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Turnkey Properties Will be Game Changer for New Real Estate Investors in 2025

December 18, 2024 by Marco Santarelli

Turnkey Properties Are Game Changer for New Real Estate Investors

Have you ever thought about diving into real estate but felt overwhelmed by the complexities of the market? If so, let me tell you: turnkey properties are a game changer for newbie real estate investors. These investment gems can simplify the buying process and provide immediate returns without the usual headaches associated with property management. Let’s explore why these properties are becoming a favorite among first-time investors and how they work.

Turnkey Properties: Game Changer for New Real Estate Investors in 2025

Key Takeaways

  • Turnkey Properties Defined: Fully renovated homes ready to rent out.
  • Investment Ease: Minimal hands-on effort for investors.
  • Immediate Cash Flow: Start earning from day one.
  • Professional Management: Many come with management services.
  • Lower Risk: Reduced chances of hidden repair costs.

What Exactly are Turnkey Properties?

Turnkey properties are fully renovated homes that are ready for tenants to move in right away. This concept is all about convenience. Imagine a real estate investment that doesn't require you to lift a finger for repairs, renovations, or tenant management. These properties are typically bought from professional investors or real estate companies that handle the heavy lifting for you. They fix up the property, ensure it meets safety and regulatory requirements, and then sell it as an investment property that generates income right after purchase.

Why Turnkey Properties Appeal to New Investors

Newbie investors often encounter steep learning curves when trying to understand real estate. Some feel overwhelmed with the renovation, marketing, and tenant screening processes that come with traditional rental properties. However, with turnkey properties, the hassle is minimized, allowing investors to focus on the financial benefits.

  1. Minimal Effort Required: New investors generally do not have experience in property management or renovation. Turnkey properties eliminate the need to manage these processes. You can simply purchase a property, find tenants, and collect rent.
  2. Immediate Cash Flow: Unlike traditional real estate investments, which may require significant time and money to prepare the property for rent, turnkey properties are ready for rental right away. This means you can start earning income almost immediately. According to a report by the National Association of Realtors, nearly 30% of real estate investors are new to the market, and many are drawn by the prospect of instant cash flow.
  3. Professional Management Services: Many investors or companies offering turnkey properties also provide property management services. They deal with tenant applications, lease agreements, and maintenance issues, allowing you to enjoy a passive income.
  4. Lower Risk of Surprises: Traditional property investments often come with hidden costs for repairs, renovations, or unexpected vacancies. With turnkey properties, you can conduct thorough inspections before purchase and know upfront what you're getting into. Well-managed properties usually have detailed histories of repairs and updates, which can further minimize surprises down the road.

How to Identify Good Turnkey Properties

Finding the right turnkey property requires some diligence. Here are some points to consider:

  • Research the Market: Look into areas with a strong rental demand or a growing job market. Check websites like Zillow or Realtor.com for property comparisons and recent sales trends.
  • Inspect the Property: Always conduct a thorough inspection of the property before purchasing. A good inspection can help you identify any potential problems or maintenance issues that may affect your investment.
  • Check References of Management Firms: If you plan to use property management services, ask for references. A good property management company can make or break your experience as an investor.
  • Evaluate Costs vs. Expected Income: Ensure that the potential rental income will justify the purchase price. Be smart with your calculations; even a small property can provide good returns if managed correctly.

The Financial Benefits of Turnkey Properties

Investing in turnkey properties presents various financial advantages that can be attractive to new investors.

  • Cash Flow Generation: One of the main attractions of turnkey properties is the potential for cash flow. Having a tenant in place from the get-go means you can enjoy immediate profit margins. For example, if you purchase a property for $200,000 and charge $1,800 in rent per month, you can potentially earn $21,600 in rental income annually, minus expenses.
  • Tax Benefits: Like all real estate investments, owning a turnkey property can yield tax benefits. You can potentially deduct mortgage interest, property taxes, and certain operational costs. This can significantly improve your overall cash flow scenario.
  • Appreciation Potential: In addition to cash flow, your property stands to appreciate over time. The value of real estate generally increases, particularly in neighborhoods that are seeing growth, making it a viable strategy for long-term investors.

