December 12, 2016
I can’t make a decision on my property manager just yet, I need to run some projections on the potential costs and benefits, so I moved along to do quick research on the other list items.
This turned out to be a great idea.
Refinancing! or not.
I ran some initial numbers with Quicken Loans, they wanted to give me a 30-year-fixed loan with $4899 in closing costs and 2 points for a rate of 3.625. I’d save $238 monthly, but with the closing costs, it’d take 21 months to break even.
My current company offered me a 15 year loan, 4.25 / 4.38 with 2 discount points, and the monthly payment goes up by $247. Not the goal.
They also offered a 20 year loan, 4.375 / 4.25 points with 2 discount points, and the monthly payment goes up by $250. Also not the goal. These loan costs are before we calculate the other costs of refinancing: an appraisal running somewhere between $575-625, and closing costs.
Overall, it seems like it’s just not the time for refinancing.
New home warranty
My old home warranty company was bought out by American Home Shield who tried to increase the premiums by 20% at the time of renewal. Even if my profit margins weren’t quite slim, that wouldn’t be acceptable.
My property manager found me a second policy with First American Home Buyers Protection Corporation, at a lower rate than I was paying before, for just about the same coverage and lower call-out costs. Savings: $200 for the annual policy, and $10 off each call-out.
New property insurance
I’m usually all about automating bill-paying so I went for holding the property taxes and hazard insurance in escrow. Pay three bills in one, what’s not to love?
Here’s what – I didn’t see the bill, therefore I didn’t think about it much, therefore I didn’t put it on the list of bills to attack. It did catch my attention briefly when the bill went up bit at renewal time, then it slipped back off my plate shortly after.
No more!
In a burst of productivity, I have …
- gotten a quote from a new insurance company,
- started a new policy
- submitted a request to remove the property taxes from escrow,
- had the new company send a cancellation notice to my old insurance company to avoid having to tell them that I’m dumping them, but we’ll see if they make me talk to them anyway.
The new insurance agent was very responsive by email, exactly how I like doing business, which meant I wrapped the whole process from quote to finish in 9 days.
With any luck, I’ll come to a decision about the property manager soon and then I’ll have shelved a year’s worth of administrative maintenance stuff – woo!
The unfortunate thing is that this stuff always occurs to me at the end of the year. Because what better time is there for sorting out all your paperwork and paying big lump sums like insurance policies then at the end of a long year? The only good thing is that, for the rental at least, I keep all the expenses and income in a separate account so it doesn’t impact our personal finances.
:: When’s the last time you evaluated your insurance, property, auto, renters, life, or otherwise? Do you carry any other than the required auto insurance?
October 17, 2016
Has it really been so long since my last update? Whoops.
Things have mostly been going well, but I’m definitely seeing the downside of hired property management. Not that I have a choice, the property is an unrealistic distance from us so I can’t drive over there and manage it myself. But when your property manager’s responsiveness goes down by 55% despite your specifically calling them out for it, then it’s time for a change.
I’m also in the market for a new home warranty company, and a new loan! If possible, I’m looking to refinance since my original interest rate was not favorable at all and I need to bring our monthly costs down.
But let’s start with one thing at a time since I get that “mountain sitting on my chest” feeling from all the things that feel like they must be done NOW.
- I contacted my broker, and investing friend, to get recommendations for a new property manager. (Turns out that same friend is also considering a change because we use the same person and it’s not just me, the service has been much less attentive than it should be.)
- The broker gave us a recommendation for a boutique property manager. The fees are pretty high, in addition to the monthly 10% off the top, so I’m thinking about what it is I want and how much I’m willing to pay. I want the kind of hands-on detailed service this manager provides but I have to consider whether my income will bear it. My monthly profit margins still aren’t high enough to cover more than a little over our expenses by the end of the year.
- I read through some Yelp reviews and sites, and sent an email asking about services and fees, to the one that seemed to be a possibly good fit.
- They replied the next morning saying politely they were not taking new clients because they have a full docket. That’s actually a good sign, I think, when a company knows how much they can handle well and sticks to it. Not great for me personally but good to know they’re not the sort to just take in as much business as they can get and damn the consequences.
- My friend is inquiring after a larger company. He and I both came up with their name independently, I’m guessing because it was because they advertise.
- My preliminary research turned up mixed results. They have all their information up front, which is great, and they state pretty baldly that if you’re asking about the kinds of restrictions you want to put on who gets to rent from you, you’re very likely trying to screen out people based on discriminatory reasons. This isn’t the first time I’ve been told that screening renters based on certain characteristics is really a racially motivated screener, I’m glad to see this company is speaking plainly about what that’s code for. I like that because of their size, they have easy ways for the renters to pay electronically. But I’m not sure that I want to work with a huge company that only gives you a price break after you own 40 units. For one thing, that’s a hell of a lot more than I intend to take on, so I wouldn’t benefit from adding one or three more properties with them the way I would with the boutique manager. For another, while they have the infrastructure to be more technologically up to date, that also means they may not be motivated or willing to consider updating where they’re lacking.
