Balance Tilts from Owning to Renting

A recent article in USA Today points out that "Since the real estate bubble burst, the American dream of home ownership has fizzled"

In that article it is reported that more and more people are renting rather than buying a home and that this "New Class of Renters" is doing so by choice.

A recent survey discovered that 72 percent of people said they feel that home ownership is part of their American dream, down from 77 percent in January of this year according to a survey by Trulia.com. Despite the fact that interest rates are at historical lows and home prices are down considerably in many cities, people are wary of further price declines. A slow economy as well as the "hidden costs" of home ownership including repairs and decorating also factors in. Its just easier to pay your rent and let someone else take care of the repairs.

Also, it points out that in the past most renting options were more limited to apartment communities. However, more single family homes are now available due to difficulties in selling homes. This brings the affordability down in many areas. Credit score remains a challenge since securing a mortgage is more difficult than ever, and we are seeing far fewer people with good credit applying for rentals.

All this is good for the Landlord, and as the sales market slowly shows signs of recovery, rents will eventually go up. In fact we have already seen this occurring in our office. For the first time in 3 years, we are once again building rent increases into our lease renewals.

New Reporting Requirements for Landlords

According to the Journal of Accountancy, owning rental property has become more like owning a small business according to new reporting requirements contained in the recently enacted Small Business Jobs Act. Beginning in January, landlords must begin keeping good records of all expenditures to anyone who has provided service to their rental property. The reason for this is that they will now have to start sending out IRS form 1099's to all partys who have provided these services. This new reporting will begin in January 2012, but will be based upon services provided starting January 2011.

For example, if you hire a plumber, painter or cleaning person to provide services at your property, or replace flooring or just have handyman work done, you will need to fill out a 1099 at the end of the year for each vendor including totals of payments to the vendor for the year. This will then need to be sent to the vendor with a copy going to the IRS as well. You should not be surprised to also learn that penalty's for failure to correctly follow these reporting requirements has also increased.

If you are utilizing a professional property management service such as ours, then this should already be in place. For instance, we have been doing this since we started in business in 1991. Best not to take this for granted though. If you are using another company, check with them to make sure this is being done.

How Long on the Market is Too Long?

Here is a chart from RentalHomeProfessionals.com which shows the average time on the market for properties. As you can see both nationally and regionally, the average time on the market is about 80 days. This is a phenomenon that we have seen over and over. Actually, the rental market is quite flooded with properties that are unlikely to rent.

What is the difference between a home that rents in 30 days vs. one that rents in 90 days? Often they will end up renting at close to the same price (it they rent at all). However, in addition to a lack of marketing reach, the 90 day listings start out by asking too much. The landlords thinking is usually along the lines of "this is how much I need to break even", or "This is how much we used to get". They start off by assuming they can dictate to the market how much their property is worth. However, the market doesn't care how much a landlord wants.

It is only after getting to the point of desperation (and foreclosure) that the landlord will finally get real on asking price. Whats more, by that time, they are ready to use the breath on a mirror application processing approach and end up getting stuck with a bad renter. This is one of the primary reasons why we see people getting out of the rental business at a time when more people should be getting in.

How much better to know the correct rental price before hitting the market (better yet, before purchasing the property), then renting to good, qualified applicants who will get the cash flow coming in and remain consistent?

Sarasota - Best Place to Buy in Western World!

This was the headline in International Property Journal, an independent, authoritative source of news and information for agents, investors, and industry executives working in global property markets.
The story which appeared on June 17th 2010, cited a report published by Global Edge, ranking popular resort and second home locations around the world.

IPJ reported that Sarasota was the cheapest western holiday home destination, crediting the fact that the market has fallen over the past two years and the number of distressed properties available for sale to foreigners.
What does this mean to our clients? Now is a great time to buy another rental investment!

US Census Statistics on Renting

US Census Bureau Statistics on Housing Regarding Renters

According to the 2009 American Housing Survey the median amount of rent is $808 vs the medial housing cost for property owners is $1000. This means it is still cheaper to rent than it is to own which is good for our industry. However, the bad news is that the renters devote 31% of household income to housing costs vs 20 % for property owners.

Are Your Available Rentals Reaching the Masses?

Here are a couple of important statistics in regards to how prospective renters find available properties:

90% of people researching rental information use the Internet as a resource.

84% use more than one site.

Here's why renters prefer the Internet:
78% say it is the most useful source for information regarding the property
77% say it is the easiest to use
74% say it offers information not available elsewhere
63% say it has the most up-to-date listings.

