Who's Side Are We On? ; Taking Care of the Revenue Side of the Equation

          

          At Sarasota Management & Leasing, we are occasionally asked by our landlords, "Whose side are you on?" The answer is, "Yours!"  Everything we do is focused on maximizing our owners' cash flow. However, part of that process entails keeping costs down , your property rented, and staying out of court.

          What many landlords don't realize is that a happy tenant is usually a low-cost tenant. If tenants are comfortable with their rent payment and not receiving pressure from their landlord or property management company, not only are they more willing to make their payment on time, but they often cause less damage. They also tend to stay in the property for longer periods of time.

          However, if a landlord causes friction and hard feelings with their tenant, it is often to their detriment. When the tenant is mad at the landlord, their outlook on their home is changed, and they no longer view it as a peaceful, welcoming, comfortable place. In response, they may not want to pay their rent on time, and may begin to look for another place to rent. If they move out, they are less inclined to leave the property in good condition.

          Once they have vacated, the landlord will face higher turning costs including new paint, carpet cleaning, and miscellaneous repairs. Things may even be missing. In addition to those costs, the property

 will be vacant for a time, adding up to a significant loss of revenue.

          This is not to say that you should let your tenant continue to send in late rent payments, or fail to keep your property tidy and in good repair. At Sarasota Management and Leasing, we have years of experience in finessing these situations. We have learned how to preserve relationships with our tenants by treating them with respect, while educating them on what is reasonable and expected. It is often the difference between a happy resident-and a confrontation. It is also the difference between maintaining your property as a profitable investment, and taking a loss.

A Worthwhile Investment or...Just Blowing Hot Air

The following article was written by Sam Coulter, President of Sam Coulter Service, Inc in Little Rock AR and appeared in the Residential Resource Magazine published by the National Association of Residential Property Managers. Reprinted by permission.

( In this article Mr Coulter makes a point that professional Landlords need to heed in dealing with the air conditioners at their rental properties. This is particularly true in Florida where they run for 6 months straight out of the year. This is a huge profitability issue and effects overall return on investment. )

"What is the single most expensive item in your rental property that at some point will need to be replaced? Hot water tank? Nope. Roof? Nope. Main sewer line? Not even close. The air conditioning system is, by far, the most expensive replacement item in your rental property. The average cost for even a builder's model system today is around $4,500.00. 

Perhaps the first question should be "why" should you spend your owner's money on cleaning and servicing the air conditioning systems? I'm going to explain why you should, and then you can be the judge as to whether or not I'm just blowing hot air.

There's nothing like a $300.00+ electric bill to drive a tenant to look for a new home, right? How often have you had a tenant call and complain about high utility bills? How often do you lose a good tenant over high utility bills?

 An air conditioner converts electricity into a mechanical force that drives a compressor that com­presses Freon gas into a liquid. That liquid is then pumped inside to the indoor evaporator coil where it evaporates back into a gas as air is circulated across the coil. Heat is then absorbed by this process and returned to the condenser outside. The condenser coil is then responsible for shedding the heat that is absorbed in the home.

Dirt is the enemy of both of these coils. Over time, the indoor evaporator coil can become clogged. This dramatically reduces airflow, making the system work harder and longer to cool the home. The same is true with the outdoor condenser coil. This coil becomes dirty from the dust in the air, grass clippings, dog hair, ete. Both of these coils are absolutely essential to the process of efficiently cooling a home, and if either or both of these coils are dirty, airflow will be reduced; therefore, performance will suffer greatly, and the life expectancy of the system will be reduced dramati­cally.

"So what" you say? Why should you as a property manager care if the air conditioner in your rental property has to run longer than it should, or not last as long as it should? Because it will directly affect the two groups of people who are most important to you, the property manager: your owners and your tenants!

Let's start with the tenant. You want to keep your property rented, your owner wants to keep the property rented, and the tenant loves the house and wants to stay. But what if, in addition to the rent, the tenant has to pay an excessively high utility bill? There's nothing like a $300.00+ electric bill to drive a tenant to look for a new home, right? How often have you had a tenant call and complain about high utility bills? How often do you lose a good tenant over high utility bills? What if you do not even know you are losing tenants for this reason? How much more attrac­tive would your property be if you could ensure the tenant affordable utility costs? But let's look at the more important issue ... what is this going to cost your owner if the units are NOT properly maintained?

     Air conditioning systems don't last forever-the average life expectancy is 15-20 years. It's just a matter of time before they all will have to be replaced. So here is where the argument for regular maintenance really makes dollars and "cents."

