Hot and Cold …

An interesting issue arose at one of my duplexes last week.  Brian, my tenant on the north side, called and said he had no heat.  It was freezing in his side of the house.  I texted Courtney, who lives on the other side, and asked if the heat was working.  She was at work, but texted back, “Yes.”

The heat isn’t metered separately there and the thermostat is on Courtney’s side.  There’s no dial, just an On/Off switch.  When the temperature dips below 72 (very kind of me, I must say!) the furnace kicks on automatically.

So I was perplexed about this issue and had my handyman Craig stop by to check and see what was going on.  First, he went into Brian’s half of the house and yes, it was cold in there.  So he let himself into Courtney’s side and it was toasty warm in there.  One short look around told him why:

1) She had a space heater running in the living room.

2) She had ALL FOUR burners of her stove turned on high, in the kitchen.

The thermostat was in the dining room, which was in between the living room and kitchen, so with all that heat radiating from those extra sources, it was HOT in there!  Of course, the furnace wasn’t kicking on at all.  Courtney’s side of the house was very warm and Brian was freezing.  Horrible!

I had Craig turn off the stove and space heater — talk about fire hazards! — and immediately texted Courtney and had her call me.  Needless to say, I had a corrective interview with her.  I’d told my tenants not to use their stoves as heat sources.  And yes, space heaters today are greatly improved, but should never be used when no one is home.  I told her as much, and said she could only use it upstairs in the bedrooms, so that it wouldn’t screw up the thermostat.

Hopefully, she understood, and none of this will happen again.  I may have to pop in and check on that … she could’ve burned the house down!  Sheesh!

Onward and upward …

Krud Kutter to the Rescue

As a landlord, I come across some nasty cleaning challenges, and I’m always on the lookout for excellent products to use at my rentals and in my own home as well. I’ve talked about Krud Kutter before but I continue to be amazed by this product.

Another case in point:

I was at one of my rentals last week and was faced with a filthy kitchen floor, covered with a few layers of dirt, grease, and a couple of bright green splatters of unknown origin.  When I reached for my bottle of Krud Kutter Original Cleaner/Degreaser, I realized — much to my dismay — it was nearly empty.

I use that formula on almost everything in my rentals and my personal home … floors, appliances, counter tops, bathroom sinks, tubs, toilets … everything!  I was NOT happy to be without it in this situation, but then I realized I had a container of Krud Kutter Power Wash Concentrate in my car.

I’d just washed the exterior of one of my homes and still had the cleaner with me.  So I decided to use it on this kitchen floor.  Why not?  I filled the kitchen sink with hot water and mixed in about 1/2 cup of the cleaner, spread a section of the vinyl floor with it, allowed it to sit for a few minutes and wiped it up.  NO scrubbing needed!

Amazing.  Even the mystery bright green splatter came up … no problem.  If you don’t have Krud Kutter in your cabinet, it’s time to add it to your shopping list.  You can find it at Walmart and all of the home improvement stores.

It’s one of the best cleaning products out there … I’m all about making my cleaning projects as short as possible … I buy it by the gallon and just refill my spray bottle as needed.

So, do youself a favor and get yourslf some Krud Kutter.  It’ll make your life easeir!

 

Landlord Intervention

For those of you interested in rentals, I wanted to let you know about a new book recently released, titled Landlord Intervention: How to Acquire and Manage Rental Property, available (paperback) on Amazon: http://www.amazon.com/gp/product/0615643213/ref=as_li_ss_tl?ie=UTF8&tag=therefofath-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=0615643213

and also on Kindle: http://www.amazon.com/gp/product/B008KA0TDA/ref=as_li_ss_tl?ie=UTF8&tag=therefofath-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=B008KA0TDA

It’s written in a straightforward style by a no-nonsense guy, Joseph Brown.  He lives and works in PA but the material in his book is pertinent to investors across the country.  He’s been in the business for over 25 years and knows all the ins and outs, ups and downs.    He’s “been there,” and tells it like it is.

I’m very picky when it comes to books written about owning/managing rentals.  I decided to write The Landlord Chronicles: Investing in Low and Middle Income Rentals because I hadn’t found any books that would educate people about all the facets of this business without boring them to death by the second chapter.

