That extra person — or persons — may have a criminal record, may have no job, may bring other undesirable cronies into the area. Unless the neighbors call you to complain, you may not find out about the situation until something devastating occurs and you get the dreaded phone call at 2 AM.

So, how can we landlords/property managers prevent this? How can we keep a 4-tenant household from growing to 8 or 10 without our knowledge? Here are a few tips:

  • Do a good job of screening your applicants. If your demographic is lower end, you may not be able to do thorough credit checks. But you can certainly do criminal background checks. I use a local site here in Indianapolis, at no cost.
  • On your lease, make sure you have language stating something to this effect: “Only the following people are to live here…” And list their names and ages, including children. The lease protects you and limits them.
  • Also in your lease, include a “Usage” clause, limiting visits to 14 days, and once every 6 months. I also state that no business may be run out of the home.
  • Do apartment checks! If you see unfamiliar faces, ask questions. And then, do a recheck later to make sure those faces are gone!
  • Create good relationships with your neighbors. My neighbors know I’m a dedicated landlord who wants to run a tight ship and take good care of  my homes. I make sure they have my business card, and I encourage them to give me a call if they have any concerns about activities going on at my rentals.

Protect yourself, preserve your investment … use your lease and occasional checks to make sure you don’t have uninvited “guests” camping out for free!

Rental Property Myths

When people ask me about owning and managing my Indianapolis rental properties, I get the same questions/comments again and again. Here are the most frequent  myths I respond to:

  • “I’ll bet you’re always getting calls in the middle of the night!”  No, in my 21+ years of doing this, it’s rarely happened. Yes, I’ve received calls on the weekend and/or in the evening, if someone has an emergency, like if a furnace goes out. But fortunately, I have my trusted contractors to call, and they can take it from there. I’m not making trips to my rentals on those calls. And if it’s something minor (which it sometimes is) I have them wait until the next working day.
  • “Don’t you get tired of your tenants totally trashing the places?”  Well, I’ve had tenants leave trash behind after a move-out, for sure. When I’ve evicted a person, sometimes they take what they need, and leave the rest. This happens more often in the lower economic demographic. But as far as vandalizing/destroying the apartment, out of anger or resentment, no. If you treat your tenants with respect, this doesn’t occur.
  • “I’ll bet you’re making a ton of money!”   Uh, no … When you buy rental properties, you’re buying for income, yes, but also for long-term investment. It’s not a “get rich quick” proposition. If you’re buying with a loan, you want to make sure your rent will cover more than your loan payment and other expenses (i.e. taxes, insurance, utilities, etc.). You can make a “ton of money” if you buy a ton of rentals, for sure. But the commercials you see on TV are totally exaggerated! Don’t buy into that crap!
  • “You’re a slave to those properties…you don’t have a life of your own!”  That depends on a couple things: if you fix them up well in the first place, you shouldn’t have many major repair issues going forward. And also, you have the option of hiring out the management if you don’t have the desire, personality or time to do it yourself. The cost per month is usually 8-10%/monthly rent, plus a percent of the first month’s rent. But beware — good, honest property management is hard to find.

So there you have the comments/questions I get most often — all myths. This business is intricate, demanding, frustrating, and very rewarding. I don’t regret beginning my journey all those years ago, and I do my best to educate others before they jump in. It isn’t for everyone, but for many, it can be part of a smart, long-term investment strategy.

Onward and upward!  :-))

 

Be a Happier (Business) Person

The National Association of Realtors publishes a pretty cool magazine, and I get weekly emails from them, with featured articles of interest to Realtors. This one struck me, because it applied not just to business, but to everyday life as well. The article cited six tips to being happier in general. Here it is:

1) Stay positive.

“Bad things happen to everyone, including happy people,” writes Travis Bradberry, co-writer of “Emotional Intelligence 2.0” and co-founder of TalentSmart. “Instead of complaining about how things could have been or should have been, happy people reflect on everything they’re grateful for.” Happy people tend to find the best solution to a problem and then move on, refusing to dwell on negative events.

2) Surround yourself with the right people.

You’ll build confidence and stimulate creativity by surrounding yourself with other upbeat people. Negative people, on the other hand, can zap away your energy.

3) Exercise more.

Even moving for as little as 10 minutes can help release a neurotransmitter that helps soothe your brain and keep you in control over your impulses. Schedule regular exercise into your daily life.

4) Slow down.

Don’t be so caught up in a routine that you forget to appreciate the little things in life. Enjoy a conversation or take a step outside to enjoy a fresh breath of air.

5) Have deep conversations.

Avoid gossip, small talk, and judging others. Have meaningful interactions by engaging with others on a deeper level and seek to build an emotional connection, Bradberry writes.

6) Help others.

Employees who helped others were 10 times more likely to be focused at work and 40 percent more likely to get a promotion, according to a study conducted by Harvard University. Those helping employees also were more likely to be happy during stressful times. “As long as you make certain that you aren’t overcommitting yourself, helping others is sure to have a positive influence on your mood,”

Sound advice … onward and upward!  :-))

Another Great Tool

 

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One of my contractors showed me this recent addition to his “bag of tricks” and I immediately ordered one for myself, after checking reviews. When I list a home for sale, I often measure the rooms using a bulky 25′ steel tape measure. It’s accurate but rather time-consuming.

This Bosch digital device is lightweight and super easy to use. All you do is butt the back of it up to one wall, and press the arrow toward the opposite wall. When the red laser beam appears, the readout on the device gives you an exact measurement (i.e. 12’10”). It even gives you fractions of inches where needed. Then, take it to the other wall, without clearing out the first number, and press the arrow again, and you’ll have your total room size, i.e. 12’10” x 14’11 7/8″. It measures to 32nds, and up to 120 ft. So quick, so easy. Takes the hassle out of measurements of all kinds, including ceiling height, volume and area.

I bought mine on Amazon for about $79…money well spent!