Let's assume we have two identical properties with new systems installed at the same time. We will assume that a new system will cost $4,500.00 and also assume the system will last 15 years. One property manager decides to have the unit serviced every year at an annual maintenance cost of $100.00 per year. So that's a total cost of $6,000.00 over 15 years.

The other property manager chooses NOT to service the system regularly so we have a system that will last roughly ten years instead of 15 (since it has to work harder and run longer) and will probably require at least two or three expensive repairs during that time. Now just ten years later, factoring in the cost of inflation, we have to spend $5,500.00 on a new system (or more) ten years into our pro­jected timeline, plus we have spent perhaps $1,000.00 in repairs over that same ten years, bringing the grand total to $11,000.00 in just ten years!

And if the second property manager AGAIN makes the decision to forgo regular service, we are now five years into the life expectancy of our "new" $5,500.00 system, vs. only $6,600.00 spent for the system that WAS regularly maintained when we reach the 15 year mark. And remember, for 15 years the first property manager enjoyed happy tenants with the low utility bills while the second property manager has tenants who have paid higher utility bills than was necessary!

The above is just an example - it is hard to predict how long a system will last. But it is not hard to predict that dirty coils and lack of maintenance will very quickly shorten the life of a heating and cooling system. I can guarantee you it will cost a lot more to cool your tenant's home and it will cost your owner a lot more in the long run.  So property managers-am I blowing hot air or is that your tenant on the

phone?~ "

(SML Note: during our property inspections we always check air filters to make sure they are being changed frequently to reduce the amount of dirt that can clog the coils.)

Sam Coulter is President of Sam Coulter Service, Inc. has been in the HVAC business for the past 18 years. An affiliate member of the Cen­tral AR chapter of NARPM, Sam specializes in solving the varied HVAC challenges faced by proiessionet prop­erty managers. Sam and his beautiful wife Lisa have 4 wonderful children.

“You Never Call, You Don’t Write…”

One of the most common complaints we hear when a new landlord finds us is that their previous Property Manager never communicated with them. They didn’t return their phone calls or emails and the only time they heard anything at all is when there was a costly problem. Many times I hear that the owner is not consulted even when there is a big expense. How frustrating that must be for them. After all, owning a rental property is usually the largest single investment that a Landlord owns. This is the kind of experience that makes many want to throw their hands in the air and walk away while taking their financial lumps.

After 20 years in the property management business, I have a pretty good idea what is going on. The vast majority of Property Managers are stressed out of their minds. They do not have time for proactive communication. The Property Manager is also the Leasing Agent, Maintenance Director, Collections Agent, Receptionist, Lease Enforcement officer, Resident Hand Holder, New Business Development Person, After Hours Operator, Listing Agent and Bookkeeper. No wonder they’re stressed!

This is an inefficient model for doing business in property management.

Consider this model instead: What about having a team whose job is to keep you in the loop about what is going on at you property?

Consider the different types of communication that Sarasota Management & Leasing provides: Owners Handbook, regular marketing updates, notifications when your property is leased or when the rent is not paid on time. Maintenance request notifications (before the work is completed), property inspection reports, move in condition videos, end of lease notifications.

How can one person do all this you might ask? After all we manage a lot of properties. The answer is one person can’t. However, an organized team can. Just check out a few of the comments posted by our many satisfied owners on the internet or on our web site (Click here)

These are just a few of the differences that come with doing business with Sarasota Management & Leasing. You will discover that effective communication is one of the “Keys to Our Success”.