Landlord Intervention succeeds in holding your attention and educating you at the same time.  Well done!   Brown takes the reader through the entire process … buying managing, exit strategies, pitfalls, etc.   I was impressed enough that when I was asked to write the foreword for this book, I gladly agreed.  If you want to explore the idea of investing in rentals, pick up a copy of this book — oh, and maybe a copy of mine as well — you’ll be glad you did!

Now is the Time . . .

The beat goes on . . . people are losing their homes by thousands and there’s no end in sight.  Back in 2005, life was good — so good that families who had no business buying a home were given the opportunity to do just that.  Life was good.  Brokers offered these wonderful little deals, whereby they could get into their dream home and pay a nice affordable mortgage payment, say $800/month.  Sounded great.  They bought into the idea, knowing full well that these adjustable rate mortgages (ARMs) would jump in three years.  No problem? 

Well, when their mortgage payment went from $800 to $1400 or higher the reality hit home for these individuals.  They couldn’t pay the new rate, and here we are.  All those garbage loans are worthless now and millions of families across the nation have lost their dream homes.  They’re being forced into rentals, which is a perk for those of us who are in the business, or are contemplating getting into the business.  Now is the time!

In 2008, there were 2.3 million foreclosures, in 2009 that number jumped to 2.8 million.  According to RealtyTrac, a huge foreclosure sales website, the trend will continue through 2010, 2011 and into 2012.

The government is putting out stats that indicate there’s been an increase in new residential building starts, but upon closer examination you’ll find they’re predominantly in multi-family dwellings (apartments).  Many of the families who’ve lost their homes can still afford to pay rent and would rather live in a single family house, not an apartment.

When I began my real estate investing career 15 years ago, my research showed that duplexes gave me a better return on my investment than single family homes, so I bought only multi-family housing.  However, with the glut of foreclosures on the market now and in the foreseeable future, prices are very low and that margin has narrowed.  I’ve been buying single family houses recently because of the great deals out there right now.  This 3-bedroom home below is a good example.  I got it for $25K and only had to put 5K in it to get it in rentable condition. 

It has central air, a two car garage and needed mainly cosmetics to get it up and running.  Before purchasing it, I checked out what kind of return I could get on the investment.  I filled out the table (Diamond or Dud) contained in my book, The Landlord Chronicles: Investing in Low and Middle Income Rentals and found I’d be making 12% on this purchase.  Beats the hell out of the stock market, right?  Here’s a picture of the kitchen, which only required cleaning.

So whereas multi-family rentals used to surpass the single family homes as investments, this is no longer the case.  If you buy them right, single family homes can be great money makers as well.

Now is the time to invest in rentals.  This downturn represents tremendous oportunity for the smart investor.  Banks are being stingy with loans right now, but if you have decent credit and a good relationship with a bank, you shoud be good to go.  They’ll require about 20% on an investment property and the interest rate will be a couple points higher, but it can be done. 

Now is the time . . . educate yourself, trust yourself and go for it!

Now is the Time When Fortunes Can Be Made…

Yeah, I’ll bet that title caught your eye!  But it’s absolutely true.  Consider this:

  • There were 2.8 million foreclosures in 2009, according to Realty Trac, the foreclosure sales web site.
  • There’s no sign that things are slowing down in 2010, and this trend will continue well into 2011, according to most forecasters.

What does this mean for you and me?  Opportunity, and tons of it!  Yes, now is the time when fortunes can be made.  Homeowners are losing their homes all over this country, and where are they going?  Into rental properties.  Apartment rental vacancies are down.  Investors like me are having no trouble filling their rental homes, particularly if they’re three or more bedrooms, perfect for a family.