In our market I feel we have pioneered the use of Internet for available rentals. We were the first to use it extensively and currently have the widest marketing distribution across many sites. The last time I checked we were advertising on over 30 different rental web sites. And also the last time I checked we leased about 20% of all rentals on the MLS.

The key to getting properties rented in a timely fashion to quality residents is to price according to the market (This takes constant research), and then to get it out to the widest distribution possible so that anyone who is searching for rentals will come across your property listing. Usually we can get over 100 detailed clicks per week. You would be surprised to know how many available rentals languish vacant on the market month after month. It is actually a majority of available properties. It is always our goal to have a property rented in 30 days.

What is OPD?

I was just reminded over the weekend (my wife and I were cleaning one of our properties) of the concept of OPD. I first coined this phrase early on in my property management career and having a good understanding of this concept is key to starting out a new residency on a good footing.

OPD - Other Peoples Dirt. It goes like this: No one is more picky about cleanliness than someone moving into a new home. At first I was puzzled after experiencing extra picky tenants at move in who I later discovered were not the greatest house keepers themselves. It comes down to who's dirt it is. At first I thought they were just hypocritical and difficult people. However, the more I thought about it, I think this is a natural characteristic of all of us. If its other peoples dirt we don't know what it is and our minds go to the worst extreme. We are often repulsed. Even people who are immaculate housekeepers have an even higher disdain for OPD.

That helps explain why one speaker I heard who's topic was "The Top 10 Rules of Property Management" stated that one of the worst things you can do is turn over a property to a tenant at move in which is not well cleaned (professionally). The reason for this is we now have an angry new tenant. Not a good way to start out a relationship. Worse yet, we have now established in the mind of the resident that we do not have very high standards and our credibility is shot. Now try to lecture them on anything having to do with the maintenance of the property and it will always get thrown back in your face.

Many homes can look clean at first glance, but once a dirty corner in the floor is discovered by a new resident (or a potential new resident), now the white gloves and magnifying glass come out and you are busted. On the contrary, if someone views a property and it smells clean and genuinely is clean you have earned their respect and often times this will be the main reason why you have just found a good clean renter.

This may seem obvious to a landlord from afar, but in practice it brings up a few challenges: If we turn over a property to a tenant which is professionally clean, do we have a right to the same expectation of cleanliness when they move out? Of course landlords do not want to pay to have a property cleaned if the tenant is responsible. Also, if a property was clean, but has sat for 3 weeks waiting for a move in (enough time for some bugs to accumulate, or have workers in and out), should they expect to pay for a second cleaning?

Our lease requires residents to surrender the property in "Good, clean condition. Normal wear and tear excepted." In all likelihood it will not be clean enough. We frequently make claims against security deposit for cleaning. This can cause arguments if the tenant felt it was cleaned, and often they will feel insulted that we would consider their level of cleanliness sub par. Angry tenants mean potential legal challenges. (At this point we had better hope it was clean when they moved in). If in the rare chance it is left in professionally clean condition, then it will probably need at least a wipe down prior to the next move in.

The point of all this: As a landlord, you can expect to pay for at least some minor cleaning between tenants even if you have the best property manager in town (like us).

What is Normal Wear and Tear

This question is bound to come up at the end of most rentals. How much should the tenant be held responsible for and how much should the owner accept as a cost of doing business?



Is it reasonable to expect a tenant to leave the property in rentable condition? The law says no. Florida law allows the tenant the leeway of "Normal Wear & Tear". Any damage which is considered Beyond normal wear and tear can be charged against the tenants security deposit (hopefully there is one) (and presuming you know the law well enough to follow it to the letter in claiming a deposit).



Sounds pretty cut and dried, huh? (Right). So this leaves us a lot of arguing room (the bane of a property managers existence). The owner wants tenants to take responsibility for something they caused and the tenant wants their deposit back. That is the reality so how can we address it?

Well, lets begin by trying to put a definition to Normal Wear & Tear. It has to be reasonable in case we get before a judge and it we define it at the beginning of a tenancy, then no one can claim surprise at the end. Here is a definition which comes not from statutes, but case law seems to support:

Definition of Normal Wear & Tear:

Anything that can be covered with one coat of paint is normal wear & tear

Any carpet stains that come out with a standard steam cleaning are normal wear & tear

Any dirt that can be removed with a standard maid service cleaning is normal wear & tear

So there we go. Pretty simple actually, but by applying this definition and laying out expectations at the beginning can go a long way towards eliminating aggravation at the end.

New Lead Paint Requirements

I hope by now everyone is aware of the new EPA Certification requirements regarding Lead Paint. Boring? Yes, but heavy fines are more excitement than I can handle. Since I have been managing rental properties (20 years now) lead paint disclosures had to be used to warn tenants in houses built prior to 1978 not to let their kids eat the paint.

