Archives for February 2023

11 Ways to Determine Rent for an Upcoming Vacancy

February 21, 2023 by Marco Santarelli

How to Determine Rent for an Upcoming Vacancy

The challenge of setting the appropriate rent price for a home that is currently unoccupied can be a hard one for landlords and property managers. Setting the rent too high can lead to longer vacancy periods and missed rental income while setting the rent too low can lead to less profit and underestimating the value of the property. On the one hand, setting the rent too high can lead to longer vacancy periods and missed rental income.

It is essential to have a strong awareness of the local rental market as well as the elements that influence rental prices in order to avoid these errors and make the most out of your income. In this piece, we will discuss several efficient methods for determining the rent for an upcoming vacancy, such as completing market research, studying the attributes of the property, and evaluating the level of competition in the market.

11 Ways to Determine Rent for an Upcoming Vacancy

1.) If the vacating tenant has been a long-term tenant, and you had a good relationship, simply ask him. I bet over the years he's followed the neighborhood and knows from friends and fellow renters. He can tell you if he thinks you should charge more or less. Feedback from your vacating residents should be ONE piece of the info you assemble to determine.

2.) The quickest way to figure out the market rent is to put your tenant's “shopping” hat on and start looking. I observe area rentals (signs, newspapers, etc.), see how they are priced, and watch to see how long they stay vacant. Many times, I'll even stop by to get up close to see the condition of the investment property. In every case, one that is priced right and sits for very long has “issues”.

3.) Another resource is a property manager with local rentals (and a website) who knows what they're doing. They make the most money by pricing at the top of the market and usually have little interest in discounting unless a property sits vacant for too long. I usually price mine 2% to 5% below their prices.

The caveat with property managers is that some have owners that force them to overprice. That happens fairly often, but it is usually pretty obvious.

4.) Be careful not to use an apartment as a comparable (“comp”) for a single-family home (or visa versa). Instead, I'd try to find another single-family home in the same neighborhood as your income property.

5.) Maybe, there aren't any single-family homes on the market to serve as comps. But, were there any in the past few months or years? Is there a way you could track those down by reviewing old newspapers or more importantly, your notes on what homes have been rented for?

6.) Check comps on www.craigslist.org.

7.) Do you feel that your current long-term tenant was paying the market rate when he moved in? I believe that a general guide to rental increase should be 3% to 5% per year. Use this amount as a starting point. (This rule of thumb may not apply in cities experiencing a large number of lay-offs.)

8.) Take a property manager to lunch. Maybe, if you said the right things in the right way over lunch, a property manager could give you her opinion — and maybe even back it up with some comps on properties she manages.

9.) A trick I have used is to always set the rent a little too high. If the phone does not ring with decent quality renters, I quickly lower it to $50 or $75, or so. If the phone starts ringing then, you can be pretty sure that you have the right amount.

If you find someone terrific and they tell you they would love your house but can only pay $50 less than what you're asking, you can always say yes. Be flexible and listen to market feedback.

10.) The key for me is not to wait until you get notice to vacate to begin your pricing research. Go through the rental ads from good sources weekly. That way you'll be on top of things when the time comes.

11.) Don't be overly concerned with the best rent amount. More importantly, keep turnover to a minimum. Lost time is more valuable than a slightly higher rental amount. This money can never be recouped. One lost month can cost more than leaving the rent too low.

Advertising, curb appeal, repairs, and even some paint can all be done during the current lease. It should only take a day or two maximum for cleaning and painting once they leave.

Play up the return of their deposit for super cleanliness at move-out. Remind your current tenant their lease ends August 31, not September 1. Your new lease should start September 1.

Bonus Tip: How to Build Value When Showing Rentals

When showing properties to prospective tenants, you must build value in the eyes of the prospect. Three ways you can build value are:

Building interest or excitement in the property,
Building trust in you, the landlord or property manager, and
Building a connection between the prospect and the property.

If you focus on each of these points, you WILL rent your property faster.

– – –

Known to thousands as “Mr. Landlord”, Jeffrey Taylor is the author of a dozen publications, books, and reports on various aspects of rental property management.

ROI in Real Estate: A Beginner’s Guide to Maximizing Returns

February 17, 2023 by Marco Santarelli

Real estate investment is a popular way for beginners to make money and build wealth. One important metric to consider when investing in real estate is the return on investment (ROI). How do you know if you are getting a good return on your real estate investment? Calculating the ROI on your investment property is critical to know how your investment is performing, or when comparing one investment to another.

In this beginner's guide, we will cover everything you need to know about ROI investment in real estate.

Understanding ROI in Real Estate

ROI is a measure of the return on an investment, calculated as a percentage of the initial investment. It is important in real estate investing because it helps investors to compare different investment opportunities and choose the most profitable one.

There are different types of real estate investments that generate ROI, including rental properties, fix-and-flip properties, commercial real estate, and real estate investment trusts (REITs). Each type of investment has its own advantages and disadvantages, and the ROI can vary depending on the type of investment.

Several factors impact the ROI in real estate, such as location, property condition, rental income and expenses, financing and leverage, taxes, and depreciation. These factors will be discussed in detail in the next section.

Calculating ROI in Real Estate

To calculate ROI in real estate, you need to use a formula that takes into account the amount of money you invested, the amount of money you earned from the investment, and the duration of the investment. The formula for calculating ROI is:

ROI = (Gain from Investment – Cost of Investment) / Cost of Investment

For example, if you purchased a rental property for $200,000, rented it out for a year, and earned $20,000 in rental income, your ROI would be:

ROI = ($20,000 – $200,000) / $200,000 = -90%

This result may seem alarming, but it's important to note that ROI is not always a perfect measure of performance. The example above does not take into account the property's value appreciation, which can significantly impact the ROI over the long term.

Limitations of ROI as a performance metric include its failure to account for factors such as taxes, property appreciation, and loan pay-downs. It's important to keep in mind that ROI is only one measure of performance and should be considered in conjunction with other metrics when evaluating an investment.

In order to successfully decide whether a property is worth buying, an investor must run the numbers to calculate two types of returns: Cash-on-cash return on investment, and total return on investment.

Cash on Cash Return on Investment

The cash-on-cash return on investment is the before-tax cash flow (BTCF) divided by your initial cash investment. The formula looks like this:

Cash on Cash Return on Investment = BTCF / Initial Cash Investment

Your before-tax cash flow is calculated by subtracting your annual mortgage payment from your net operating income (NOI). The net operating income is simply the total income from the property minus the total expenses.

Let's take a look at an example using a $150,000 income property purchased with a 20% down payment of $30,000. Let's assume your mortgage of $120,000 is fixed for 30 years at a 7 percent interest rate.

Let's assume your BTCF is $3,000 per year ($250 per month):

Cash on Cash ROI = $3,000 / $30,000 = 10.0%

Through the "magic" of leverage using financing to purchase your property, you have created a cash on cash ROI of 10%. This would be quite attractive to most investors in today's market.

The cash on cash ROI is a good measure of a property's first year financial performance. However, it does not include the additional benefits achieved through real estate such as the amortization of the mortgage and any future appreciation. The total return on investment addresses that.

Total Return on Investment

The total return on investment (TROI) provides a better and more complete measure of a property's financial performance. That is because it factors in amortization and appreciation gained over time.

Total ROI = (BTCF + Net Sales Proceeds - Initial Cash Investment) / Initial Cash Investment

In order to calculate the total return on investment, one must project the BTCF for each year of expected ownership as well as the net sales proceeds from the sale of the property.

Let's take our example above and assume that we plan to sell it in five years with an average annual appreciation rate of 4% per year. After five years our $150,000 property would be worth $182,498, and our mortgage balance would be $111,665. Let's also assume that our selling expenses total 5% of the sales price, or $9,125.

Using the figures above, our net sales proceeds from the sale of the property in year five would be $61,708 ($182,498 - $111,665 - $9,125). Additionally, our before tax cash flow after five years would total $15,000 assuming no annual increase in rents or cash flow. Now our formula looks like this:

Total Return on Investment = ($15,000 + $61,708 - $30,000) / $30,000 = 156%

Note that some investors calculate their TROI using their after-tax cash flow (ATCF) instead of the BTCF. This can provide a deeper "bottom line" measure of the return on investment; however, it does not provide a good measure to compare one investment to another since tax liabilities will vary between individual investors. Calculating the TROI using ATCF is best suited for investor specific use.

By projecting a property's future cash flows and appreciation, you can calculate the potential gains on your initial cash invested (down payment). Assuming the property is not declining in value, the TROI should increase in each successive year.

