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Dr_Lightning_1

Registered:
Posts: 6
Reply with quote  #1 
I've owned and self-managed 5 units in metro Atlanta for the past 4 (one SFR) to 8 years (one quad).  My experienced cap rate is not as high as I believe it should be.  Consider my quad.  Maintenance is cutting my cap rate by about 2%.  This maintenance cost is 1.5% of my gross income.  It's also 2% of my property value.  Rent in the quad varies from $595 to $695, and I call it a "B" property, with regard to quality.

Am I spending too much on maintenance? 

In detail, I've spent more than $3000 each year on repairs for the quad (peak $11,556).  Some of these come from old equipment, but I suspect most comes from tenant abuse.  Looking over my books for a prior year: oven quit working, toilet broken, unit turnaround including paint.  These amounted to about $2300 that year.  Meanwhile, stuff's getting old, and repairs that that amounted to a couple hundred.  And then I do pay $1200/year for an exterminator and $600/year for lawn mowing and exterior cleanup.  (Those are $100/month and $50/month, respectively.)

I've gotten in my mind that I need to focus on tenant quality and 1031 exchange for a much newer property, built after 2000 rather than in 1967.  Having researched a little further and written the prior paragraph, the building age isn't really costing me that much.  It's the tenant abuse that's worse.  And so when I speak of better tenant quality, I'm speaking not only of being more discriminating somehow, but also of moving to an "A" property where the higher rent itself will partially filter my tenants.

Am I heading in the correct direction here?

I already do a credit check and national criminal database check.  But the nicest seeming people just don't give a cr*p and don't take care of things.  Or their children write all over the walls.  Or, in frustration, someone in the family put a fist through the door.  (Same $500/mo tenantin unit with dilapidated cabinets, that I've now replaced, thinking "broken window theory" (see wikipedia).)

But then, I had $1500/mo tenant in my SFR.  They weren't nearly as bad, but they weren't very good, either.  The next/current tenant there, at the same rent, is great.

I haven't been able to recover any of these costs from the tenants.  First, I can't seem to rent if I ask for more than $250 security deposit.  None of this first month plus last month plus security deposit.  And I haven't tried to sue and garnish wages.  That is, if they still have the same job.

So, I'm thinking to exchange the quad for some new townhomes in a more affluent suburb with lots of technical and business jobs.  (Alpharetta)  It's closer to my own new home, anyway.  Rent around $1000 to $1300.  I still don't know how to get more money (security) up front, or how to make sure the tenant want damage the place (remember, SFR where one was good the other bad, same apparent job stability and $60K+ income level).

So, to repeat, am I spending too much on maintenance, or is this amount typical?  Am I not qualifying my tenants well enough?  Is there a way to better make sure I get folks that don't trash the place?

For a very short time, I asked applicants if I could meet them in their current apartment.  My reason was to see it's innate quality plus how well they took care of it.  It was weird, though.  Is there a better way?  I do figure that those responses to previous landlord inquiries are not answered truthfully, because the prior tenant just wants to get rid of them.  And I haven't tried a placement service, like national tenant network.

Thanks VERY much for any and all advice.

prin1113ci

Registered:
Posts: 86
Reply with quote  #2 
You have a full preventative maintenance agreement with your service provider my days off are that week there is always maintenance .



robotplæneklipper
OHlandlord

Registered:
Posts: 3,733
Reply with quote  #3 
You need to collect a full month's rent for security.  Not $250!  Deposit equal to rent is pretty much standard.  Insist on it, or don't rent to those people.

1.5% maintenance isn't bad at all.  Budget for up to 5% maintenance.  What you don't use should go into a special account for large ticket items.  That way you will have funds to replace roofs, fix walls if a tree falls on them, etc.

As for tenant abuse:  oven quit working -this is old equipment, not abuse; toilet broken - as in permanently stopped, cracked, or just worn out?; unit turnaround including paint - this is the normal cost of having rentals; exterminator - again, normal cost for multi unit property; lawn mowing - normal costs of business. 

What is abuse? - tenant's children writing on walls.  Charge the tenant's deposit for the prorated amount of painting, then deduct it from their deposit.

A better quality tenant comes from more complete screening.  Don't just call their current landlord.  Take some time to investigate (and ask) where they lived prior to this.  Call those landlords who have no reason to lie.

You can always schedule a "preventative maintenance inspection" with current tenants.  To check for deferred maintenance issues, plumbing problems, pest infestations, roof leaks, smoke detector & furnace filter checks, etc.  This will get you in all areas of the home, including closets, basements, attics, etc.



Dr_Lightning_1

Registered:
Posts: 6
Reply with quote  #4 
Thanks for your suggestions, OHlandlord.

It seems I've written this email from the bottom up!  