Real-Life Examples of Success

Many investors have found success with turnkey properties. For instance, one investor in Florida bought a turnkey rental home in an area with a rapidly growing economy. The property was renovated to modern standards and came with a tenant already in place. Within just a few months, she was not only covering her mortgage but generating profit that she reinvested into additional properties.

With stories like this, it's clear that the opportunity for success is abundant. Investors can achieve freedom from their traditional jobs and pursue real estate as a meaningful means of generating income.

Challenges to Consider

While turnkey properties provide a lot of benefits, they are not without their challenges.

  • Higher Initial Costs: The cost of purchasing a fully renovated property may be higher than that of a fixer-upper. However, many investors find that the reduced risks and immediate cash flow justify this expense.
  • Variable Management Quality: Not all property management companies are created equal. Poor management can lead to reduced occupancy rates and higher turnover costs, eating away at your profits. It's vital to conduct thorough background checks on management firms.
  • Market Dependency: Investing in turnkey properties often requires keeping an eye on market trends. Should a recession occur, property values can decline or your rental property may go vacant if tenants are unable to afford rent.

Partner with Norada in 2025, Your Trusted Source for Turnkey Investment Properties

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Final Thoughts

Turnkey properties have made real estate investing more accessible than ever, and as they grow in popularity, they may very well be the key to unlocking financial success for new investors. Turnkey properties are revolutionizing the way that new investors approach real estate.

They present a compelling opportunity to earn passive income without the usual headaches of property management and renovation logistics. With immediate cash flows and the possibility of long-term appreciation, these properties can be a wise investment for those just starting their journey in real estate. By conducting thorough research and due diligence, investors can harness the power of turnkey properties to secure their financial future.

Also Read:

  • Why Smart Investors Are Buying Cleveland Turnkey Real Estate
  • Is Turnkey Real Estate a Smart Investment Choice for Beginners?
  • Turnkey Homes for Sale Are Selling Fast in 2024
  • Turnkey Real Estate Investment: A Guide For Beginners
  • What is Turnkey Rental Property Investing?
  • What is Turnkey Rental Property Investing?
  • Top Real Estate Markets for Turnkey Investment Properties
  • Housing Market Predictions for Next Year: Prices to Rise by 4.4%
  • Housing Market Predictions for the Next 4 Years: 2024 to 2028

Filed Under: Housing Market, Real Estate Market Tagged With: New Investors, Property Management, Real Estate Investing, Rental Income, Turnkey Properties

Rental Property Insurance: Protect Your Investment Today

November 4, 2024 by Marco Santarelli

Rental Property Insurance

What is a Rental Property Insurance?

Rental property insurance is a type of insurance policy designed to protect property owners who rent out their properties to tenants. It provides coverage for damages or losses to the rental property caused by certain perils, such as fire, theft, vandalism, and natural disasters. Additionally, rental property insurance can provide liability coverage, which protects landlords from legal claims and lawsuits brought by tenants or other third parties who suffer injuries or property damage while on the rental property.

The coverage provided by rental property insurance typically includes the physical structure of the rental property, as well as any personal property that is owned by the landlord and kept on the property for tenant use, such as appliances, furniture, and fixtures. Some rental property insurance policies may also cover lost rental income if the property becomes uninhabitable due to a covered loss.

It's important to note that rental property insurance is different from renters insurance, which is designed to protect the personal property of tenants rather than the property itself. If you own a rental property, it's important to consider purchasing rental property insurance to protect your investment and financial interests.

Understanding Rental Insurance Coverage Options

Rental property insurance is essential for landlords who want to protect their investments from unexpected losses and liabilities. There are several types of coverage available with rental property insurance, each of which is designed to provide protection for different risks that landlords may face.

One of the most important types of coverage is property damage. This coverage helps landlords pay for repairs or replacement of their rental property if it is damaged by a covered event, such as a fire, storm, or vandalism. This coverage is essential for landlords because repairs to rental properties can be expensive, and damage can lead to lost rental income [1].

Another important type of coverage is liability insurance. This coverage helps landlords pay for legal fees and damages if a tenant or visitor is injured on their property. Liability insurance can also cover damages caused by a tenant’s actions, such as if they accidentally start a fire. Without liability insurance, landlords could be personally responsible for these costs, which could be financially devastating [2].

Finally, rental property insurance can also include coverage for lost rental income. This coverage provides landlords with compensation if their rental property is uninhabitable due to a covered event, such as a fire or flood. This coverage can help landlords pay their mortgage and other expenses while repairs are being made [1].