However, total return on investment can be a little shortsighted when used in isolation. This is because total return on investment does not measure the property's financial performance as it relates to its equity. For this we must calculate the property's return on equity (ROE). Similar to the TROI, the return on equity calculation replaces the initial cash invested with the properties equity in a given year.

Factors That Impact ROI in Real Estate

Location and neighborhood: The location and neighborhood of a property play a critical role in determining its ROI. Properties located in desirable areas with good schools, low crime rates, and proximity to amenities like shops and restaurants tend to generate higher ROI than those in less desirable areas.

Property condition and maintenance: The condition and maintenance of a property can impact its ROI by affecting its resale value and the cost of ongoing maintenance. It's important to budget for repairs and maintenance when calculating the ROI of a property.

Rental income and expenses: The rental income and expenses associated with a property are important factors in determining its ROI. Rental income can be maximized by setting competitive rental rates, marketing the property effectively, and keeping the property occupied with reliable tenants. Expenses such as property taxes, insurance, and maintenance costs can eat into the ROI, so it's important to keep these costs in mind when calculating the ROI.

Financing and leverage: Financing and leverage can impact the ROI of a property by affecting the amount of money required to purchase the property and the ongoing cost of financing. Using leverage can increase the ROI of a property, but it also comes with added risk, such as the potential for foreclosure if payments cannot be made.

Taxes and depreciation: Taxes and depreciation can impact the ROI of a property by reducing the amount of taxable income generated by the investment. It's important to consult with a tax professional to understand the tax implications of real estate investing.

Strategies to Maximize ROI in Real Estate

While there are many factors that impact the ROI in real estate, there are several strategies that beginners can use to maximize their returns. Here are some of the most effective strategies to consider:

Property value appreciation: One of the most common ways to increase ROI is to invest in properties that are likely to appreciate in value over time. This can be achieved by choosing properties in up-and-coming neighborhoods, areas with new developments or infrastructure, or areas where property values are expected to rise.

It's important to note that property value appreciation is not guaranteed, and it's important to conduct thorough research and due diligence before making an investment. It's also important to keep in mind that appreciation is a long-term strategy, and it may take several years before the property value increases significantly.

Rental income optimization: Rental income is one of the most important sources of ROI for real estate investors, and there are several strategies to maximize rental income. One strategy is to set competitive rents that are in line with the market rate in the area. This will help to attract high-quality tenants and minimize vacancies.

Another strategy is to provide additional amenities or services that can increase the value of the rental property, such as laundry facilities, parking, or cleaning services. It's also important to maintain the property in good condition and respond quickly to tenant requests or concerns, as this can help to retain tenants and reduce turnover.

Renovation and improvements: Renovating and improving a property can be an effective way to increase its value and rental income, and it can also help to attract higher-quality tenants. This can be achieved by upgrading the property's features and amenities, such as the kitchen, bathrooms, or flooring. It can also involve adding additional space, such as a bedroom or bathroom, or converting unused space into a rental unit.

It's important to carefully consider the cost of renovations and improvements and to ensure that they are likely to generate a return on investment. Beginners should also work with experienced contractors and designers to ensure that the renovations are done correctly and to a high standard.

Tax planning and mitigation: Real estate investing can have significant tax benefits, and it's important to understand how to optimize these benefits to maximize ROI. This can involve strategies such as taking advantage of depreciation, which allows investors to deduct a portion of the property's value from their taxable income each year.

It can also involve utilizing tax credits, such as those available for energy-efficient upgrades or investments in low-income housing. Beginners should work with experienced tax professionals to ensure that they are taking advantage of all available tax benefits and to avoid any potential tax liabilities.

Risks and Challenges of ROI in Real Estate

Real estate investing can offer high returns, but it also involves risks and challenges. Before investing in real estate, beginners must evaluate and understand these risks to mitigate them effectively.

Market volatility and unpredictability: Real estate markets are subject to economic and political changes that can impact property values, rental demand, and financing. Recessions, interest rate hikes, and regulatory changes can all impact real estate investments. Investors need to have a long-term investment strategy and plan for market fluctuations to ride out any potential economic downturns.

Property management and tenant issues: Real estate investing involves managing properties and tenants. Managing property requires time, resources, and expertise. Landlords must maintain the property, ensure tenants pay rent on time, and handle tenant requests and complaints. Landlords must also find new tenants when old ones move out. A bad tenant can damage the property and cause legal problems, so screening tenants is critical.

Financing and liquidity risks: Real estate investments require substantial amounts of capital, and financing is often necessary to purchase the property. Investors may use their own funds or borrow from banks or other financial institutions. Loans have interest rates and must be repaid, which can affect the ROI. In addition, real estate investments can be illiquid, meaning it can be challenging to sell the property quickly if needed.

Legal and regulatory compliance: Real estate investing is subject to various legal and regulatory requirements that investors must adhere to. Regulations may include zoning laws, building codes, tenant protection laws, and tax regulations. Investors need to be aware of these requirements to avoid legal issues and penalties.

Summary: ROI in Real Estate

Real estate investing offers a potentially lucrative investment opportunity for beginners. ROI investment in real estate can be a profitable and rewarding experience if they understand the key factors that impact ROI, calculate ROI accurately, and employ strategies to maximize ROI. However, it is important to recognize and mitigate the risks and challenges associated with real estate investing to achieve long-term success.

By following the guidelines in this guide, beginners can set themselves up for success and make informed decisions when investing in real estate. While investing in real estate involves risks, those who understand the market, manage their properties well, and plan for challenges will likely reap the benefits of this investment option.

What is the Ideal “Exit Strategy” in Real Estate?

February 10, 2023 by Marco Santarelli

Exit Strategy in Real Estate What exactly is meant by the term “exit strategy?” Is it just cool venture capitalist jargon as they take their billion-dollar start-up profitably public? No, the phrase accurately describes the process of knowing when and how “to cash out” a real estate investment.

An exit strategy is an essential component of any investment plan, as it lays out how an investor plans to realize their profits and exit the investment. An effective exit strategy helps investors manage risk, avoid losses, and make informed decisions about their investments.

There are various types of exit strategies, including selling to a third party, taking a company public through an initial public offering (IPO), or liquidating assets. Regardless of the type of exit strategy, investors need to have a plan in place that aligns with their investment goals and risk tolerance. In this article, we will explore the importance of an exit strategy in investing and guide how to develop a comprehensive and effective plan.

An exit strategy is important for a number of reasons:

Manages risk: Having a well-planned exit strategy helps investors manage their risk and avoid potential losses. By setting clear goals and considering all potential outcomes, investors can make informed decisions about when to sell and how to realize their profits.
Maximizes profits: An exit strategy enables investors to maximize their profits by providing a clear plan for realizing gains and selling investments at the right time. This can help investors avoid missed opportunities and capitalize on market trends.
Increases flexibility: With an exit strategy in place, investors have more flexibility in their investment decisions. They can make quick, informed decisions about selling, holding, or reinvesting in order to take advantage of market conditions.
Reduces stress: Selling an investment can be a stressful process, but having a clear exit strategy can help reduce this stress by providing a roadmap for how to proceed. This can help investors make calm, rational decisions, even in uncertain market conditions.
Facilitates better decision-making: An exit strategy provides a framework for making informed investment decisions. By considering potential outcomes and planning for different scenarios, investors are better equipped to make decisions that are in their best interest.

Exit Strategy in Real Estate

An exit strategy is a method by which an investor cashes out of an investment. In real estate, an exit strategy is a plan for how you will sell your home, either in the short term or long term. It's a crucial step in the process of owning a home, as it can help you maximize your profits, reduce your stress, and make the transition to your next home as seamless as possible.

Preparing for your exit strategy involves researching the housing market, understanding your goals, and making any necessary repairs or upgrades to your home. By taking the time to plan and prepare, you can ensure that you sell your home quickly and for top dollar. In this article, we will explore the importance of an exit strategy and how to prepare for it.

A real estate exit strategy is a plan for selling a property, whether it be a single-family home, a rental property, or a commercial property. There are five main strategies in physical real estate investment, all of which involve different exits or realizing a return. Usually, an investor knows what he or she is going to do with a property before buying it. Everyone looks at cash flow, built-in equity, and repairs. If it’s a flip, they’ll buy the property, rehab it and sell it.

Here are a few examples of real estate exit strategies:

Flipping isn’t entirely dead across the country, especially in cities where inventory is beginning to tighten.
Flipping and holding means rehabbing a house and renting it out.
Holding involves buying an investment property and renting it.
A lease-option is selling the home to a tenant in place.
Wholesaling is buying at a low price and then typically selling it to another investor.