Most germane, HOW do I insure better tenants?  Merely charging more isn't the solution, since I had $1500/month tenants both good and bad in my SFR.

I've gotten a suggestion to call the 2nd prior landlord, who has no incentive to lie.

What else might I do?

And, indeed, getting a larger security deposit will help.  I'm also thinking of making very sure I know all their employment info in case I need to garnish, on which I've done more reading.  This includes regular (quarterly?) refresh of this information -- perhaps I ask for a pay stub once per quarter?

And periodic inspections for preventative maintenance is a good idea.

You know, I tried at one point actually visiting their current apartment.  It was very awkward.  Do you (or anyone) have any thoughts on that?

...direct response with new thinking:

Assuming rent collected as the basis (divisor) for your 1.5% to 5% maintenance fractions, 12 month's rent is about $31,000.  So my minimum $3000/year maintenance is already 10% and the $11,556 peak was 37%.  So I'm definitely far above your 1.5% to 5%.

I guess you just confirmed for me that I have a maintenance problem.

I'll go analyze my maintenance expenses in detail to figure out what amounts would have been avoided with a newer building, what amounts might be avoided with better tenants, and what amounts are likely unavoidable.

I have moderate confidence that this will tell me I need a newer property (at least at this mortgage level).  And I know keeping the horrible tenants out can only help.

...additional info I discover is repeated when I reread old post:

It's indeed sometimes difficult to separate equipment age from tenant abuse as the cause for maintenance.  However, a new oven after two years seems excessive.  Toilet broken was tenant's child, and also cost me $400 in water that the county wouldn't write off.  The really trashed apt had a kicked hole in a door, crayon all over the walls requiring extra Kilz, carpet that couldn't be cleaned, etc -- all tenant caused.

I've been long aware of the "first and last month's rent" adage.  I translate that also as first month's rent plus security deposit equal to one month.  One part of my difficulty in doing that is that I must compete with large apartment complexes who are offering attractive deals such as $X00 off on the first month.  This makes the tenant's move-in cost at these competitors similarly low, as would be rent+$250.

Indeed, I've found some tenants great and others horrible.  The age of the building plus the horrible tenants spoil my cap rate.  This is why I want to 1031 exchange to a newer building and figure out how to avoid the horrible tenants
OHlandlord

Registered:
Posts: 3,733
Reply with quote  #5 
Most tenants would rather rent in a smaller building or a SFH rather than a complex.  Use that to your advantage.  Use it to advertise your place.  Speak about it when you show your places.  Why be one number in a complex rather than a name to your LL?  This helps counter those low deposit amounts.  Let them have the tenants that can't afford the 1st mo. & deposit.  Those will be the ones who have trouble paying their rent after the 1st personal problem.

When you buy a new building, have a professional inspector check it - especially for deferred maintenance on large items (roof, plumbing, electrical, hvac, appliances, flooring, laundry, structure, windows, etc.)  Those things are the most expensive.

Screening is how you find better tenants.  Yes the current LL may lie to you to get rid of a bad tenant.  That's why you check with former LLs too.  Don't expect the tenant to tell you about these ones.  If they treated a former LL badly, they will omit that one on the application.  Start will the local municipal court site.  Look up every ticket or case they have.  Look under the details tab or click on their name on the case and you should see an address where they lived at that time.  Look  at the county tax auditor's site and see who owned their house at that time.  Call that person.  You'll find LLs they ever mentioned.  Other sites exist that will give you previous addresses too.  Some cost, some are free.  Do some research and find those old places they lived. 

Ask for at least one month's check stubs to verify income and employment.  I ask them to renew their info on file every 6 months.   Copy their rent checks to save their bank account numbers (you can later attach these to satisfy a judgment.)  If you have a judgment you haven't collected on, periodically check the court site for new addresses, and the tax auditor's site to see if they bought a house.  You can attach a lien on their new house for unpaid judgments too.

One more thing, while credit checks are pretty much standardized, "nationwide" background checks aren't.  Every one of these has holes in the areas they check.  Ask the companies which databases they check.  The last apartment complex I took over was using a "nationwide" check from the next city.  Turns out they didn't even check this county.  Ask.  And keep in mind that some county courts aren't even online. 
JeffParker

Registered:
Posts: 2
Reply with quote  #6 
To keep your CAP rate up, you need to consider your expenses and how you apply them to the investment. For example, when purchasing the property you should consider an renovations that will likely be needed to avoid repairs, like replacing old AC units or installing new appliances and or windows. This is then considered a capital improvement and will not cut into your cap rate. 

Front loading your properties with needed repairs is better in the long for your investment value / ROI... 