It is important for landlords to understand which types of coverage are included in their rental property insurance policy and which types of coverage may be necessary to add. Depending on the specific risks that a landlord faces, additional coverage may be required to fully protect their investment.

Choosing the right rental property insurance policy can be challenging, especially for first-time landlords. There are many factors to consider, including the size and type of property, location, budget, and specific risks that need to be covered. Here are some tips for choosing the best rental property insurance policy:

  1. Understand the coverage options: As discussed in the previous section, there are several types of coverage available with rental property insurance. It is important to understand what is included in a policy and which types of coverage may be necessary to add based on the specific risks a landlord faces.
  2. Shop around: It is important to compare policies and prices from several different insurance companies before choosing a policy. This can help landlords find the best coverage for their budget and specific needs.
  3. Consider the deductible: The deductible is the amount that a landlord must pay out of pocket before insurance coverage kicks in. A higher deductible will generally result in a lower monthly premium, but it may also mean higher out-of-pocket costs in the event of a claim.
  4. Look for discounts: Some insurance companies offer discounts for landlords who have multiple properties, have installed safety features in their rental properties, or have a good claims history. It is important to ask about discounts when shopping for insurance.
  5. Work with an insurance agent: An experienced insurance agent can help landlords understand their options and choose the best policy for their needs. They can also provide guidance on how to reduce risks and prevent claims.

How to Choose the Right Insurance for Your Rental Property?

The number one goal of your rental business should be to make money, not give it away.  One way to protect you and your investment is to have proper insurance in place. Let me introduce you to four insurances that you should consider.

A Good Lease

The first insurance that I possess is the insurance of a good lease and a thorough move-in inspection. More than once I have referred to the pictures of a move-in inspection to counter a tenant's claim about a pre-existing condition. I remember one time during a preliminary move-out inspection I noted a cracked ceramic floor tile. The tenant claimed that it was like that when they moved in.

I turned on my laptop, pulled up the appropriate picture from the move-in inspection, and proved to the tenant that the crack was not there when they moved in. The next insurance that I possess is the kind purchased from my friendly neighborhood insurance professional. However, take note that there is more to consider than just regular old homeowner's insurance. There are several kinds of insurance that you want to consider as a landlord.

Property Insurance

When it comes to insuring my personal rental properties, I have a landlord policy on each rental unit that I own, whether that unit is paid off or not. Landlord policies have the added benefit of additional liability protection for the landlord. You also need to ensure that each policy carries sufficient coverage to satisfy your mortgage lender.

Depending upon your rental's geographic location, there are some additional property insurance policies you may want to consider. In California, many people have earthquake insurance. In other areas, you may want to investigate flood insurance. Your insurance professional can educate you on the particular hazards you might wish to insure against for your area.

Umbrella Insurance

The third insurance that I have is an umbrella policy, which acts like an umbrella over all of my other existing insurance policies. Examples of when this coverage may come into play include when a guest of your tenant slips and falls in one of your rental properties and is severely injured, or when a storm occurs and a neighbor's property is damaged by a tree falling from your property.

Your landlord insurance policy has a liability limit. The umbrella policy picks up after those limits are exhausted and therefore usually carries a very high deductible, $300,000 or higher. Those deductibles seem high until you are sued for $750,000 and lose. In this example, the first $300,000 would be picked up by your primary insurance; the balance of $450,000 would be yours to pay. An umbrella policy helps pay that off. Otherwise, virtually everything you own would be a fair game against that judgment.

Renter's Insurance

The fourth insurance is renter's insurance. Remind your tenants that their personal property and vehicles, or those of their guests, are not covered by any of your insurance policies against loss or damage due to fire, theft, vandalism, rain, water, criminal or negligent acts of others, or any other cause. Coverage for those items comes only through a renter's insurance policy.

Renters' insurance traditionally covers the tenant's and any guest's possessions, like furniture, clothes, computers, and bikes. Additionally, if a plumbing backup floods your property and renders it uninhabitable, the renter's insurance may cover the cost of a temporary place to live until the tenant can move back into your property. Some renter's insurance policies may also have protection for the tenant against lawsuits.

