NUTS & BOLTS
LANLDORD/ TENANT ISSUES
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Essential Element
up and sheriff fees. The first contact made with a tenant who is late on rent can dic- tate the difficulty or ease that the resolution of the issue will require. An eviction can truly eat up every penny of profit you expected to make this year on your investment property. INCREASE ROI, WITHOUT A NEWTENANT There are many different ways to entice a favorable tenant to remain in your home after his or her lease is up. Low-cost improve- ments and tokens of appreciation will help to greatly enhance a tenant’s attitude toward the property. As the final months of a tenant’s lease period approach, a landlord should make contact with and visit the tenant to see how to make that person’s stay more convenient should he or she elect to extend the lease. It is important to ensure this meeting is at the rental prop- erty, to assess the condition of the home. In the discussion should be the possibility of extension incentives for the tenant, along with any changes in monthly rental price. If you are hoping to increase long-term ROI, introducing furniture to a rental property can help. A couple of bargain couches, window blinds and a television set can be bought for $700 or less. Every appliance or piece of furniture introduced to a home can add $50 to your monthly income and essentially pay itself off within a few months. If the home you have invested in has pre-existing landscaping, maintaining this look for tenants will help keep the home desirable. The Journal of Arboriculture recently published a study that con- firms our suggestion: Landscaping can add 7 percent to the monthly rental rate of a property. THE BOTTOM LINE Tenant turnover repairs often prove to be more costly than incen- tives, so it is always a good idea to try to keep a good tenant close. A positive relationship between landlord and tenant is advantageous for many reasons—most importantly, return on investment. The main purpose of having a rental home is to collect an attrac- tive, passive profit, not chase tenants around for rental payments or repair costs! The end of a tenant lease cycle can serve to dwindle or boost profits, and it is up to the intelligent investor to ensure that no significant losses will sway those profits. •
RESOURCES
MARK FERGUSON Invest Four More 970-371-6333 mark@investfourmore.com BRAD CHANDLER Founder/CEO Express Homebuyers USA LLC 571-212-0034 brian@sparkrental.com
THE TENANT LIVING IN YOUR RENTAL PROP- ERTY MAY BE THE SINGLE MOST IMPORTANT VARIABLE IN YOUR INVESTMENT FORMULA.
by Michael Jordan
R
eturn on Investment for a rental property is calculated with several different variables, including acquisition price, yearly taxes, insurance and expected monthly rental rate. These variables are all objective, so their numbers can be increased or decreased, depending on market conditions and due diligence. There is another variable upon which ROI hinges and that can boost profits and keep an investment property moving forward. It also has the ability to completely squander all possible profits, if not approached with delicacy. The tenant living in your rental property is arguably the single most important variable in your investment formula. Your tenant-landlord relationship is essentially a business part- nership, where you’re making the money and the tenant receives a stable, low-maintenance living arrangement. Ensuring that the tenant has respect for your investment and the ability to afford the cost of living is crucial to your ROI. EVICTIONS HURT MORE THAN JUST INCOME A single missed rental payment can snowball into a mess of tenant debt, distrust and wasted income potential. Consider the scenario of a rental home with the following stats: Initial Investment—$55,000 Expected Monthly Rent— $800 per month Taxes, Insurance and Management Fees— $250 per month Yearly Return on Investment—12 percent ($6,600) These numbers are real and are taken from a home in our inven- tory. After accounting for all fees, the investor is making 12 percent in profit off $55,000 in a year. But if the tenant falls behind on a single payment, that cuts the ROI down to about 10 percent. Two more missed payments, and ROI has been essentially slashed in half. Nobody signs up for 6 percent returns on a $55,000 property! In the worst-case scenario of tenant nonpayment, evictions are filed, which may take up to 90 days to legally process. The entire eviction process has costs: court fees, lawyer fees, clean-
BRIAN DAVIS Director of Education Spark Rental www.sparkrental.com 410-499-9026 brian@sparkrental.com
6 7 too much. If that’s the case, cut your losses or, at the very least, sell an underperform- ing or difficult property so your portfolio is more manageable. YOU HAVE THE OPPORTUNITY TO PURCHASE A BETTER PROPERTY. Don’t fool yourself—just because a property has a positive cash flow doesn’t mean you should never sell it. In fact, a cash-flowing property could cost you money if, by holding it, the property ties up funds that could be used to purchase an even better property.
replace “headache” properties with ones that you actually enjoy owning. YOU WANT TO CHANGE YOUR IN- VESTMENT STRATEGY. Similarly, you could be losing money by sticking to an investment strategy that doesn’t work for you anymore. For example, most investors start investing in single-family residences but can poten- tially make more money in multifamily and commercial properties, development or other investments. If you’re ready to branch out, it’s time to sell, replace and earn more money. On the other hand, if you are comfort- able investing in single-family residences and don’t feel ready for other types of real estate investing, you’re taking an even bigger risk by making the leap. Stay put. •
TRACEY HAMPSON Real Estate Agent Century 21 Troop Real Estate 661-993-6124 thampson@troop.com SEP NIAKAN Owner/Broker HB Roswell Realty 305-725-0566 sniakan@hbroswell.com
“Sometimes, it just makes sense to clean house and sell off one or two investments,” Davis says. If you’re not sure whether you should be selling a few properties off, he adds, it’s usually a good sign that it’s time to do just that. Chandler agrees. “It makes sense to get rid of the bottom 10 percent and replace themwith better properties,” he says. “Keep funneling new and better properties in.” Rotating better properties into your portfolio also gives you the opportunity to
sake of his personal and professional life. But you don’t have to be losing money for a property to take too much of a toll. Investing in real estate requires time to find properties, renovate them, market them and manage them. Even with a property management company, it can be
Michael Jordan is the founder and president of Strategy Properties, whichwas formed in 2003 under the name JordanVentures Inc., with its initial focus on new-home construction inWayne County, Michigan. The company now has become a key provider of rental homes in the state of Michigan andmany other cities across the nation. You can reach Jordan
Teresa Bitler is a regular freelance contributor to Think Realty Magazine. Contact her at teresa@teresabitler.com
at mike@strategyIG.com or 734-224-5454. www.StrategyProperties.com
78 | think realty magazine may :: june 2017
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