The other tool to maximize your income, as you know, reduce vacancy. I found a website that I use to list my units year round. What happens is, when its available its automatically pushed to zillow and the top sites but for the rest of the year it stays vacant and people can still see it in the search an follow the home. I only used them for about 4 months but last month I had a vacant condo, rented in 3 days because I had like 14 followers that I hit up as soon as the renter gave me notice.  Check it out, roorah.com - good luck with your investment. 


Jeff... 


Quote:
Originally Posted by Dr_Lightning_1
I've owned and self-managed 5 units in metro Atlanta for the past 4 (one SFR) to 8 years (one quad).  My experienced cap rate is not as high as I believe it should be.  Consider my quad.  Maintenance is cutting my cap rate by about 2%.  This maintenance cost is 1.5% of my gross income.  It's also 2% of my property value.  Rent in the quad varies from $595 to $695, and I call it a "B" property, with regard to quality.

Am I spending too much on maintenance? 

In detail, I've spent more than $3000 each year on repairs for the quad (peak $11,556).  Some of these come from old equipment, but I suspect most comes from tenant abuse.  Looking over my books for a prior year: oven quit working, toilet broken, unit turnaround including paint.  These amounted to about $2300 that year.  Meanwhile, stuff's getting old, and repairs that that amounted to a couple hundred.  And then I do pay $1200/year for an exterminator and $600/year for lawn mowing and exterior cleanup.  (Those are $100/month and $50/month, respectively.)

I've gotten in my mind that I need to focus on tenant quality and 1031 exchange for a much newer property, built after 2000 rather than in 1967.  Having researched a little further and written the prior paragraph, the building age isn't really costing me that much.  It's the tenant abuse that's worse.  And so when I speak of better tenant quality, I'm speaking not only of being more discriminating somehow, but also of moving to an "A" property where the higher rent itself will partially filter my tenants.

Am I heading in the correct direction here?

I already do a credit check and national criminal database check.  But the nicest seeming people just don't give a cr*p and don't take care of things.  Or their children write all over the walls.  Or, in frustration, someone in the family put a fist through the door.  (Same $500/mo tenantin unit with dilapidated cabinets, that I've now replaced, thinking "broken window theory" (see wikipedia).)

But then, I had $1500/mo tenant in my SFR.  They weren't nearly as bad, but they weren't very good, either.  The next/current tenant there, at the same rent, is great.

I haven't been able to recover any of these costs from the tenants.  First, I can't seem to rent if I ask for more than $250 security deposit.  None of this first month plus last month plus security deposit.  And I haven't tried to sue and garnish wages.  That is, if they still have the same job.

So, I'm thinking to exchange the quad for some new townhomes in a more affluent suburb with lots of technical and business jobs.  (Alpharetta)  It's closer to my own new home, anyway.  Rent around $1000 to $1300.  I still don't know how to get more money (security) up front, or how to make sure the tenant want damage the place (remember, SFR where one was good the other bad, same apparent job stability and $60K+ income level).

So, to repeat, am I spending too much on maintenance, or is this amount typical?  Am I not qualifying my tenants well enough?  Is there a way to better make sure I get folks that don't trash the place?

For a very short time, I asked applicants if I could meet them in their current apartment.  My reason was to see it's innate quality plus how well they took care of it.  It was weird, though.  Is there a better way?  I do figure that those responses to previous landlord inquiries are not answered truthfully, because the prior tenant just wants to get rid of them.  And I haven't tried a placement service, like national tenant network.

Thanks VERY much for any and all advice.

Dr_Lightning_1

Registered:
Posts: 6
Reply with quote  #7 

Jeff,

Thanks for the info.  I will DEFINITELY look into roorah.

FYI I was finally able to sell that quad last year.  Purchased a number of single family homes (SFR) both before and after, with purchase search criteria that included age and expected maintenance.  My profit for the past two years has exceeded estimates.  My original post here was over 2 years ago, 7 months before the first of those SFR's.  So things are going very well now.

Note the SFR's have been renting like hot cakes.  The best was when the new tenant's moving truck BEAT ME to the house, when I drove directly from closing to the house in order to change the keys.  That's almost negative holding time!  (Call it 0.000.)

Nevertheless, the market won't always be this hot.  So again, I'll look into roorah.

Northwest Atlanta Metro.


FloraGalvin

Registered:
Posts: 3
Reply with quote  #8 
Every homeowner knows how beautiful windows can dramatically increase the elegance and style of a room. Doors, entryways, transoms, ceiling lights, cabinets and other flat surfaces of glass offer the opportunity to create the timeless allure of decorative glass. All such ideas will definitely make proper home maintenance. Bathroom windows, entry doors, and front windows are the most popular places to display stylish doors and windows. Take a look at this web-site for great tips to get your home organized and neat in no time!
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Flora Galvin
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