You should always require renter's insurance when the tenant has a pet in the residence. You do not want the tenant's dog biting a neighboring kid and then have the neighbor sue you. At my office, we will not allow tenants to receive keys without proof of a paid-in-full renter's insurance policy. If the tenant does not have a policy at the time of lease signing, we make the tenant call an insurer and obtain one on the spot.

Insurance is all about risk management; you buy or require insurance to manage some of those risks. Knowing your real estate laws is the best defense. After that, obtaining the insurance discussed in this article is an intelligent way to begin managing your risk. By following these tips, landlords can find the best rental property insurance policy to protect their investment and provide peace of mind.

Filed Under: Asset Protection, Property Management, Real Estate Investing Tagged With: Asset Protection, property insurance, Property Management, Real Estate Investing, Renter's Insurance, Umbrella Insurance

Guide to Setting Rental Rates for Your Rental Property

April 11, 2024 by Marco Santarelli

Guide to Setting Rental Rates for Your Rental Property

Setting the right rent can be one of the most difficult areas for many people who are investing in rental property.  If your property rents out in no time, it could be an indication that you are not charging enough rent.  On the other hand, if your property seems to take a long time to rent out, it could be a clear indication that your rent is too high.  So, how do you go about setting a rental rate that is in line with the current market?

Setting the right rental rate for your property is crucial for balancing income maximization with tenant attraction. Here's a comprehensive guide to assist you through the process.

One of the best places to start is the local newspaper.  It is imperative that you do some research to find out what rent prices are driving the local market. Location is the most important factor in determining rental rates. For example, a three-bedroom, one-bath home in one part of town may rent for $1,100 a month while a similar property on the opposite side of town may only be able to draw $900 per month.

The internet is another good resource to research your local rental rates.  For example, a website like www.RentOMeter.com can give you a very good indication of your local rental rates provided they have enough rental “comps” for your given area.  Other websites like www.Rent.com and www.CraigsList.org can be very useful as well.  Be sure you compare “apples to apples” when it comes to your property's location, square footage, bedrooms and bathrooms.

Most prospective tenants look for convenience when searching for a rental property. They are either looking for a location that is near their work or close to their children's schools.  Neighborhoods that are considered to be trendy or hip can also be a driving factor, as many people like the idea of living in a certain type of neighborhood.

Of course, the budget of the renter will also play a role in determining how much they are willing to pay for rent.  Due to the fact that most renters have needs that must be filled, especially in terms of space, it is quite common for square footage to also play a major role in determining rental rates.  This means that larger homes and units will typically be able to rent for rates that are higher than smaller homes and units.

When setting rental rates, however, it is also important to keep in mind that there is a certain point when rental rates reach a cap.  When interest rates are low and rental rates rise too high, renters will quickly realize that it just doesn't make sense to rent any longer when it could be less expensive to buy a home.

Another way to make sure that you stay updated on rental rates in your local area is to join a local association for landlords.  This is a great way to make sure that you keep your finger on the pulse of the local rental market.  Emerging trends in the area will not only affect you but other landlords as well.  For example, if your particular area is in an economic slump or an economic boom then this could have an effect on local rental rates.  Make sure you keep track of whether there have been job losses or the creation of new jobs in your local area.

It is also important to keep in mind that basic amenities can also play a role in determining how much rent you can charge for your unit or apartment.  Some of the basics expected by most prospective tenants include off-street parking, washer and dryer hookups, dishwashers, etc.  If these basic amenities are not available, you may find that you need to either lower your rental rate or offer something else to attract prospective tenants.

How to Set the Right Rent for Your Rental Property?

Understanding the Market

  • Rental Comps: Research rents for similar properties (size, type, location, amenities) to establish a benchmark for your pricing strategy. Utilize online listings and seek guidance from property managers or real estate experts familiar with your area.
  • Market Trends: Assess the demand for rentals in your area. In a landlord's market, higher rents are feasible, while a surplus of vacant units in a tenant's market might require competitive pricing to attract tenants.

Property Characteristics

  • Location, Location, Location: Prime locations with excellent schools, safety, and amenities typically command higher rents. Evaluate proximity to public transportation, parks, and shopping centers.
  • Condition and Size: Well-maintained properties with modern finishes justify higher rents compared to older units in need of renovations. Square footage, number of bedrooms, and bathrooms are also influential factors.
  • Unique Features: Highlight features like a pool, garage, or washer and dryer, as they add value and can justify an increase in rent.