But how do you know when to sell a property that is producing income?

Different investors work on different timelines. For one person, it might be time to sell when the kids head off to college. For another, he might want to knock Europe off the bucket list three years from now. Someone else might have retirement age looming. “You have to have a business plan and know the objectives of that business plan, then you’ll know the answer,” says Alan Langston, executive director of the Arizona Real Estate Investors Association. “When you should get out versus when I should get out are two different answers.”

During the boom in the first half of the 2000s, speculators bought houses in hyper-inflated markets like Phoenix and Las Vegas and resold them within days or weeks. That’s not intelligent investment, Langston said.

“Speculators I can’t speak to,” he said. “I don’t care about them. They’re going to do nothing but screw up the market. Investors add value to everything they do. Speculators do not. Investors earn their money.”

“If I see speculators over my shoulder, I run,” says Greg Rand, author, radio host, and media commentator on real estate.

CREATING A TAXABLE EVENT

Rand’s exit strategy is simple: don’t have one.

“Never sell,” he said. “My experience in real estate both residential and commercial is that the people who do well approach it like they are building a portfolio, not trying to arbitrage the market. They don’t take it off the table.”

Only sell to buy a better property, Rand said.

When an investor sells a property and takes a profit this creates a taxable event. Now the profits are taxed at the current capital gains rates. If it’s a flip and the sale occurs less than 366 days from purchase this may be defined as ordinary income and be subject to ordinary business accounting and tax rules.

It is customary to shelter capital gains when a true investment trade-up to the better property is occurring. An investor can use an IRS Rule 1031 Exchange to defer the tax but must use a qualified intermediary to receive and disburse the purchase funds.

The investor must remain at arm’s length from the cash and complete the entire transaction within 180 days. Intermediary companies like IPX 1031 and 1031 Exchange Experts are ideal partners in understanding the details.

BUY, HOLD, RENT & RELAX

“That philosophy is serving us well,” said Rand. Our philosophy from the ground up is aggregating a portfolio intelligently. Keep your eye on assembling your assets. It’s not about ‘how can I find something to buy so I can find a 15% equity position.’ Think of it as a little money machine. Pull the cord, start the engine, and walk away from it.

What is the end goal? It’s to produce bulletproof wealth.

As Warren Buffett famously said: “Our favorite holding period is forever.”

How to Sell Your Home Fast: Guide With Tips and Strategies

February 10, 2023 by Marco Santarelli

Selling your home can be a time-consuming and stressful endeavor, especially if you wish to do so quickly. However, with the right approach, you can streamline the process and sell your home quickly. In this article, we will discuss some tips and tricks that will assist you in selling your home quickly.

Correctly pricing your home is one of the most crucial things you can do. This means conducting research to determine the selling prices of comparable homes in your area and then setting you asking price accordingly. Overpricing your home can reduce its appeal to potential buyers while underpricing it could mean leaving money on the table.

A second important factor in selling your home quickly is ensuring that it is in pristine condition. This includes cleaning and decluttering the space, making any necessary repairs, and possibly performing cosmetic upgrades to make the property more appealing to prospective buyers. You want to make an excellent first impression and design a space where people can envision themselves living.

Effective marketing of your home is also essential. This entails creating a listing with numerous photos, videos, and a thorough property description. It's also a good idea to hire a real estate agent who can help you reach more prospective buyers and negotiate the best deal. Also, be prepared to be adaptable and willing to make concessions. For instance, you may need to be willing to negotiate the asking price or close the deal quickly. The quicker you can sell your home, the more you're willing to cooperate with prospective buyers.

How to Sell Your Home Fast as an Investor?

If you’re a real estate investor, you know how important it is to be able to sell a house fast. Anything can happen in a short period of time, and you don’t want to risk losing value in your property just because it takes a long time to find a buyer to meet your asking price. When you’re flipping a house, you need to make sure that you do the proper renovations to increase the value of your property, but timing is of the essence because you need to be selling homes just as fast as you’re buying them. There are always a variety of changes you can consider to make your house more marketable.

Never doubt the importance of a professional real estate agent. Finding a good agent is hard these days as the housing market is always changing. We know what it’s like for homeowners and real estate investors, and that’s why we provide only the best advice when it comes to helping you sell quickly. We want you to be able to turn a house into cash. Our experts have knowledge in selling different kinds of housing and properties, working in a variety of different locations, and understanding the target buyers.

In order for your investments to work for you, you need to make sure your real estate is leaving the right impression on buyers. This might include playing up features that appeal to certain buyers. For example, if your property is located near a school, you can assume that a lot of buyers will have families, so you might want to draw attention to the number of bedrooms in the house or the size of the yard.

It’s also about the optics. Who wouldn’t want a newer house with more space? Whether you’re flipping a house or just buying low and selling high, a fresh coat of paint and some prop furniture can really go the extra mile. Maybe you’re just joining the real estate game, or maybe you’ve been investing in real estate for thirty years. Whatever the case may be, these tips can help you get ahead and sell your house in no time!

Tips on How to Sell Your Home Fast:

Selling your home can be a stressful process, but by setting the right price, making it look great, and utilizing technology, you can increase your chances of selling it quickly. It's also important to be flexible with negotiations and open to compromises to make the process smoother and faster.

Price it right: As mentioned earlier, setting the right price for your home is crucial to selling it fast.
Make it look great: Clean, declutter, and make necessary repairs. Consider giving your home a fresh coat of paint or updating fixtures.
Stage it: Staging can help potential buyers visualize living in your home, making it easier for them to make a decision.
Be flexible: Be open to negotiations and willing to make compromises to get the deal done faster.
Utilize technology: Utilize online listing platforms, virtual tours, and high-quality photos and videos to showcase your home to a wider audience.

How to Get Your Home Ready to Sell Fast:

Preparing your home for the market can make a significant impact on the speed of the sale. Cleaning, decluttering, making repairs, improving curb appeal, and hiring a professional inspector can all help make your home more appealing to potential buyers.

Clean thoroughly: Clean every nook and cranny of your home, including windows, appliances, and carpets.
Declutter: Remove any personal items, excess furniture, and clutter to create a more spacious and appealing look.
Make repairs: Fix any leaks, cracks, or damages in your home. Consider making small upgrades that can make a big impact, such as updating light fixtures.
Improve curb appeal: Make sure your home's exterior looks great by mowing the lawn, planting flowers, and pressure-washing the exterior.
Hire a professional inspector: Having a professional inspector check your home can help identify any issues that need to be addressed before listing.

How to Sell Your Home Fast and for Top Dollar:

Selling your home for top dollar requires proper research, effective marketing, and highlighting unique features. Hosting open houses, working with a real estate agent, and pricing it competitively can also increase the chances of selling your home quickly and for a higher price.

Research comparable home prices: Knowing what other homes in your area are selling can help you price your home competitively.
Market your home effectively: Utilize online listing platforms, professional photography, and virtual tours to showcase your home to potential buyers.
Highlight unique features: Make sure to highlight any unique features or upgrades in your home to make it stand out from others.
Host open houses: Hosting open houses can generate buzz and interest in your home, helping you get top dollar.
Hire a real estate agent: A real estate agent can help you navigate the process, reach more potential buyers, and negotiate the best deal.

How to Sell Your Home Fast by Owner:

Selling your home by owner can be a cost-effective option, but it requires effective marketing and being prepared for negotiations. Pricing it correctly, networking, and considering an auction can also help increase the chances of selling your home fast.

Price it correctly: Set a fair and competitive price for your home.
Market your home effectively: Utilize online listings, professional photos and videos, and social media to showcase your home.
Network: Reach out to friends, family, and acquaintances who may know someone in the market for a home.
Consider an auction: An auction can generate interest and competition for your home, leading to a quick sale.
Be prepared for negotiations: Be prepared to negotiate the price and closing date with potential buyers.

How to Sell Your Mobile Home Fast:

Selling a mobile home can present its own set of challenges, but by cleaning, decluttering, making repairs, pricing it correctly, and offering incentives, you can increase the chances of selling it fast. Marketing your home effectively through online listings and professional photos and videos is also crucial.

Clean and declutter: Make sure your home looks its best by cleaning and decluttering.
Make repairs: Address any leaks, cracks, or damages in your home to make it more appealing to potential buyers.
Price it right: Research comparable mobile home prices in your area and set a competitive price.
Market your home effectively: Utilize online listings, professional photos and videos, and social media to showcase your home.
Consider offering incentives: Offering incentives such as paying for closing costs or offering a home warranty can make your home more appealing to potential buyers.