5 Steps To Pricing Your Rental Property For Maximum Profit Everyone wants top dollar for their rental property. After all, don't you want to maximize your annual profit?   After 20 years renting properties in Sarasota involving thousands of leases, I've often seen owners demand unattainable rates and I have come up with 5 simple rules to pricing your property for maximum gain: Research the market: Evaluate the prices of recently leased properties - Call local landlords, they are usually happy to share that information. Make sure you get actual lease price as opposed to asking price. Most property managers have access to MLS data which is very helpful here.   Understand the Competition - Check the internet (or the landlord down the street or MLS) to see how your property compares with other properties which are being advertised. How does your property stack up to others with similar asking prices?   Absorption Rate - This is where it gets a little tricky. You want to know how hungry the market is for your product. Research the amount of competition currently on the market verses the number of properties leased over a specific period of time i.e. the previous 6 months. Here again a professional property manager can help by accessing the MLS data.   Get broad market exposure - CraigList.com isn't enough and often attracts the wrong prospects. You want to blanket the market by getting on as many rental web sites as possible (and MLS if you have access). There are several paid rental advertising sites which also network your property out to other partner sites - at SML we use over 50 different sites. If you do not have broad exposure, then you are missing large chunks of the market.   Read the market tea leaves - Just as a fortune teller looks into her bowl of alphabet soup waiting for the letters to spell out a message, you too can read what the market is telling you. Most paid advertising sites provide you with statistics on your ad such as the number of search results that reveal your property, the number of detailed viewings, calls, emails etc. Now add to this your own data regarding the number of showings and comments from prospects and you have valuable information.   Analyze the market data - Now let it begin to paint a picture. If you received 1,000 page viewings and 100 detailed viewings in a week's time, however, only 5 inquiries and 1 showing that amounted to nothing, then the market is speaking to you. It is saying: "people do not see your value."  In this case your pricing is too high compared with your perceived value. (This is assuming that your ad is well done with good pictures and accurately represents your property).   Adjust quickly - You now have two choices; increase the perceived value of your property or reduce the price. Keep in mind that by extending your vacancy period by 1 month, you would have been better off reducing your asking price earlier and getting it rented sooner. For example, if your property leases for $1,000 per month and it takes 1 month longer to get it rented, you just cost yourself $83 in lost rent (per month) and would have been better off by reducing the asking price by $50 and getting it leased 1 month earlier. Also, chances are good that you would have eventually had to reduce the price to get it leased anyway.   Another risk of pricing too high for too long: you may eventually lease to a less qualified tenant. Since these prospects usually can't compete for more fairly priced homes, they have fewer options. This makes them more interested in your property. Eventually, your desperation will rise and the temptation to rent to a less qualified tenant may win out. On the contrary, if you are priced competitively, you should have multiple applicants and can select the most qualified tenant. This is the recipe for success.

Finally, keep your eye on the goal of maximizing your annual revenue while minimizing expenses. If you do your marketing correctly you can reduce vacancy cost while reducing your expenses by selecting more qualified residents. Consider hiring a professional property manager who is skilled and knowledgeable in marketing your property.  At Sarasota Management & Leasing we can show you how our results help you ensure your financial success as a property investor.

Some Like it Hot

Are you tired of watching $200-$400 electric bills roll in this time of year because your ac is running constantly? I may have come up with a novel solution. In addition to changing your filters regularly (I hope we all are doing this), there is a more basic solution to consider.

I learned this after spending a week in Haiti last month where there was no air conditioning. Sleeping under a mosquito net with only a fan blowing on you gives you a different perspective. (actually the fan was an improvement over my previous trip). While there I rediscovered an interesting phenomenon. After about 2 days of sweltering I began getting used to the heat. Sure it still felt hot, but it did not bother me as much. Many times, when the breeze kicked up it was actually pleasant (in the shade).

When I got back to Miami Airport (and into air conditioning) we felt like we were walking into a freezer. Several of us felt that this was such a waste of electricity. We were actually cold. When I got home I resolved to raise the thermostat a couple of degrees. We usually keep it at 78 in our house during the summer, but I bumped it up to 80 knowing that you get used to what you are exposed to.

To my surprise when the most recent electric bill came in it was $100 less in July than it was in June! I hadn’t realized that just a small change could make such a big difference in energy consumption.

Did my kids complain a little at bed time? Yes at first they did, but I just turned the ceiling fan on a little higher and offered to let them pay the FPL bill. They actually did get to sleep. (My wife is always cold so no problem there.)

I am often amazed when a resident in one of our properties complains that their A/C is not working well because it struggles to maintain 74 degrees in summer. What a waste of money. Dial it up and save.

DISASTER PLANNING FOR THE LANDLORD

Are you as ready as possible for the next hurricane?

What will you do if you learn that a hurricane is bearing down on your rental property?

With a disaster plan in place, you can know how to respond when a hurricane hits, and save lives and even livelihoods if you act with a level head.

Prepare…prepare…prepare

When Hurricane Charley swept through the southwest coast of Florida in 2004, property management offices were put out of business in a matter of hours because the hurricane wiped out their entire inventory of rental properties. Hundreds of properties were damaged beyond habitability in neighboring Port Charlotte and Punta Gorda and Arcadia. This also left many hundreds of tenants without homes.

At Sarasota Management and Leasing, we know the hazards our landlords are faced with, and we’re committed to making you and your properties as prepared as possible for any eventuality. This is what sets us apart from other management and leasing companies —

when disaster strikes, we want you to be prepared and to know that we’re with you all the way. In fact, we’ve created a detailed disaster plan that you will be receiving very soon. In the meantime, here are some practical ways to protect your property investment and finances:

Prepare Your Property Manager

· Establish a way of communicating with your property manager or tenant in the event that power and phones are down. This could be through your manager’s web site or cell phone if phone service and/or power are out. Be sure there’s a “Plan B” in case “Plan A” is unreachable.