:: If you were renting, would you prefer to deal with a large somewhat faceless company, or a boutique property manager? If you were hiring a manager, which would appeal to you more?
March 21, 2016
“Business as usual”, since LB was born and we got new tenants into the property, has been quiet. Once a month the rent comes in. Once a quarter, I send the tenants the sewer bill and the property manager, let’s call them “Lou”, collects that.
Unfortunately, did I mention this? Things don’t always go smoothly in money matters and this is no exception.
The current tenants pay on time and don’t have a lot of needs. They’ve requested a few minor repairs and those issues have been addressed pretty quickly. But they have a problem with complying with a relatively minor HOA policy about clearing their curb on a weekly basis as required. It’s not that they object to complying, they simply didn’t comply on time for several weeks in a row.
They’re good tenants so far as I can tell, so I hated dinging them for something like that but the HOA is a huge stickler and sent a violation notice every time it happened. After three violations, the HOA proceeded to start fining for the violations, even though the tenants had been informed and were doing their best. The fines were $100 per occurrence!
It’s more than a little alarming to get a bill for $100 per week, with a grand total of $600, when the fines start. It’s a lot alarming that the latest bill is up to $1500. Lou assures me that they’re working on it which means that they’re confirming the lack of violations each week for the HOA and after several weeks of “clean” behavior, the fines will be removed.
That’s little consolation while I see the fines skyrocket. This is the part I hate about going through third parties. As much as I like that having Lou lets me stay hands off, the part of me that manages money and the household particulars chafes at not being hands on so I can fight the charges if shenanigans occur. The bills are in my name!
So that sucks. But the whole point of the manager is to deal with stuff like this.
Basic appliance repairs eat into a slim profit margin
I have a home warranty which covers the repair and replacement of appliances. We’ve called them out to take care of three plumbing problems and 2 appliance replacements. Their timely responses keep the tenant happy and a good tenant is worth keeping happy IMO. Though, what the hell is going on with the plumbing??
The $75 per call out fee is steep in contrast but DIY isn’t an option for this property. I was only breaking even in the first seven months on routine costs (mortgage, property tax, and insurance). We had to get new tenants and raise the rent to bring in enough to have a little extra left over to cover the irregular expenses.
We’d need to raise the rent another $100 to have anything like “profit”. Unlike the “pay yourself first” mantra in regular employment, the leftover money each month after subtracting regular expenses goes into savings. It’s the buffer against the inevitable repairs and maintenance, not money I take out of the business. This is conservative but other than my initial down payment stake, the goal is for the unit to break even overall first. Only after costs are covered, thus preventing any need to dip into personal funds, do I consider that leftover cash mine. The long term goal is for this property to generate some rental income and appreciate in value over time.
*Part of Financially Savvy Saturdays on brokeGIRLrich, Disease Called Debt and From Cost to Coast*
September 14, 2015
Linda made a good point about how some landlords, slumlords, use their rental properties to generate tax losses to offset their gains in other areas of their net worth.
Call me foolish but I’m not ok with that idea. Even if I’m going to have to pay more in taxes each year because I’m showing a profit on paper, I’d rather find some other way to even out that tax bill than to let my property where actual humans live go to shambles. I’ve been on the other end of that stick and it sucks.
Even though some of the rundown at the other house is due to Dad’s inability to keep up with all the house maintenance, a lot of it is long term stuff that the owner of the property should be tending.
Chatting to a long time homeowner friend, she’d expect most of the wear and tear to be paid for by the homeowner / LL: carpet, paint, drapery. That was an interesting thought. While I’m willing to budget for it, as a renter, we never had a refresh or cleaning of anything of these things that we didn’t pay for under normal wear and tear. We’re not going to vacuum for the renter but we will do a carpet cleaning between renters and replace it if need be in say, 20 years? That’s the normal life span of good carpet, I think.
I provide and maintain all the major appliances, which isn’t actually a normal thing in my experience renting in California, but it is for the rental area. Would you also expect that other stuff as well?
My current plan is to save all the income from at least the first five years to pay for expected major repairs and unexpected anything else that’s not covered by the warranty.
May 4, 2015
People tend to make assumptions the second they hear that you own rental property and, for those who aren’t knowledgeable, many of those are wrong.