How to Make Your Home More Valuable and Sell Faster:

Making upgrades, adding storage, increasing energy efficiency, landscaping your yard, neutralizing your décor, and hiring a professional appraiser are all ways to increase the value of your home and make it more appealing to potential buyers. By taking these steps, you can sell your home fast and for a higher price.

Make upgrades: Consider making upgrades such as updating the kitchen, and bathroom, or adding a new deck or patio to increase the value of your home.
Add storage: Adding extra storage, such as closet organizers or shelving units, can make your home more attractive to potential buyers.
Increase energy efficiency: Making your home more energy efficient by installing new windows or adding insulation can lower utility costs and make it more appealing to environmentally conscious buyers.
Landscape your yard: Landscaping your yard can improve your home's curb appeal and increase its value.
Neutralize your décor: Neutralizing your décor by painting walls and replacing bold accents with neutral colors can make your home more appealing to a wider range of potential buyers.
Hire a professional appraiser: A professional appraiser can provide an accurate assessment of your home's value, allowing you to price it competitively and sell it fast.

By following these tips, you can increase the value of your home and sell it fast. Whether you're working with a real estate agent or selling by owner, it's important to be proactive and take the necessary steps to make your home as appealing as possible to potential buyers.

What is a Reverse Mortgage: Everything You Need to Know

February 7, 2023 by Marco Santarelli

A reverse mortgage (or home equity conversion, as it is sometimes called) involves selling the equity in a home while retaining the right to live in that home until death (a life estate). It turns a home's equity into regular cash payments.

However, there are age restrictions on this procedure, as well as other disadvantages that might outweigh the benefits for some people. Reverse mortgages can provide a source of supplemental income, but it's important to understand the terms and potential drawbacks, such as the impact on inheritance and increased debt. Consult with a financial advisor or legal counsel before making a decision

What is a Reverse Mortgage?

A reverse mortgage is a type of home equity loan that allows you to convert some of the equity in your home into cash but retain your home ownership. Reverse mortgages work like traditional mortgages, only in reverse. Rather than making a payment to your lender each month, the lender pays you through advances against your equity.

Unlike conventional home equity loans, most reverse mortgages do not require any repayment of principal, interest, or servicing fees for as long as you live in your home. Funds obtained from a reverse mortgage may be used for any purpose. This type of remortgage was originally designed so that seniors whose homes are paid for, or nearly so, can finance living expenses without having to sell their property.

To qualify for a reverse mortgage, you must own your home, occupy the home as a principal residence for more than six months out of a year, and be at least 62 years of age. If you have any debt against the home, you must either pay it off before getting a reverse mortgage or use an immediate cash advance from the reverse mortgage loan to pay it off.

The reverse mortgage funds may be paid to you in a lump sum, in monthly advances, through a line of credit, or in a combination of the three. The amount you are eligible to borrow generally is based on your age, the equity in your home, and the interest rate the lender is charging. The greatest cash amounts generally go to the oldest borrowers living in the homes of greatest value on loans with the lowest costs.

Because you retain title to your home, you also remain responsible for taxes, repairs, and maintenance. Failure to carry out these responsibilities could result in the loan becoming due and payable in full. Depending on the plan that you select, although you generally are not required to repay the loan as long as you live in the home, it becomes due with interest when you permanently move, sell your home, die, or reach the end of the pre-selected loan term.

The lender does not take the title to your home when you die, but your heirs must pay off the loan. The debt is usually repaid by refinancing the loan into a forward mortgage, if the heirs are eligible, or by using the proceeds from the sale of your home.

What Are the Different Types of Reverse Mortgages?

There are three reverse mortgage plans available: FHA-insured, lender-insured, and uninsured. All three plans are rising-debt loans. This means that the interest is added to the principal loan balance each month, resulting in a significant increase over time, in the amount of interest you will owe. All three plans charge loan origination fees and closing costs, the legal obligation to pay back the loan is limited by the value of the home at the time the loan is repaid, the loan is nontaxable, and in neither plan will Social Security or Medicare benefits be affected, although eligibility in Supplemental Security Income could be put at risk.

FHA-insured reverse mortgage

This plan offers all three payment options: lump sum, monthly advances, and line of credit. The FHA-insured reverse mortgage is not due as long as you live in your home. Interest is charged at an adjustable rate on your loan balance; any interest rate changes do not affect the monthly payment but, rather, how quickly the loan balance grows over time.

This plan permits changes in payment options at little cost and it protects you by guaranteeing that loan advances will continue to be made to you if the lender defaults. However, FHA-insured reverse mortgages may provide smaller loan advances than lender-insured plans and they likely will cost more than an uninsured plan.

Lender-insured reverse mortgage

These reverse mortgages offer monthly loan advances, or monthly loan advances plus a line of credit, for as long as you live in your home. Interest may be assessed at a fixed rate or an adjustable rate, and additional loan costs can include a mortgage insurance premium and other loan fees.

Loan advances from a lender-insured plan may be larger than those provided by FHA-insured plans, but the loan costs will most likely be greater. The lender-insured plan also may allow you to mortgage less than the full value of your home, thus preserving home equity for later use by you or your heirs. Some lender-insured plans include an annuity that continues making monthly payments to you, even if you sell the home. However, these payments may be taxable and could affect your eligibility for Supplemental Security Income.

Uninsured Reverse Mortgage

This reverse mortgage plan is dramatically different from both FHA-insured and lender-insured plans. An uninsured plan provides monthly loan advances for a fixed term only: a definite number of years that you select when you first take out the loan. Your loan balance becomes due and payable when the loan advances stop. Interest is usually set at a fixed interest rate and no mortgage insurance is required.

If you have short-term but substantial cash needs, the uninsured reverse mortgage can provide a greater monthly advance than the other plans. However, because you must pay back the loan by a specific date, you need to have a source of repayment. If you are unable to repay the loan, you may have to sell your home and move.

Difference Between a Reverse Mortgage and a HECM?

A HECM (Home Equity Conversion Mortgage) is a type of reverse mortgage backed by the Federal Housing Administration (FHA). In other words, a HECM is a specific kind of reverse mortgage. The key difference between a HECM and a reverse mortgage is that a HECM is a government-insured program, while a reverse mortgage may or may not be insured and can be offered by private lenders. HECMs have specific eligibility requirements, interest rates, and loan limits, and are subject to additional regulations, but they offer more protection for the borrower and their heirs.

What Type of Reverse Mortgage is the Least Expensive?

The type of reverse mortgage that is least expensive is typically a HECM (Home Equity Conversion Mortgage) loan, which is insured by the Federal Housing Administration (FHA). HECM loans have lower upfront costs and monthly mortgage insurance premiums compared to other types of reverse mortgages. However, it's important to compare the costs and fees of different reverse mortgage options and consider the specific needs and circumstances of the borrower before making a decision.

What Are Three Major Requirements to Qualify for a Reverse Mortgage?

To qualify for a reverse mortgage, there are typically three major requirements:

Age: The borrower must be at least 62 years old.
Homeownership: The borrower must own the property or have a significant amount of equity in it.
Home type: The property must be the borrower's primary residence and must meet certain standards, such as being a single-family home, townhouse, or approved condominium.

It's important to note that reverse mortgage lenders may have additional requirements, such as a minimum credit score or proof of income, and that the terms of the loan can vary depending on the lender and the borrower's specific circumstances.

What Do You Have to Pay?

Do not sign a service agreement for anyone to help you find a reverse mortgage lender or apply for a loan. This help is available at little or no cost from a HUD-approved housing counseling agency or your nearest HUD office. Applying for a reverse mortgage should only include the cost of an appraisal and a credit report.

The best way to compare the cost of reverse mortgages is to use the Total Annual Loan Cost (TALC) rates that the federal Truth-In-Lending law (Regulation Z) requires lenders to disclose to you. TALC rates are generally greatest in the first five years of a reverse mortgage and grow smaller over time.

They can be especially high in the first years of a loan if you select monthly advances or use a small part of a credit line. Ask for TALC rates early in your decision-making, and before you sign a contract check the repayment conditions to be sure you understand all the reasons for any cost differences.

How Do You Pay Back a Reverse Mortgage?

A reverse mortgage is typically paid back when the borrower sells the home, permanently moves out or passes away. The loan amount, including interest and fees, is due and payable at that time and is typically paid back from the proceeds of the sale of the home. If the sale proceeds are not enough to pay off the full amount of the loan, the borrower or their estate is not responsible for the deficiency. It's important to understand the terms of the reverse mortgage and to plan for the eventual repayment of the loan, as it can impact the inheritance and equity in the home.