Financial Considerations

  • Your Expenses: Calculate mortgage or property taxes, insurance, maintenance costs, and property management fees (if applicable) to establish a minimum acceptable rent.

Setting Your Rent

  • Balancing the Factors: After assessing market rents, property value, and financial needs, determine a competitive rental price.
  • Be Strategic: Consider offering slightly lower rents to attract high-quality, long-term tenants, reducing vacancy periods and tenant turnover costs.

Additional Tips

  • The 2% Rule: While not foolproof, some utilize the 2% rule, estimating rent at 1-2% of the property value. However, it should supplement, not replace, market research.
  • Stay Informed: Rental markets fluctuate. Continuously monitor rental listings and consult property management professionals to stay abreast of current trends.

By diligently following these steps and conducting thorough research, you can set a rental rate that attracts qualified tenants while ensuring a healthy return on your investment.

Filed Under: Property Management, Real Estate Investing Tagged With: Landlording, Property Management, Real Estate Investing, Rental Rates

What to Consider When Hiring a Property Management Company?

April 10, 2024 by Marco Santarelli

What to Consider When Hiring a Property Management Company?

If a property owner manages a growing number of investment properties, it’s inevitable that the day will come when they ask, “Should I outsource the day-to-day operations of my business to a property management company?”

Deciding when to outsource and which company to hire is one of the most important business decisions a property owner can make. Choose wisely, and an owner will be rewarded with the peace of mind that comes with responsible property management. Choose incorrectly, and an owner will end up working harder after hiring a property management company.

Whether an owner owns one or one hundred properties, it’s important to consider whether or not they’re prepared to hire a property management company. Handing over the management of property is a major decision. Before making that choice, owners will want to make sure they understand the following:

  • The implications of self-owned management;
  • The pros of outsourcing management to a third party;
  • The corresponding cons; and,
  • The alternatives to outsourcing.

Let’s take a look at each consideration in detail.

Things to Consider When Hiring a Property Management Company

What’s Involved in Effective Owner Management?

Owning and managing property require two different skill sets. Unfortunately, many property owners purchase property not knowing the full responsibility that management entails. Before a person jumps into purchasing rental properties, they’ll need to understand what is going to be required of them.

  • Knowledge of landlord/tenant laws. Familiarity with the state laws that govern the landlord/tenant relationship is a must for any property owner. If owners aren’t comfortable with their level of knowledge or experience in this area, they could be leaving themselves open to lawsuits and fines. For example, the federal Lead-Based Paint Hazard Reduction Act requires the disclosure of lead-based paint and hazards before the lease of most units built before 1978. Owners can face a $10,000 fine if they fail to do so. Airtight contracts and leases are also extremely important for protecting owners from lawsuits and recouping lost costs.
  • Time and expense spent visiting properties. Rental properties are going to require regular visits to check on the condition of the property, perform emergency maintenance or show vacant units. If owners’ properties are far away from home or each other, they will spend a lot of time in transit. If owners attempt to self-manage too many properties, they run the risk of spending all their time performing routine visits instead of managing their business.
  • Responsibility for repairs and maintenance. A landlord needs to have a diverse range of skills to perform maintenance themselves. At the very least, a landlord needs to have basic plumbing, electrical, carpentry and landscaping skills to properly maintain a property. If they’re not well-versed in these areas, they’ll be spending revenue on repair services. While family members and friends can be labor outlets, relying on such help comes with inherent risks.
  • Effective tenant screening. An owner will quickly need to become good at weeding out problem tenants during the screening process. If an owner only has a few units and has to replace a problem tenant a few times a year, their profit is likely going to drop dramatically. Credit checks, employment verification and collecting references are key in this process.
  • Ability to deal with difficult tenants. Even if landlords screen tenants thoroughly, they will inevitably interact with unhappy or unruly tenants. Whether the tenant is simply unhappy or in violation of rules and facing eviction, a landlord needs to stand firm in the face of adversity and enforce the rules of the lease. If they’re not able to confront people, a property owner risks being taken advantage of by tenants. In the most extreme cases, landlords may even need to rely on lawyers or courts to settle issues and pay hefty fees.
  • Good property management software. If an owner is managing a decent number of units, they’ll want to invest in software to manage their investment properties. Investing in a robust property management system has the ability to increase efficiency by:
  • Accepting rental payments online;
  • Performing credit and criminal background checks;
  • Decreasing advertising costs by automatically posting units to popular listing sites;
  • Automatically reminding tenants to pay their rent;
  • Eliminating poor record keeping by automating certain processes; and
  • Creating letters and tax forms automatically from pre-existing data.