Apparently, that warning has not been enough to satisfy the govt. Now they have created a whole new burocracy to protect paint eating children. (Despite my obvious sarcasm, please don't think that I am insensative to lead poisoning in children. I have 5 of my own). However, I am not aware that this is a huge problem requiring a bunch of new laws, expensive requirements and heavy fines, training and certification of painters, hiring new inspectors to enforce etc. Sounds a lot like federal job creation and revenue enhancement at our expense.

In case you are not familier with the new requirements, here is a summary:

"The Lead-Based Paint Renovation, Repair and Painting Program" (RRP) is a federal regulatory program affecting contractors, property managers and construction trades who disturb painted surfaces. Failure to comply could cost you up to $37,500 in fines per day.
The EPA requires that anyone who performs renovations, repairs & painting on child-occupied homes, child care facilities, and schools built prior to 1978 that disturb lead-based paint shall be Certified by EPA and that they are or used certified renovators who are trained by EPA-approved training profiders to follow lead-safe work practices, YOU MUST be certified by October 1, 2010"

So if you own a rental property built prior to 1978 you had better hope that your Property Manager complies with this requirement by makeing sure all painters and repair persons have are certified. (Yes, ours is).

Awesome! We made it. Boy, creating a new web site can be a very involved undertaking, but 6 months later we are here. Some of the advantages of the new site include better results in organic search engine results which will help prospective tenants locate our available property listings better and faster. We are already the most intensive vacancy marketing property management company in Southwest FL, but this will help us even more.

Currently, our vacancy marketing reach involves more than 20 different web sites including Rentals.com, Rentalhomesplus.com, Yahoo, Google, Hotpads, local.com, Rentalhomepros, rentalhouses.com,twitter,lycos, Craigslist and many more! If someone is looking for rentals in Southwest FL, we want them to find our houses.

How important is internet marketing of vacancys? According to recent research, 90% of people looking for rental information use the internet. This only makes sense. How many people enjoy circling the classifieds and waiting for call backs on properties they may have an interest in, verses sitting in comfort at their computer while checking map locations, pictures of the home and seeing how updated it is. There's no comparrison. Futher more, 84% of web searchers use more than one online source. We want to be there front and center no matter where they are looking. This leads to shorter vacancies and better selection of renters to choose from.

I hope you like the new look and feel of our new site, Please let us know your comments!

Welcome to our new Web Site!

We are getting ready to go live with our new web site for Sarasota Management & Leasing. This new site is an exciting upgrade to our old site in many ways. In addition to a new fresh look we will have easier access to online documents for our owners, regular market updates with charts and graphs which will reveal the current state of the rental market for Southwest Florida as well as average days on market, average rents etc.

New search engine tools will help draw more tenants to our site to increase exposure to our listings as well as offer tenants new tools to request maintenance, view their statements and communicate with our property managers.

Stay tuned for the new upgrade!

Governments Latest Assault on Landlords

Landlords have been taking it on the chin in recent years with skyrocketing property taxes (don’t even get me started), rising insurance due to a bad run of luck with hurricanes and falling rents due to rising inventory from owners who cannot sell and are  looking to the rental market for relief.  Now the government is looking for the most convenient ways to boost their budgets. The local and state governments are in crisis mode looking for ways to balance the budget and with the slower economy causing a decrease in tax revenues, the push is on to find ways to increase revenues. Last week Florida lawmakers passed SB 1790 and it was signed by Governor Crist wherein the state is mandating increased “fees” for many different services. These are not considered tax increases since there would be little political support for that, but increasing Fees is a convenient way to stay under the radar and avoid political fall out. Most of the fees were relatively small so as not to gain much attention, but they really socked it to landlords by increasing the cost to file evictions by 400% The cost for filing evictions has been $75 for the past twenty years, but now as a result of this bill, the cost for eviction filing will become $265. I am a member of the Florida Association of Residential Property Managers who joins with the Florida Apartment Association to lobby the state in regards to issues that effect leasing of residential properties. In fact, they just met with legislators last month and were completely in the dark about this bill. By the time we found out about it and started contacting legislators it was already a done deal. When will times get better for landlords? I believe that when the sales market begins to stabilize and property values find support, many of the owners who never intended to be landlords, but were stuck with properties they could not sell will begin to unload their properties. Then, with a reduction of supply and hopefully an increase in demand as the local economy rebounds, we will finally begin to see rising rent rates. But in the mean time watch out for government carnivores seeking new food sources.