What is the Downside to a Reverse Mortgage?

A reverse mortgage can provide homeowners with supplemental income, but it is important to understand the potential disadvantages and risks before making a commitment. Among the disadvantages of reverse mortgages are:

Reduced inheritance: The loan amount, interest, and fees will reduce the borrower's home's equity, potentially affecting the borrower's heirs' inheritance.
Required property maintenance: The borrower is still responsible for property maintenance, property tax payments, and insurance coverage.
Upfront costs: Reverse mortgages typically have greater up-front expenses than conventional mortgages, including loan origination fees, appraisal fees, and mortgage insurance premiums.
Increased debt: Over time, the loan amount and associated interest and fees can grow, thereby increasing the borrower's total debt.
Reduced eligibility for government benefits: Depending on the number of funds received from the reverse mortgage, the borrower's eligibility for government benefits such as Medicaid may be reduced.

Conclusion

If you are age 62 or older and are house-rich and cash-poor, a reserve mortgage may be an option to help increase your income. However, because your home is such a valuable asset, you may want to consult with your family, attorney, or financial adviser before applying for a reverse mortgage. Knowing your rights and responsibilities as a borrower could help to minimize your financial risks and avoid any threat of foreclosure or loss of income.

Real Estate Economics: How Real Estate Markets Work?

February 3, 2023 by Marco Santarelli

You do not need a degree in economics to become market-literate, just an understanding of how local real estate economies work, fluency with the terminology, and good sources for local data on sales, prices, values, and inventories. Add your professional expertise and your skilled observations of the latest trends in the charts and numbers and you have a winning formula.

Real Estate Supply and Demand Analysis

Ideally, real estate markets follow the laws of supply. If the supply of homes for sale is greater than demand, the market will put pressure on prices to fall until supply and demand come into as because buyers take advantage of bargains and fewer sellers list their homes Homes will take longer to sell.

Should the supply of homes for sale be too small to meet demand, homes will sell faster, and prices will tend to rise until more sellers list their homes and buyers wait for better prices. So the numbers of homes for sale, or inventories, and demand are the two keys to understanding how sales and prices are behaving and will continue to act shortly.

Demand is driven by changes in local household population; local income and employment levels; interest rates that make mortgages more or less expensive; accessibility of mortgage credit; and local rents. Supply is created by move-up buyers, who also contribute to demand by buying a new home; by new home construction; by seniors and other owners who sell to become renters; by owners who relocate to another market; and by deaths.

In the real world of real estate, the rules of supply and demand do not always work well. Sellers sell for many reasons, and most of them do not have much to do with higher prices—relocation, family and financial crises, they owe too much on their existing mortgage, or they need more space or to downsize now no matter what prices are doing.

Buyers often can’t take advantage of lower prices because they do not have the down payment, or they cannot sell their current to move up to a larger one. It is no wonder that the average American family sells a home only once every nine years. Because of the difficulties buyers and sellers have responded to market opportunities such as rising prices or a plentiful selection of homes for sale, real estate is considered a less “liquid” asset than securities, collectibles, precious metals, and most other investment options.

The Fine Points: Why Real Estate is Different

Illiquidity is just one of several significant ways that make real estate markets work differently than other markets. Here are some others.

Seasonality: Home sales vary by season, especially in northern climates where inclement weather makes it difficult to sell a house. Sales rise in the spring and decline in the fall. Therefore, comparing sales and prices on a month-to-month basis can be misleading. That is why home sales and prices are either “seasonally adjusted” with mathematical formulas that account for seasonal changes or are compared on a year-over-year rather than a month-over-month basis.

The Housing Ladder: Only in real estate does a sale create a new buyer, as it does with move-up buyers. Real estate works like a ladder. As seniors downsize or die, they create new supplies for move-up buyers, who in turn create new supplies for first-time buyers. That is why first-time buyers are so important; the housing ladder does not work unless first-time buyer demand is high enough to absorb the houses that move up buyers want to sell so that they can then buy a larger home.

Financing: About half of all homeowners have a mortgage and 86 percent of recent buyers financed their home purchase with a mortgage. The ability to qualify for a mortgage and the amount a mortgage will cost the borrower have an enormous impact on housing demand. Factors like interest rates, lending standards that set requirements for income, debt and credit history, and the availability of mortgage credit can affect demand for homes by making it easier or harder for buyers to get financing. Currently, about three-quarters—74.2%—of applications for mortgages to buy a home are approved.

Hyper-locality: There is no such thing as a national or a state-level real estate market. Real estate is the most local of investment assets, yet market trends are most often reported and discussed regarding the nation as a whole, states, or MSAs. These are not markets; people buy homes on a house-by-house or neighborhood-by-neighborhood basis. The numbers you see on the national news are mathematical calculations of millions of homes and thousands of monthly transactions; they are several steps away from what’s going on in a local market.

Local market conditions can vary greatly, even within a metropolitan area. The factors that impact local values—transportation, retail, schools, taxes, economic conditions, open spaces, location, municipal services, safety, and lifestyle—are local, even hyper-local. Thorough knowledge of hyper-local market trends is an essential competency that distinguishes top agents and brokers. However, market-level data on a hyper-local level is harder to obtain than so-called “national” data.

Price is Different from Value: The adage that “something is worth what someone will pay for it” doesn’t apply to real estate. Instead, a home is worth what an appraiser says it is. Why? Because nearly nine of ten homes are financed by a mortgage and lenders will lend no more than what an appraiser says a house is worth.

If the contract price is higher than the appraised value, the buyer, and/or seller must figure out how to make up the difference or the deal is dead. Appraisal issues kill about 11 percent of sales today. One way to think about the difference between price and value is longevity. Prices reflect temporary shifts in supply and demand—like tight inventories or heightened demand due to low-interest rates.

Values are more long-term and change slower than prices. However, price changes DO change values over time because appraisers use prices or sales of comparable homes during the previous six months to make an appraisal. As more homes in a market are appraised, recent sale prices will change values.

Every house has a unique value and responds differently to market changes. In today’s market, sellers should price their homes very carefully and research local conditions to avoid overpricing that could lead to an extended time on the market in case prices do decline. Buyers and investors should be careful to avoid buying a home that is on the verge of losing value.

Determining an individual home’s value is difficult. The “find your home’s value” calculators can be highly inaccurate, and they often mislead buyers and sellers. New “Big Data” databases with hard sales data from millions of homes are more accurate but like all computerized valuations, they may not reflect improvements and conditions.

Medians and Averages: A median is that number where half the numbers are lower, and half the numbers are higher. In the case of real estate, that means that the median is the price where half the homes sold that month were cheaper, and half were more expensive. An average is the total of those numbers divided by the number of items in that set. An “outlier”, or a value much higher or lower than the others in a group, changes the average but not the median. Medians are preferred in real estate because they give a better idea of where the middle of the market lies.

83 Questions to Ask Before Hiring a Property Manager

February 2, 2023 by Marco Santarelli

You don't have to tell us, finding a good property management company is hard. When we first started investing in residential real estate we went through several property managers, struggling to find one that was truly exceptional.

Over time we realized the challenges that owners face, and the questions we wished we had asked as investors. Some of these questions would’ve never come to mind if we weren’t property managers (#61 is a good example).

These 83 questions are the questions that we would ask, and many of them are the questions that other property managers will hope you forget.

General Property Management Questions

1) How long has your company been in business?

This question will help you understand this property manager’s level of experience. You don’t want a property manager who has only been in business for 1 year. They will still be struggling to figure out how to effectively run their business. Look for someone who has been in business for at least 3 years, at this point they will know what they’re doing.

2) How many rental units do you manage?

This will help you understand their size. Too few rental units and they are either inexperienced or have lost clients due to poor service. Too many rental units and you will get lost in the shuffle. Look for a property manager with 200 to 600 rental units. That’s when you’ve found your Goldilocks level of “just right.”

3) How many staff members do you have and what are their job functions?

If it is only one or two people running the show then you are likely to get poor service. If they employ 75 people you are likely to get lost in their sea of clients. Look for a company with enough employees to support the diverse responsibilities of a property management company, but make sure they haven’t become too large.

4) Where are most of your properties located?

This will help you answer two important questions. One, do they understand the area with your rental property? Two, do they cover the area outside of where your property is located? This second question is important because you may want to grow your portfolio. What if you find the perfect property in a nearby suburb, but the property manager you chose can’t help manage it? Find a manager that can grow with you.