So, if you have a little extra cash to invest (cash is king, of course) or if you have a good relationship with a bank, now is the time to invest in a nice rental property.  I just bought the home in the picture below.  It’s on a cul-de-sac, in a decent neighborhood/school district, and there were seven other offers on the table along with mine, so I had to put in my highest and best offer.  I purchased this house, knowing I’d need to put about $5000 into it.  But I also know, through zillow.com, that I bought it for about 1/3 of what the houses around it are worth.  Here’s the house:

It needs a little sprucing up, inside and out.  It was a foreclosure, and I guess the homeowners decided to take whatever they could, which included all the kitchen cabinets, bath sinks and vanities, the hot water heater…at least they left the toilets.  The carpets smelled terrible.  I think they had three or four dogs, according to the nieghbors.  This is the kitchen:

I should be done with it in a couple weeks.  Although I couldn’t flip this house (gee, I wonder what happened to that show?  It certainly isn’t timely anymore…..flipping is impossible in this environment) it will be a wonderful rental.  I’ll get a nice family in it, and probably make over 10% return on my investment each year.  I get that percent on all my rentals…….where can you get that kind of consistency in the stock market??

Although now isn’t the time to make a quick buck, now is the time when fortunes can be made.  Buy a home for long term investment, fix it up and rent it out, if you have the wherewithal to be a landlord.  You’ll make nice income while you own the house, and you’ll be building wealth while you’re earning that income.  When the real estate market recovers, you may decide to sell……take the money and run……or buy more rentals!  What a sweet deal, huh?

Finding that perfect tenant

Okay, so you’ve got your rental fixed up . . . repaired, cleaned, painted, etc.  When I first began this career, I advertised in the free local newpaper that comes out once a week, and I still do.  This is a great way to find tenants for your low and middle income rental properties.  With our changing economy, many people no longer subscribe to the city newspaper.  It’s too costly to buy.  And furthermore, after checking with my newspaper, I found it was too costly to advertise there, too. 

People are either picking up a copy of the free paper, or they’re looking for a rental through Craig’s List.  I also post my available properties there.

But before posting my ads in these two places, I leave a flyer in the mail boxes of my favorite tenants, letting them know the particulars of my empty unit(s).  I’ve found that networking with my excellent, responsible tenants is a great way to find more excellent tenants.

Another option for finding potential tenants is to visit some of the businesses that are close to your rentals.  What a nice perk it would be for those employeees to have the option of walking to work!  If you can, talk to the manager/supervisor of the facility and instill confidence in the type of landlord you are.  If you can establish a good relationship, maybe they will send people your way.  You could drop off flyers every time you have an empty unit.

Along that same line, post a flyer at the local grocery store, church or community center if you can. 

When you meet at the unit, sell it to the applicant if he/she is a great candidate!  Mention the good attributes of the house, neighborhood, and impress them with your own qualities as a landlord.  There are lots of slumlords out there, and you are not one of them!

Find out as much as you can about the applicant’s current situation, and have them fill out your application.  (I don’t charge a fee; this puts people off.)  Move quickly . . . there are other houses out there for rent, and if you’ve found a good candidate, then you need to close the deal if possible.  Good luck!

Is it a Wise Buy?

The  real estate market has been depressed for a few years now, and the prediction for 2010 is no different.   Foreclosures are still on the rise.  This situation offers tremendous opportunity for the smart investor.

Before you begin, you must decide between single or multi-family housing.  There are pros and cons to each, but for me, income production was the top priority so I chose the multi-family option.  You can buy either type for about the same price, regardless of where you live in the U.S.  But you’ll make  more money in rent from the duplex than a single family home.   The downside is that you’ll have two tenants to manage, and two separate apartments to fix up and maintain.  The trade-off  is more money in your pocket at the end of the day.

When I find a property that interests me, I thoroughly check it out and estimate what it will cost to get it “up and running.”  Before putting in an offer, I need to know it will provide a good return on the investment.  Years ago, I started using the following formula to help me in my decision. 