1. You’re rich. (Correlated: You will be rich tomorrow if you just got started today.)
2. You’re always making money, usually hand over fist.
3. It’s easy money, and profitable as hell.
4. Landlords can charge anything they want.
Obviously we’re not rich. Far from it. I certainly intend to be but this is one part of a long term plan to get there, this isn’t the end all be all.
The point is to make money but it’s not easy and not an overnight get rich quick scheme.
There is a risk and a truckload of expenses involved: I took on a mortgage, with all the associated home buying costs like closing costs, realtor fees, inspection and appraisal fees, and a higher interest rate because it’s not an owner occupied property.
And whether or not we have renters (aka income), I’m still responsible for all taxes, damages, repairs, and association or other fees every month. My profit is AFTER I pay all those bills, if anything is left.
Profit margin is dependent on two main factors: fixed expenses and rent. I’d love it if I could engineer a 50% profit margin but the only “control” I have is on the expense side. It’s down to what decisions I make when buying. The price point has to be low enough with a high enough property value so that when the mortgage and all the other costs are added up, they are less than the amount of rent I can charge. And I can only charge what the market will bear. If rents in the neighborhood or region are $1200/month for a 4 bedroom, 2 bath single family home, and I’m trying to charge $1500/month for a comparable property with no distinctive features worth $300 more per month, all because my expenses are $1400/month, guess who’s got 2 thumbs and is SOL?
Or say your expenses are lower and you can still make a small profit charging market rates – if you get hit with multiple repairs, month after month, even small ones, you’re still looking into an ever deepening hole.
You’d better have some slush fund saved to keep covering your expenses during times of vacancy, and any rental income budgeting sheet worth the paper it’s printed on includes a minimum assumed vacancy percentage, because just try crying to your bank about how you can’t pay this month because the rent was paid late or your property stood vacant.
Believe me, they’re just fine and dandy taking the house along with whatever money you’ve already sunk into it if you were fool enough to believe that you didn’t need to pony up more cash out of pocket from time to time.
I didn’t get into this intending to lose money but as an investor you have to know the basic risks you’re running, and yes, losing money is absolutely a real risk.
April 6, 2015
Once again, while I’d rather have the money in my pocket, the ability to be completely hands-off with some of the day to day, other than answering emails, has been exactly what we needed.
My hands have been rather full so I’ve only answered emails, or redirected phone calls, but not long after LB’s arrival, the property manager dealt with:
1. the expiration of our old tenant’s lease,
2. checking the property to ensure that clean-up was complete,
3. collecting final rent,
4. getting the previous renters to pay up the utilities they claimed were paid (but weren’t),
5. returning the remaining security deposit once all the outstanding payments were deducted,
6. scheduling all the inspections and servicing of repairs,
7. marketing and showing the place,
8. reviewing applications and running background checks,
9. getting the final lease signed with my approval.
Bonus: we both make a little bit more now that the rent has changed to be more in line with the market rate for equivalent rentals. Not showing a profit yet, of course, but it gets us closer.
Not having to deal with that stuff and a screaming newborn? That’s absolutely worth the percentage off the top. Much like renting is not a waste of money because you’re getting a place to live without financial risk, hiring a property manager was the right choice for us. PiC has zero interest in this whole venture, beyond an academic one, so it’s entirely on me. Having someone deal with the hands-on work of owning a rental has made it possible.
Extra bonus: they organized all the income and expenses that they handled in a statement for me, reducing the amount of time and work I had to put into organizing our tax documents. Whew!
February 9, 2015
Bah, I knew that I’d have to renew the home warranty but that crept up on me really fast. Part of a warranty did come with the purchase of the house so that was an unexpected boon but I’m still not happy to part with a big chunk of money.
The alternative, though…!
My property manager recommended picking up a basic, plus 7-star plan, plus washer/dryer/fridge, to cover all the bases from the company they consider the best: Home Security of America evidently actually covers claims and uses reputable contractors.
Not to be confused with American Home Shield, the previous warranty company, and reputed to be an absolutely horrible company according to both my prop manager and Steph. That report is not hard to believe, incidentally. AHS was called to complete some minor repairs two months ago and they’re still dragging their feet. Boy, am I glad I changed away from them before we had anything serious happen.
HSA offers either a monthly or annual billing plan. I’d normally just do the billing plan to spread out the costs but chose to pay the full year in one go. I honestly don’t remember why but let’s pretend it was a good reason.
HSA even recently set up an online claims site. I much prefer to do everything online, especially so there is an easily accessible record and so I don’t have to talk to people for routine tasks, so that’s another point for HSA. Their price is a bit higher but I’d rather pay an insignificantly higher cost for assured better service. I’ve come a long way in my journey from being a tightwad to making wiser long term choices!