5) Do you manage any other properties in my neighborhood?

This is a good follow-up to question 4. Just because a company doesn’t primarily manage your city doesn’t mean that they don’t have several properties in the neighborhood where your rental is located.

6) What professional organizations do you belong to or participate in?

Do they belong to the National Association of Residential Property Managers (NARPM), or do they belong to their local association for Realtors? Make sure they are actively involved in the property management community. This is typically a good sign of professionalism. For example, Active Renter is a member of the Phoenix Association of Realtors and our CEO is the 2015 Membership Chair for the Phoenix Chapter of NARPM.

7) How do you determine the rent amount?

A property manager should be able to complete a comparable market analysis of all the other available listings near your property. They should use properties that just went off the market and properties that are currently on the market to determine the highest possible rent. They should also have the expertise and experience needed to factor in the unique aspects of your rental property, like a pool or a new kitchen.

8) What steps have you taken to cut costs so that you can pass savings on to your owners?

Property managers should be making an effort to cut costs for their owners. This will improve your return on investment. To illustrate, at Active Renter we have written several proprietary computer programs that automate processes that would otherwise need to be done by one of our employees. This makes us more efficient, which then enables us to pass savings on to you.

9) Do your employees have specialized roles or do some of them fill multiple roles?

You should make sure that employees are not filling multiple roles. Why would you want someone managing your online rental listings when they were hired for their accounting abilities? You wouldn’t. This is why Active Renter employees have specialized roles. This way, each employee has responsibilities for which they are highly trained. Leasing agents do leasing and property managers manage. Their responsibilities are like the proton packs in Ghostbusters, they are never meant to cross.

10) What types of properties do you manage?

If they don’t typically manage your property type, don’t let them start now. The challenges will be different and you don’t want to take that risk.

11) Do I have to sell my property with you if I want to list it?

Some property managers will ask you to sign a contract that forces you to sell the property with them. Don’t fall for this. However, as a note, we at Active Renter will sell your property for you if you want to list us as the selling agent. We would never require this, but if an owner wants to sell we will refund the previous 12 months of monthly management fees if we are selected as the listing agent. How’s that for a perk?

12) Are you currently an active real estate investor in your market?

The company’s leadership should be investing in the real estate market themselves. Period. If they don’t invest in your market then they lack the understanding they need to help you excel.

13) What qualifications do your staff members have?

The majority of a property management company’s staff should be extensively trained and they should also have their real estate sales agent or broker licenses.

14) Can you explain the federal fair housing laws to me?

So this is a bit of a “gotcha” question, but these laws are incredibly important and your property manager should know them. If they can’t explain them then they aren’t knowledgeable enough to be managing your property.

15) What experience does your company owner have in managing rentals?

Some company owners have never even managed a property. If the company owner has never managed a rental, what is the chance that he or she runs a company that can effectively help you with your investment property?

16) How wide of a geographic area does your company cover?

This will help you identify if this is a property manager with which you can grow. If they only manage in your city, it might hinder the growth of your portfolio in the future. Growth of your portfolio means more passive income. Enough passive income means you can sit on a beach in Tahiti drinking Mai Tais while still earning money, which is pretty much everyone’s dream job.

17) Could you provide a few references for me?

Any good property management firm will have references – a really good one will have references specifically for your property type.

18) Do you work with out-of-state owners?

This is an especially important question if you are an out-of-state owner, but it is still important if you are local. If you are an out-of-state owner, then you need to make sure that this property manager can accommodate your specific needs. If you’re local this will indicate that the company is skilled and experienced.

19) Do you work with international owners?

Again, this is crucial if you are an international investor. It is also helpful for local owners because it indicates expertise. For example, we’d love to get coffee with all of our owners, but for some of them, this would require a 16-hour flight. This distance is a challenge that has pushed us to be better property managers.

20) Is your company privately owned or is it part of a franchise?

A franchise will have different concerns and be less flexible than privately owned companies. They are also more frequently concerned about their bottom line and less concerned about service. Think about the difference in quality between your local burger joint and Mcdonald's…can you see the difference?

21) Can I cancel my contract without a fee if I am unhappy?

Never get locked into a contract you can’t escape. Some companies will try to hold you captive with a contract and others will keep your business with great service. If a company is offering you an inescapable contract, it’s time to look elsewhere.

22) What type of insurance do you carry?

Your property management company should carry insurance that will help to keep you covered. For example, as a licensed real estate brokerage we carry a large general liability policy along with an errors and omissions policy (which protects you from any clerical mistakes).

Property Management Fees

23) What are your leasing fees and do they include any marketing costs?

You need to ensure that you aren’t being price gouged through leasing fees. You should also ask about the cost of the leasing fee when a tenant re-signs for a property. If they want to charge you the same amount as when the tenant first signed you should question the ethics of this company. In addition, make sure the marketing is included. Sometimes companies will tell you their lease fee is low, but then they will hit you with a large marketing charge.

24) What are the management fees when the property is being rented?

This question will help you understand your average monthly fee.

25) Are there fees when the property has no tenants?

This is a very important question to ask for two reasons. One, many companies will offer a “flat rate,” which sounds great until your property is empty…and they continue to charge you. This is why we charge a percentage of the collected rent. This way, we don’t make money unless we make money. Unlike some other companies, we aren’t happily taking a fee if we haven’t done our job to keep the property filled. Two, if a company is taking money with the property empty, how motivated do you think they are to fill the vacancy?

26) What miscellaneous fees could I be charged for the management of my property?

Again, some companies will try and get you to sign because they offer a low rate. As the saying goes, if it is too good to be true, it probably is. Once you’ve signed, a company that seemed inexpensive will now charge you lots of extra fees. Remember, a property management company has to make money, so if they aren’t making money from the low monthly fee they will find another way to do it (See #68 for an example).

27) Are there any fees if I want to change to another property management company?

Not only will property management companies try to lock you in with contracts, but they will also try to prevent you from leaving with fees. Although it is a nasty practice, it is not uncommon. Leaving a company with poor service shouldn't be reminiscent of the jailbreak scene at the end of The Shawshank Redemption. If they aren’t serving you, you should be able to walk.

28) What are your pricing options?

Some companies will offer a flat rate and others will offer a rate based on the rent amount. At Active Renter, we even offer 3 levels of pricing, which include a lease-only plan, a standard plan, and a premium plan. Again, you’re best off looking for a percentage of collected rent This motivates your property manager to fill vacancies because they don’t get paid if you don’t have a tenant. It also motivates them to fight for higher rent amounts because this helps their bottom line too. Flat-rate companies will get the same pay no matter what, so why would they be motivated to get you a higher rent?

Property Management Services

29) What are the various services that you offer to your clients?

You want to make sure that you find a property management company that can market, lease, manage, and sell your property. It is also important to make sure that this company can provide top-notch maintenance, conduct inspections, and administer in-depth background checks.

30) Do you offer direct deposit for your owners?

Unless you’re living in Back to the Future and you’ve traveled to the 1800s, your property manager should be able to deposit your check in your account. This saves you time and effort, which is the whole reason you hired them.

31) How do you collect rent from tenants?

Asking tenants to bring checks to an office is a lot like wearing acid-washed jeans, it might have been okay in the ’80s, but the times have changed. If your property manager isn’t having your tenants pay online that is a red flag for two reasons. One, it slows down the speed at which you can get paid. Two, it makes it easier for tenants to miss paying the rent. If payment is online, tenants can automate their payment and these two problems are avoided.

32) Do you conduct property inspections and, if you do, what charge is associated with them?

Remember Home Alone? Kevin McCallister did whatever he wanted in that house because he didn’t own the property and he was left without supervision. Don’t make this mistake with your tenants. Your property is at risk if your property manager doesn’t conduct inspections. This should require a small fee and it will be one of the best investments you can make. It ensures you catch problems before they spiral out of control.

33) Do you offer an eviction warranty?

Some companies, such as ourselves, will offer eviction warranties. It is only a small fee, but it will give you major coverage should you need to evict a tenant.

34) Do you guarantee tenants for any amount of time?

Your company should guarantee that the tenant will stay in the property for a certain amount of time without needing an eviction. If they don’t, then they aren’t confident in their tenant selection process and you shouldn’t be either. At Active Renter, we guarantee tenants for 6 months.

35) When do you begin paying your owners following rent collection?

You need to get your money quickly, but some property managers just don't understand that. It’s like waiting a month after your birthday to give you your presents – unacceptable. As a reference point, we start paying owners on the 10th of the month, which is right after 95 percent of tenants’ payments clear the bank. Other PMs will hold onto your money until the following month.