· Make sure your manager has back-up generators to power the property’s office if the electricity is off and phones are out.

· Make sure your property manager backs up critical data on a regular basis. If they do not have reliable off-site backups of critical documents, a hurricane could put you them (and you) out of business.

· Create a communication plan that enables your property manager to get messages to you regarding your property. If you are remote and phones are down, it may require the property manager sending an overnight letter to you via FedEx or a similar carrier.

· Make sure your management agreement covers contingencies such as what your manager will or won’t do if a disaster strikes. Get written assurance from them that they will survey the damage, take action to protect your property from further damage and report back to you. If not, consider Sarasota Management and Leasing, because we promise to take action.

Have Your Proof of Insurance Handy

· Gather copies of your appliance manuals as proof of what you owned.

· Get a hard copy of your insurance policy and put it somewhere safe and dry. In the event of a hurricane, your insurance agent may have no access to your policy. If you can present them your hard copy, then they can go to work helping you.

· Make sure your insurance policy covers you for lost income. This requires that your insurance company knows that your property is a rental property and that you have rental property insurance.

Prepare Your Property

· Consider getting storm shutters at your property now and make a plan to have them installed. If you wait until a disaster, everyone else will be in line for the shutters and installers will quickly get overwhelmed. Plywood will quickly sell out as well. Pre-purchasing and fitting your shutters, then storing them until you need them will ensure protection.

Prepare Your Tenant

· Advise your tenant to carry renters insurance and inform them that you are not responsible for loss of their property.

· Prior to the storm, make sure your property manager to will contact the tenant and tell them to batten down all loose yard equipment and toys so they don’t become deadly missiles.

· Make sure that your Property Manager has prepared a disaster plan for your tenant so they know what to do to protect themselves and the property, and how and where to get help.

Prepare Your Lease

· Ensure that your lease has language that releases you from the contract if your property is damaged to the point of becoming uninhabitable. This will require a clause in your lease that allows contract termination in this case.

· Include wording in your lease that stipulates that you or your manager can and will determine whether the property is uninhabitable. This will settle all arguments between you and your tenants as to what must be repaired and how fast it must be done.

If you are a property owner with Sarasota Management & Leasing, you will be receiving our detailed Disaster Plan for Landlords very soon. In it, we will spell out what precautions and preparations we are taking in order to assist you in riding out the storms.

It’s easy to let your guard down because a few years have passed since hurricanes have done any major damage. However, you can be assured that we will get hit again, and an ounce of prevention now is worth hundreds of thousands of dollars of loss when disaster strikes.

Background Checks

Why your new tenant was a nightmare

You had the vacancy, and you needed a renter, so you posted an advertisement. After receiving a few phone calls, you set up an appointment with a prospective tenant, show him the place, and he likes it. At the office, he fills out the application, consents to a credit report, and pays the fee. Everything checks out on the credit report, so you collect the security deposit and first month’s rent, hand him the keys, and breathe a sigh of relief, while patting yourself on the back for finding a good tenant.

Less than three months later, you’re issuing an eviction notice.

What went wrong? The new tenant gave a good first impression, they seemed gainfully employed, and their credit history checked out. So why are you dealing with this nightmare, and what can you do about it to avoid a similar headache with your next tenant?

The complete picture

The answer is in your research process. Sure, a credit report is an important part of the screening process, and today’s credit reports contain more information than ever before under the Fair Credit Reporting Act (FCRA). However, there are other pieces to the puzzle that must be answered before you hand over the keys, such as:

• Does the prospective tenant have reliable and steady income?
• Did they properly vacate the properties they resided in?
• Does (s)he have personal references that can vouch for their character?
• Did the prospective tenant provide false information (i.e. the credit report is from somebody else)?
• Do they have a criminal record?

No matter how comprehensive current credit reporting procedures might be, a credit report does not provide the answers to these questions. This is why you need to have several sources of information that can be cross-referenced, offering clues as to whether you have a shady candidate.

Cross-referencing involves obtaining multiple sources of information and then comparing that information, looking for clues. Some of these sources may include:

• Comprehensive tenant application – this should include such information as complete identity information (driver’s license, SSN, and so on), detailed employment history, income status, references and personal details (such as whether they smoke, have pets, children, or other occupants, and owned vehicles). The application must contain written consent to obtain a credit report.
• Credit report
• Criminal history –national and statewide
• Sexual Predator List
• Eviction records – these may not show up in a credit report
• National Terrorist Database - better to be safe than sorry

Once you’ve obtained all of the information, compare the application with the information you received, looking for the following discrepancies:

• Does the application reflect the same residency history as the information you collected? An applicant might be trying to hide a bad reference or eviction.
• Are there any discrepancies on employment or income? A discrepancy may not be anything malicious, but further written documentation regarding income, job status and future employment status will be necessary.
• Does the vital information (birth date, SSN, etc) match the reports you obtained? Some applicants will deliberately list a family member with the same name, attempting to fool you with their credit history.