A solid property management system can be a good tool to have, especially for a novice property owner.

Benefits of Hiring a Property Management Company

If a property owner decides that they’re not able to properly manage their property, it’s important to understand what side effects they should expect. In general, a well-run property management company will yield these results for owners:

  • Increased revenue. A property management company is more experienced at advertising and usually has access to larger pool of potential renters, meaning units typically stay vacant for shorter periods of time. A property management company also has a better understanding of the local rental rates, putting them in a position to maximize the amount you can charge per property.
  • More free time. Naturally, once an owner hands over the responsibility of managing its properties to a company, they’re going to have extra time on their hands. This is perhaps the most obvious – and enjoyable – benefit of hiring outside help. The property management company becomes the owner’s one point of contact for all things related to their property, eliminating the need to juggle a number of different vendors and services. A property owner can also use this extra time to expand their portfolio and focus on growing the business.
  • Reduced direct costs. A property management company is be able to perform preventative maintenance, reducing the direct costs to the property owner. Furthermore, a management company will likely have extensive knowledge of local landlord/tenant laws, helping shield the owner from costly lawsuits. One lawsuit avoided may pay for years of property management fees. Finally, the management company likely has more experience screening tenants. This reduces vacancy cycles and damages from poorly screened tenants.

Drawbacks of Hiring a Property Management Company

Of course, outsourcing management involves risks that need to be considered. A property management company that is negligent in responsibilities could cause more headaches for their owners. The most common downsides include the following:

  • Cost. A property management company will charge an owner between 3%-12% of the property’s gross monthly rent to manage it, depending on the level of service. For a property with a large number of units, this can be a significant cost.

Keep in mind that management fees aren’t the only fees that may be assessed by a property management company. Many companies charge additionally for creating or renewing leases, performing maintenance, and advertising vacant properties.

  • Possibility of developing a bad reputation. The most vocal tenants in any community are those who are unhappy with management. Unfortunately, as more and more tenants flock to web sites to voice their disapproval with property managers, a property owner can can earn a bad reputation that will be displayed online indefinitely. Many rental property rating web sites have been around for nearly a decade now, which means bad reviews exist long after management has been changed or improved.
  • Potential for inadequate record keeping. In most cases, a property management company is solely responsible for all record keeping, including accounts payable and receivable, service records and tenant complaint records. If the management company does a poor job keeping records, the owner may be completely lost once they part ways. Inadequate record keeping can also leave an owner with no ground to stand on if a tenant files a legal complaint.
  • Vulnerability to lawsuits. It was mentioned before that a good property management company can help an owner avoid lawsuits. The opposite is true with a poorly run management company. A company that doesn’t keep up to date on changes in landlord/tenant law, or worse, doesn’t have a good understanding of the law in the first place, is leaving the owner open to a lawsuit. A single lawsuit could cripple a owner.

Ultimately, a property owner must determine if the benefits of hiring a property management company justify the expense. Owners who are able to outsource to effective companies and focus on growing the business would likely agree that the pros of outsourcing outweigh the costs.

Not Ready To Hire a Property Management Company?

An in-between option that exists between outsourcing and owner-management is hiring a residential manager. A residential manager is a person who lives on-site in one of the units and takes care of basic tasks related to the management of the property.

These basic tasks may include:

  • Showing vacant units to prospective renters;
  • Performing light maintenance and clean up; and,
  • Coordinating with repair persons to fix maintenance issues.

If owners find themselves stretched thin but still not ready to hire a property management company, hiring a resident manager can be a good bridge between those two options.

Choose Wisely

Whichever route a property owner decides to take, a firm understanding of what property management entails will be essential for success. For owners who choose self-management, they’ll need to become property management experts. For the owners who outsource their management, not knowing the industry will lead to trouble down the road.

The lesson is to know the ins and outs of property management, no matter who manages it.