Diamond or Dud

All figures should be annual amounts

1)  Rental income                                                                                                             

      Subtract 5% for vacancies and uncollected rent                                          

2)  This total (rents minus 5%) is your net rent                                                   

3)  Deductible expenses:

       Repairs  (10% of rental income, #1)                                                                 

       Property taxes                                                                                                        

       Insurance                                                                                                                     

       Management fees                                                                                                      

       Utilities paid by you                                                                                                

Total                                                                                                                                      

4)  Net operating income before mortgage expense:

       Subtract #3 from #2                                                                                                

5)  Mortgage payment                                                                                                    

6)  Pre-tax cash flow:  subtract #5 from #4                                                           

7)  Property depreciation:

       What you paid for the building divided by 27.5 years                              

8)  Tax loss or gain:  subtract #7 from #6                                                              

9)  Tax loss or tax owed:  #8 multiplied by your tax bracket                            

10)  After-tax cash flow:  #6 plus or minus #9                                                      

11)  Cash-on-cash return:  #10 divided by cash invested (cost of

         building plus fixup)                                                                                                 

Before you invest in a property, fill out this worksheet to figure out if it’s worth buying.  Number 11 will give you the annual return you can expect on the cash you invest, once the property is in rentable condition.  If that number is above 10%, go for it.

A final word to the wise…..If you fall in love with a property and the numbers don’t work, walk on by!  You can’t make emotional decisions as an investor, and in this real estate climate, another opportunity is literally around the corner.

Finding the Right Balance Between Friend and Foe

Early on in my investing career, someone gave me an excellent piece of advice.  He was helping me rehab a 100-year old duplex that was sturdy but pretty rough inside.  This was the second duplex Joel had helped me turn into comfortable living quarters.  One day as we worked he asked me if my tenants knew that I’m the owner of these properties.  I told him yes.  He eyed my 105-lb. frame and said,

“You know, if I were you, I’d keep that to myself.  You’re a 5-ft. tall female, and you never know what desperate people can do when they’re backed into a corner.  When they’re behind in their rent and you’re evicting them…..wouldn’t it be better if they thought you were just the property manager?”

I blew him off at first, but acquiesced after thinking about it later.  Regardless of sex, it behooves you to play the role of  “middle-man” with your tenants.  You’re the go-between for them and the owner.  Many tenants automatically view the owner as the “wealthy land baron” who is out to rape them financially.  And yes, there ARE some slumlords out there who give the rest of us a bad name!  So, it’s best to keep your ownership a secret.  And if you have your properties in an LLC or other type of corporation, there’s no way your tenants can find out otherwise.

If you treat them with fairness and respect, your tenants will see you as someone who has their best interest at heart….someone who will go to bat for them with the “wealthy land baron” owner.  For example:

  • Paul, a lazy tenant whose girl friend worked two jobs after he got laid off, was seriously behind in his rent.  He didn’t have time to look  for work, because he was too busy drinking beer, playing video games and surfing porn sites on the computer. When I asked him about getting some work to help with the rent, he said, “I can’t work.  I have attention definite disorder.”  (What?)  He asked for more time and I told him I’d talk to “the owner” about it.  The owner said no, but at least I asked on his behalf.  He wasn’t furious with me.
  • Anika called at 9:30 one night to ask if she could paint her bathroom black.  I told her I’d call the owner and get back with her.  The owner said absolutely not, of course, but I told her to go ahead and buy black curtains, black rugs, a black shower curtain and black towels to create the ambiance she was looking for.
  • Tammy wanted to get a cat.  She’d been an excellent tenant for two years, and she’d had problems with mice.  I told her I’d talk to the owner and let her know.  Now, I don’t normally allow pets, but Tammy was a very clean person.  Her car and her house were spotless.  So in her case, I bent the rules.  I allowed the cat, after declawing, and haven’t regretted the decision.

In certain situations like the one above, telling your tenant you’ll talk to the owner gives you valuable time to reflect on their request.  Sometimes your snap decision isn’t always your best one, and telling them you’ll get back to them gives you the opportunity to consider various options.  Many times, I’ve come up with much better solutions during that time when I was talking things over with the owner!

In fifteen years, I’ve only felt physically threatened once as the property manager, and I think the person was mentally unbalanced and probably threatened lots of people in a variety of situations.  I wasn’t special.

I’ve never regretted the decision to keep my ownership private.  The camaraderie  between my tenants and me contributes to a good working relationship.  I’m careful not to let it drift into a friendship thing….there’s a fine line you mustn’t cross.  I care about my tenants and enjoy being their ally when I can.  And when they do bad stuff and the **** hits the fan and they need to leave, it’s the damn owner’s fault!