36) What steps do you take to market properties?

Your property manager should be advertising properties through a variety of channels. If they are still just placing newspaper ads and hoping for the best then you should steer clear.

37) Do you work with Home Owner Associations?

Understanding every HOA’s rules can be difficult and if a company hasn’t worked with an HOA before, or is unwilling to work with yours, then you need to be looking for a different property manager.

38) Do you provide payment statements, and if so, how often?

You should watch your payment statements like a movie on a lazy Friday night – on demand. Your property manager is doing you a disservice if you can’t get payment statements when you want them. We offer online payment statements 24/7 through our online Owner’s Portal.

Key Success Statistics

39) What percentage of your rentals are usually vacant?

This is also known as the vacancy rate and it should never be above 4 or 5 percent.

40) What percentage of tenants renew their leases?

This is also known as the lease renewal rate and a good property manager will have a lease renewal rate above 80 percent.

41) What percentage of rent do you collect per month?

This number should be near 100 percent. If it isn’t, you need to question why this property manager would have so many tenants not paying their rent on time.

42) What percentage of owners do you retain as clients?

This is also known as the owner retention rate. Some property managers have found financial success by bringing in new owners, charging them with fees for a while, and then cycling in new owners. You want to avoid a property manager if their level of service can’t retain close to 100 percent of owners.

43) How long are your properties typically vacant?

The average vacancy time after a property is ready should be about 2-4 weeks. Any longer than this suggests the property manager is struggling to find tenants, any shorter than this suggests that your asking rent amount is too low and you might be leaving money on the table. Either of these scenarios is bad for you and your rental property.

44) What percentage of tenants do you need to evict?

Any good property manager will have a low eviction rate. Otherwise, they are failing to conduct an appropriate background check. However, beware if a property manager says they never have to evict tenants. They aren’t tough enough on tenants who violate lease agreements, it’s like your bouncer is on the dance floor and no one is watching the door.

45) What is your average occupancy length for tenants?

A long average occupancy length is a good sign. This means that the property manager is keeping tenants in properties, which subsequently gives you cash flow that makes Niagara Falls look like a peaceful spring.

46) What percentage of the billed rent is paid to owners by the last day of the month?

Property managers should be getting the paid rent to their owners by the end of the month at the very latest. If they are not, then that is a major red flag.

47) What percentage of the security deposit is usually refunded to tenants?

This statistic is very similar to eviction rates. If very little is ever refunded then the property manager is doing a poor job of screening tenants (or excessively penalizing them at move-out). However, if this number is close to 100 percent then the property manager is doing a poor job of holding tenants accountable.

Communication

48) How many property managers will I interact with (or, will I have an assigned property manager?)

This question will help you determine the type of interactions you will have regularly. At Active Renter, we don’t assign a specific property manager to your rental. Our property managers don’t work 24/7 and neither do our competitors. If someone wants to assign you to a specific property manager then they are okay with making you wait until that person is back on the clock.

49) How often will I get updates on my portfolio?

Just like payment statements, you should be able to get updates on your portfolio as often as you need them. Your properties are your business and not offering updates as often as you want would be the equivalent of telling your property manager that they can’t check their email for a week. It is a situation that would guarantee failure.

50) How do your tenants contact you?

A good property manager should have an effective system for communicating with tenants. Imagine if they didn’t. What would happen if your rental had a flood and the tenant couldn’t contact the property management company? Yeah, we wouldn’t want that either.

51) How do your owners contact you?

Owners keep a property management company alive and that’s how they should be treated. If you can’t easily contact someone about your rental property you need to move on.

52) Can tenants directly contact the owner?

Our advice to owners is that you should always let us be the barrier in between. This is why you hired us and a tenant would have to pry your contact information from our cold, dead iPhones before we would give it away. However, if for some reason you wanted a tenant to have your information we wouldn’t stop you.

53) How quick is your average response time to owners and tenants?

If you interview a property management company and their response to this question isn’t, “lightning quick,” then you need to continue your search. You and your tenants deserve better than a slow response.

Tenants

54) What steps do you take to ensure that I am getting quality tenants?

Every property manager should have a plan in place that strategically works to obtain the best tenants for you and your property. This should include marketing the property in a variety of ways, setting certain income requirements (usually 3x the month's rent), and executing a background check that examines credit history, criminal history, and prior evictions.

55) What are your income requirements for tenants?

If they don’t set a standard then how can they be sure this tenant will make rent? It should go without saying that a tenant needs to have enough income to pay the rent.

56) What is your timeline for evictions?

This process should begin as soon as it is legally possible to start the eviction. If your property manager is willing to sit around waiting for late rent money then they are doing you a disservice. This process should take between 20 and 45 days depending on the court calendar and the constable’s schedule.

57) Can prospective tenants conduct self-guided tours of the property?

At Active Renter Property Management, we firmly believe that self-guided tours are in the best interest of the property owner. This allows for more tenants to tour the property, which reduces the length of vacancy. We have a system in place that protects the property by validating the identity of the prospect with a credit card and we have never had a problem with self-guided tours. That said, some property investors feel uncomfortable letting tenants tour a property and we always leave it up to their choice.

58) Is there a grace period for tenants to pay their rent?

Tenants have had about 30 days since they paid the previous month’s rent, right? Well, we like to think THAT is their grace period. Some companies will offer a grace period of 5 days. However, this makes the 5th of the month their new due date. Grace periods leave tenants less motivated to pay on the 1st, which results in a longer period until you get your money.

59) What control do I have over the tenant lease agreement?

Your property manager should give you some input into the lease agreement if there are one or two issues that are important to you. However, if you are putting in lots of additions, you should have just written it yourself. Make sure your prospective property manager is confident in the leases that they have written for tenants by asking this question.

60) What steps are taken to ensure that your website is easy to use for tenants?

Tenants will apply for rentals on their website and should be paying rent on the site as well. If a property manager isn’t taking steps to make the website easier to use for tenants it could be hurting your business.

61) Do you require tenants to have renter’s insurance?

Lots of property managers don’t require renter’s insurance and this is a huge mistake. Make sure you find a property manager who does. This will cost you nothing, but it will protect you in case something goes wrong like a fire, flood, explosion, or the tenant’s dog biting the neighbor kid.

62) Do you select my tenant or do I get to approve them?

It should be the property management company’s job to find tenants, but you should get the final say in who is selected.

Maintenance Policies

63) Is there a maintenance reserve requirement?

This question will help you understand how much will be in the reserve and this should tell you how often you’ll be involved in decisions. If the property manager wants a $1000 reserve, they want too much freedom with their finances. However, if they only want $100 then they will be calling you often for approval. You hired them to manage, not to call you every time a doorknob needs replaced. Make sure it is a reasonable maintenance reserve.

64) Who is responsible for yard maintenance?

Typically this falls on the tenant, but you will want to check with any property management company you think about hiring.

65) What is your relationship with your maintenance vendors?

This will tell you if they have strong relationships with vendors who can offer them discounts or if they even use vendors at all.

66) How do you go about notifying me if there is a cost for maintenance?

You wouldn’t want to receive large maintenance bills without a conversation first. That is why our policy is to call you for approval any time costs exceed the maintenance reserve. This should be the policy of any good property manager.

67) How do you handle maintenance requests?

There should be a clear and effective way to handle maintenance requests. For example, we use a ticket system that ensures that any maintenance request receives an immediate response. Then, these requests are completed most efficiently and effectively as possible to keep your tenants happy.

68) Do you mark up maintenance and repairs?

You need to make sure that a prospective property management company doesn’t make a profit any time they do maintenance. If they are willing to charge you for maintenance then your profits could greatly diminish.

The Extras

69) How much advice can you give me to help with growing my property portfolio?

Some people start investing in real estate to grow a portfolio. Others stumble into it because they had a home left to them by a relative or because they couldn’t sell their own house. Regardless, property investments can be very lucrative, and it is helpful to have a property manager who will help you grow. At Active Renter, we have even coached clients in buying their first investment property.

70) What discounts can I receive on maintenance, etc. if I have you as my property manager?

A good property manager will take advantage of their size. Companies like us will use their quantity of rental doors to negotiate lower costs from maintenance vendors and insurance companies, which helps make you more profitable.

71) Do you have a move-in checklist?

Your property manager should have this list to let new tenants know exactly what to do during move-in

72) Do you have a move-out checklist?