Filed Under: Property Management, Real Estate Investing Tagged With: Property Management, property management company, property management firm, Real Estate Investing

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:

  1. Building interest or excitement in the property,
  2. Building trust in you, the landlord or property manager, and
  3. 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.

Filed Under: Property Management, Real Estate Investing Tagged With: Property Management, Real Estate Investing, rental property

One-Year Rent Guarantee – Too Good to be True?

May 2, 2013 by Marco Santarelli

Earlier this year Norada Real Estate added a One-Year Rent Guarantee as part of every investment property purchased through their network. The response by investors has been very positive and overwhelming.

A few people made the comment that it sounded, “too good to be true”. In response to those comments, I present the following excerpt from an interview conducted with Robert T. – a landlord with several properties. Rob's properties are protected by the same policy we provide all our investors. Shortly after his policy was placed, he experienced a vacancy and filed a claim. The following is an excerpt of an interview conducted with Rob in February, 2013.

[Read more…]

Filed Under: Property Management, Real Estate Investing, Real Estate Investments Tagged With: Property Management, Real Estate Investing, Rent Guarantee

My Tenant Stopped Paying the Rent – What Can I Do?

February 11, 2013 by Marco Santarelli

Non-payment of rent is a serious problem. It is one of those predicaments that places the landlord in a difficult situation. Moral and ethical values are often challenged by the need to collect the rent. If your only two choices are to evict a family that has fallen on hard times, or to go weeks or months without getting paid, the right choice isn't always obvious. Most landlords have a conscience and genuinely care about the safety and well-being of their tenants. So the challenge is finding a solution that works out well for your tenant, as well as for your bottom line.

[Read more…]

Filed Under: Property Management, Real Estate Investing Tagged With: Property Management, Real Estate Investing, Tenants

5 Tips for New Landlords

June 4, 2012 by Marco Santarelli

The constant fluctuations of the housing market can mean many things in terms of property investment, rental rates and the life of a landlord. We know, for instance, that there is a higher percentage of renters in the United States than there has been in quite sometime. But what we haven’t addressed is that there are also more landlords.

Whether you have found yourself in a property investment deal that didn’t go quite as planned or you’ve moved to another house while your old property has sat on the market for far too long, you yourself may have already become a landlord due to a lack of options. The life of a landlord can be financially rewarding, but it can also be complex and draining with many rules, laws and advice to wade through. In this article we want to distill a few of the more important tips that will lead to a better life for both you and your tenants.

[Read more…]

Filed Under: Property Management, Real Estate Investing Tagged With: Property Management, Real Estate Investing

How to Handle Bad Tenants

February 6, 2012 by Marco Santarelli

Bad tenants are a landlord's worst nightmare. Between not paying their rent, trashing your rental property, allowing pest infestations, committing criminal acts in the property and a hundred other miserable acts, bad tenants can make a landlord's life miserable. Fortunately, there are tactics you can employ to minimize the damage caused by bad tenants.

First Line of Defense: An Airtight Lease Agreement

Before you allow a tenant to move into your property, you can lay the groundwork for addressing future problems by using an airtight lease agreement. Every state has different landlord-tenant laws governing what your lease agreement can contain, so be sure to use a state-specific lease agreement. Sometimes they can be obtained through your state's website, but more likely you'll have to buy one online.

[Read more…]

Filed Under: Property Management, Real Estate Investing Tagged With: Bad Tenants, Property Management

Finding Good Tenants

March 3, 2011 by Marco Santarelli

Ideally, you’d have tenants who paid promptly every month, never complained, and lived in your property for a long time while maintaining it in pristine condition. But that ideal seldom happens for the simple fact that we’re dealing with human beings. They move, get sick, marry, have different temperaments and needs, and so forth – all of which can affect the goals you have for your properties.

However, there are general guidelines you can follow in order to get the best possible tenants, the ones who do pay on time and who seldom complain unless there’s a good reason to do so:

Guideline 1: Qualify Your Applicants

This is a vital first step, because it helps identify great tenants and eliminate potential trouble-makers. The process of qualification involves a combination of asking good questions and using your intuition about an applicant. What are good questions to ask?  Here’s a suggested list to which you can add your own questions:

[Read more…]

Filed Under: Property Management, Real Estate Investing Tagged With: Finding Good Tenants, Property Management, Real Estate Investing

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