In addition, credit reports do not verify property ownership or provide details on rental history. Verbal or written inquiries are necessary for property maintenance issues, bounced checks, leases violations, law enforcement problems and whether they actually paid the rent on time.

The bottom line is that credit reports ARE important but simply do not reflect enough to qualify or deny an applicant. Sarasota Management & Leasing has the experience to assist your investors in screening applicants and placing qualified tenants in their investment property.

Boots on the Ground;

One of the Keys to Effective Property Management

If everyone did what they were supposed to do, there would be no need for my profession. Tenants and Landlords would get along, and watch out for each others interests. Unfortunately (or fortunately for me) human nature has not changed much over time, nor is it likely to in the near future.

How does this relate to rental management? Most people need supervision to insure that they are doing what they promised to do. When renters move into a property, they promise that they will pay their rent on time, keep the place clean and in good condition. They promise that they are trustworthy and will never cause the Landlord any problems. (For the record; I have had many residents whom I would trust with my checkbook. Unfortunately, they are not the majority.)

Therefore, you need to be onsite and looking over the shoulder of your tenant. If you hand over the keys to the property and then come back 1 year later (or 2 -3 years), you are likely to be in for a surprise. Your “out of sight out of mind” investment now needs thousands of dollars worth of repairs and cleaning. Your investment just became highly unprofitable and requires an infusion of cash.

We recommend a well documented move in inspection, then an inspection 3 months after move in, and 3 months prior to lease end. (and more often if the need requires). You should be checking for lease violations, air conditioning filter condition, grout in showers, leaks under sinks and overall general TLC.

This does more than correct problems that have developed in your absence. It also sets a high standard of expectation. If a resident knows you are coming, they will make sure that the property is kept up.

This one habit can make the difference between a successful endeavor and a nightmare.

Double Digit Rent Increases

Check out this Article link regarding higher rents expected:

http://money.cnn.com/2011/03/15/real_estate/rent_rise_housing/

Staying Out of Court in Security Deposits Disputes

What documentation do you need regarding property condition?

There is one very simple thing you can do to reduce the stress of arguing (or going to court) over security deposit claims – Document!

If you ever get before a judge in a security deposit claim fight, you had better be prepared. Why? Because you will feel like the one who is on trial if you don’t. Judges are going to look to you to provide the burden of proof to make their job easier. If you don’t have it, they are not going to be happy with you, and chances are they are going to award the case to the tenant.

Better yet, how great would it be to avoid this mess altogether? How much is your time worth? How about your peace of mind as a result of avoiding conflict? (I know some people just like to fight. Especially angry tenants).

It is amazing how few Landlords (even Property Managers) actually take the time to properly document the condition of a property. Many depend on their memory for remembering how the property looked prior to the tenant moving in. This is a recipe for trouble. If it comes down to your word against the tenants, you will lose.

However, if you have a detailed check list, a multitude of pictures, or one 5 minute video you can usually avoid all of these hassles. Just invite the tenant to come and review your photos and/or video. It's irrefutable and usually just mentioning that you have these will make the problem go away.

Besides, It's fun when you are holding all the Aces.

Increased Rents Coming

Landlords have been starved for good news lately. With abundant supply and reduced demand over the past several years causing declining rents (not to mention increased taxes and insurance), its about time for a turn around in fortunes for these investors.

An article at RISMedia.com spells out the case for double digit rent increases over the next several years. The article points to the fact that household formation is way below what it should be. Young people have been living with parents, sharing with roommates or staying in college dormitories, and this pent up demand is expected to hit a new construction market that has dropped well below what will be needed to keep up with this demand.

In our market, we have seen a definite tightening of the rental market for the past year. Where we were seeing rent declines and longer vacancy periods, we have once again begun increasing rental rates on renewals and new vacancies. Our average Days on Market has dropped to under 25 days!

This is great news for landlords who have been holding on by the skin of their teeth over the past 5 years. And with property values still at significant retraction, and interest rates hovering below 5%, could there be a better time to add to your portfolio?

Link to Article at RISMedia.com: http://rismedia.com/2011-01-16/rent-increases-on-the-way-say-analysts/