For you and us, it seems obvious that tenants should clean a rental and take all the necessary steps to return a property to its original condition (or close to it). To tenants, this is not so clear. A move-out checklist will set clear expectations for tenants about what they should do during move-out.

73) What market updates and education can you offer?

Albert Einstein argued that if someone can’t teach a topic simply, they probably don’t know it well enough. If your property manager can’t keep you updated and educated then they probably are not experts themselves. This is why we develop a market update for Maricopa County every financial quarter and write articles discussing strategies for landlords. These can be found on our rent-it-blog.

Bonus Questions

74) What software do you use to help you manage properties effectively?

As previously stated, you want a company that manages more than a few properties. However, any company of adequate size will have trouble keeping track of its properties if they don’t have the right software to manage them.

75) What is their application fee for tenants?

Sure, it isn’t your money, but when a property manager has a high application fee you end up with a smaller pool of prospective tenants and a longer vacancy period.

76) How do you handle security deposits?

They should give you a very specific answer to this question and they shouldn’t be using the security deposits for anything until the tenant is out of the property. During a tenant’s tenure, the deposit should be kept in a trust account, which will make sure it complies with strict security deposit laws and that it’s safe and secure.

77) How many properties did you rent in the last year?

This number gives you some insight into the success of a property manager. If they haven’t rented very many properties then it is likely they are struggling.

78) What steps do you take to be “available” to your owners?

Any property management company should be able to list the ways that they have tried to improve the communication process with their owners.

79) What is your late rent fee?

There needs to be a late rent fee and it needs to be enforced, otherwise, tenants will find it very easy to not pay on time.

80) What are the steps to evict a tenant from a property in my area?

Any property manager should know the process for evicting a tenant. They should be able to tell you that they follow a strict legal procedure of notices, court filings, judgments, and lockouts.

81) In your opinion, what should a property look like when it is ready for tenants?

This is what we in the property management business refer to as “rent-ready.” You need to make sure that you and your property management company are on the same page. If they want to place tenants into poorly prepared properties, you need to continue your search.

82) Should we put a rental property on the market before it is ready for tenants?

Some owners like to try and put a property on the market before it is ready for tenants. The goal of this plan is to have it scheduled to be available with the hopes that someone will sign for it ahead of time. This would allow an owner to avoid time with the property vacant. While this sounds good in theory, it does not work in most cases. This plan usually backfires by adding more time to the days-on-market. Then, when prospective tenants see that it has been on the market for a while they think, “there must be something wrong with that property” and choose not to rent. Good property managers will know this, so test prospective managers with this question.

83) Do you employ bilingual or multilingual employees?

This is usually a good sign that a property manager is accepting of people of all cultures. Moreover, it will make your property more marketable to a wider audience if your property manager can work with prospective tenants in their primary language.

Top Ten Tax Deductions for Landlords in 2023

February 1, 2023 by Marco Santarelli

No landlord would pay more than necessary for utilities or other operating expenses for a rental property. Yet millions of landlords pay more taxes on their rental income than they have to. Why? Rental real estate provides more tax benefits than almost any other investment. The cost of operating and maintaining a rental property, such as repairs, insurance, and property management fees, are tax-deductible.

This can reduce taxable income and provide a financial benefit. Every year, millions of landlords pay more taxes on their rental income than they have to. Why? Because they fail to take advantage of all the tax deductions available for owners of rental property. Investment real estate provides more tax benefits than almost any other investment. Often, these benefits make the difference between losing money and earning a profit on a rental property.

Here Are the Top Ten Tax Deductions for Owners of Residential Rental Property:

1. Interest

Interest is often a landlord's single biggest deductible expense. Common examples of interest that landlords can deduct include mortgage interest payments on loans used to acquire or improve rental property and interest on credit cards for goods or services used in a rental activity. Interest paid on a mortgage used to finance the purchase or improvement of a rental property is generally tax-deductible.

2. Depreciation

Landlords can claim depreciation on the cost of a rental property over time, which can provide a tax benefit by reducing taxable income in the short term. The actual cost of a house, apartment building, or other rental property is not fully deductible in the year in which you pay for it. Instead, landlords get back the cost of real estate through depreciation. This involves deducting a portion of the cost of the property over several years.

3. Repairs

The cost of repairing or maintaining a rental property is tax-deductible, as long as the expenses are directly related to the rental property and are not capital expenditures. The cost of repairs to rental property (provided the repairs are ordinary, necessary, and reasonable in amount) is fully deductible in the year in which they are incurred. Good examples of deductible repairs include repainting, fixing gutters or floors, fixing leaks, plastering, and replacing broken windows.

4. Local Travel

Landlords are entitled to a tax deduction whenever they drive anywhere for their rental activity. For example, when you drive to your rental building to deal with a tenant complaint or go to the hardware store to purchase a part for a repair, you can deduct your travel expenses.

If you drive a car, SUV, van, pickup, or panel truck for your rental activity (as most landlords do), you have two options for deducting your vehicle expenses. You can:

deduct your actual expenses (gasoline, upkeep, repairs), or
use the standard mileage rate (56.5 cents per mile for 2013). To qualify for the standard mileage rate, you must use the standard mileage method the first year you use a car for your business activity. Moreover, you can't use the standard mileage rate if you have claimed accelerated depreciation deductions in prior years, or have taken a Section 179 deduction for the vehicle.

5. Long-Distance Travel

Landlords can deduct travel expenses related to managing a rental property, such as the cost of traveling to inspect the property, attend tenant-landlord meetings, and make repairs. If you travel overnight for your rental activity, you can deduct your airfare, hotel bills, meals, and other expenses. If you plan your trip carefully, you can even mix landlord business with pleasure and still take a deduction.

However, IRS auditors closely scrutinize deductions for overnight travel — and many taxpayers get caught claiming these deductions without proper records to back them up. To stay within the law (and avoid unwanted attention from the IRS), you need to properly document your long-distance travel expenses.

6. Home Office

Provided they meet certain minimal requirements, landlords may deduct their home office expenses from their taxable income. This deduction applies not only to space devoted to office work but also to a workshop or any other home workspace you use for your rental business. This is true whether you own your home or apartment or are a renter.

7. Employees and Independent Contractors

Whenever you hire anyone to perform services for your rental activity, you can deduct their wages as a rental business expense. This is so whether the worker is an employee (for example, a resident manager) or an independent contractor (for example, a repair person).

8. Casualty and Theft Losses

If your rental property is damaged or destroyed from a sudden event like a fire or flood, you may be able to obtain a tax deduction for all or part of your loss. These types of losses are called casualty losses. You usually won't be able to deduct the entire cost of property damaged or destroyed by a casualty. How much you may deduct depends on how much of your property was destroyed and whether the loss was covered by insurance.

9. Insurance

Premiums paid for insurance coverage on a rental property, including liability insurance and property insurance, are tax-deductible. You can deduct the premiums you pay for almost any insurance for your rental activity. This includes fire, theft, and flood insurance for rental property, as well as landlord liability insurance. And if you have employees, you can deduct the cost of their health and workers' compensation insurance.

10. Legal and Professional Services

The cost of professional fees, such as the cost of hiring a property management company or accountant, are tax-deductible. Finally, you can deduct fees that you pay to attorneys, accountants, property management companies, real estate investment advisors, and other professionals. You can deduct these fees as operating expenses as long as the fees are paid for work related to your rental activity.

Did You Know?

Did you know that:

Landlords can greatly increase the depreciation deductions they receive the first few years they own rental property by using segmented depreciation.
Careful planning can permit you to deduct, in a single year, the cost of improvements to rental property that you would otherwise have to deduct over 27.5 years.
You can rent out a vacation home tax-free, in some cases.
Most small landlords can deduct up to $25,000 in rental property losses each year.
A special tax rule permits some landlords to deduct 100% of their rental property losses every year, no matter how much.
People who rent property to their family or friends can lose virtually all of their tax deductions.

If you didn't know any of these facts, you could be paying far more tax than you need to.

It is essential to keep in mind that certain tax deductions can be subject to limitations or restrictions and that an individual's eligibility for particular deductions might be determined by their particular tax status as well as the kind of rental property they own. Furthermore, due to the fact that landlords are required by the IRS to establish the authenticity of all tax deductions, it is essential to keep precise and comprehensive records of all costs associated with rental properties.

In a nutshell, tax deductions for landlords can assist in lowering the amount of income that is subject to taxation and provide a financial benefit. However, it is essential to have a solid understanding of the constraints and boundaries imposed by particular deductions, as well as the need of maintaining precise records to substantiate the legality of deductions claimed. As always, be sure to consult with your tax adviser or tax professional.