What Does It Take to Get a Property Rented These Days? That’s a great question and getting the answer is like nailing Jello to the wall. It is allusive at best and constantly moving. That’s the short answer. The more reliable answer is strong marketing and offering a superior value.  Strong Marketing:  Fish where the fish are.   I read a column in the Sarasota newspaper about the fishing here. In it a local fishing guide said the key to successful fishing is to fish where the fish are and give them what they want to eat.  Brilliant! Sounds blindingly obvious right? Well, I can’t begin to tell you how many times I have sat in my boat for hours at a time thinking that if I just wait long enough, some big fish will swim by and grab my bait. According to the fishing guide, if you have not gotten a hit after 30 minutes, move on. Well to bring this back around to property management terms,  if you are still placing ads in the weekend paper thinking that people are circling your ad and making calls to get info, you will just drown a lot of expensive bait. Tenants these days are sitting in the comfort of their home any evening of the week looking at pictures and map locators on their computers. They can see if the kitchen is updated or whether there is tile or carpeting. They can conduct a Virtual Drive By and weed out the 80% of properties that will not work for them. That is why we have increased our marketing allocation to internet sites significantly over the last few years. At last count we were using 7 or 8 different sites and looking into adding more. In addition to choosing the right advertising vehicle, another aspect of strong marketing is pricing and condition. Since the market is constantly in flux and is whipped around by the real estate market in general, we have to be light on our feet and ready to change direction quickly. If in two weeks we are showing that 300 people have viewed a listing online, but we have had few contacts and little action as far as showing the home, we have to have our good listening ears on. The market is speaking to us. Its time to reduce the price by 5%.  It is critical to make this evaluation every two weeks. The second worst thing to have happen to a rental property (1st by far is a bad tenant) is having a property sit empty and costing the owner money every month. You would be surprised to know how many properties are sitting vacant on the market for month after month. Some owners and Agents have an attitude that says “I have gotten X amount in the past or My Realtor told me it was worth Y so I am not going to give it away. If I price it too low, then I will only get tenants who can’t afford it. (Wrong – the tenants who budget their money and intend to pay their bills are know where the best values are). Its like the fisherman who stays in the same place on the shore using the same bait he has used for 20 years and belives the fishing is terrible. We will cover Property Condition in a future article.

IS IT A GOOD TIME TO BUY? Are we in a free fall, or is this a great opportunity to add another property to your  real estate portfolio? That is a good question. Noted financial advisor Dave Ramsey (nationally syndicated radio talk show host and Fox News contributor) recently said in Tampa that Florida real estate was at the best buying opportunity in 10 years. (By the way he is best known for his conservative approach to personal debt and investing.) In addition, last week I was at the national convention for the National Association of Residential Property Managers (NARPM), and heard a talk given by Paul Brewbaker, Ph.D., Chief Economist for the Bank of Hawaii. He stated that despite the current financial upheaval, it appears that we have seen the low in the real estate market and he sees considerable improvement by 2012.   Interest rates are near historic levels and prices have fallen to 2003 levels or lower. Most properties on the MLS are still priced too high, but I am seeing investors moving back into the market if they can find the right deal. Whether foreclosure, short sale, forced sale or if the seller has owned the property long enough to have sufficient equity that they can afford to price it at the current market, there are some great deals to be had. The key is to find the values out there and conservatively estimate your rental income. I can’t tell you how many investors have come to us in the past few years having purchased a property with unrealistic assumptions about rental values Usually they were assured that they could get an unrealistic amount for rent by uninformed Realtors. These people are hurting. An example of a recent transaction we were part of was a small 3/2 with pool which sold for $140k. This property could conservatively rent for $1100/month. With 20% down, your mortgage payment for a 30 year note at 5.75 would be $655. P&I.. If taxes and insurance were $1800 & $1200 your total expense per month would be $905. Not a bad return even before appreciation. This is my style of investing. Low risk and good upside potential on a property which will pay for itself. I do not like having to add additional funds for repairs or taxes.  Another investor I know paid 365k in 2005 for a 3/2. That same home is now on the market at  225k. (Can you say “On Sale”?) No one can say for certain that prices couldn’t fall further, but with the consistent appeal of Florida sunshine and with Baby Boomers nearing retirement, most experts believe that we are just in a deep correction from an over heated market of the early 2000’s. Warren Buffet said in a recent interview “I believe you should be greedy when everyone else is fearful, and fearful when everyone else is greedy”. Five years from now, I believe we will look back and wish we had added more to our real estate portfolio in 2008-2009. If you would like to look into the possibility of acquiring additional properties, let us know. We are compiling a list of good properties that we would be happy to help you purchase.