Whether you are a new property owner, or you want to improve your property management skills, here are the basic, yet vitally important things you need to do.
From getting all your paperwork organized, to looking at ways to increase your current income. And finally, getting the most out of your upcoming vacancy is of the upmost importance.
PAPERWORK FROM PREVIOUS OWNER
Paperwork: all leases, tenant estoppel and record of expenses from previous year. Get records and contact information for any major repairs from last 5-7 years.
A tenant estoppel is confirmation of the amount of current tenant deposits, current rent, ownership of appliances and who pays utilities which utilities, signed by the tenant.
The importance of tenant estoppel can’t be under estimated. As a new owner, the last thing you want to deal with is an issue with your tenants or previous owner that could result in a lawsuit due to a disagreement of what your tenant’s deposit was at the time of their move in, or who pays for the water bill.
Having both tenant’s and seller’s agreement on all of them above items is one of the most important “checklist” items as you move forward with your new property.
If you are in Oakland or Berkeley, insure that all current tenants are on the lease for that unit.
POTENTIAL FOR IMMEDIATE RENTAL INCREASES
Determine if there are any improvement/repairs that can be passed through with the “capital improvements” ordinance.
Track if previous landlord has passed through yearly allowable rent increases. If not, previous increases can be banked together and passed through.
IMPORTANT ONGOING MAINTENANCE
Many buildings in the East Bay were built in the 1920’s-1940’s.
They are great quality and are very desirable to tenants.
I’ve learned first-hand that the most important maintenance item in these and any multi-unit property is roof maintenance. Leaking roofs can allow water penetration that may be undetectable initially.
Damage can be substantial and very expensive.
Hiring a reputable roofing contractor to do seasonable maintenance is the most important aspect of regular work to be done.
Second, have a plumber walk through twice a year to check for leaking faucets, and running toilets. Each toilet that is running can add $35-$50 per month to your water bill. If your property has only one master water meter, tenants rarely pay any attention to their water use, as you pay the bill. It’s like having teenagers who take 30 minute long showers, except you have many of them and you can’t yell at them, “We are having a drought, quit wasting water!”
Also, make sure that all tenants between “wear and tear” and damages to your units.
Many tenants think that it’s your job to repaint and resurface the hardwood floors when they move out. It’s the tenant’s responsibility to fix all nail and picture hanger holes. Deep scratches in your beautiful hardwood floors is damage, not “wear and tear”. It is best to have this discussion with all new tenants and when you are doing your annual walk through with current tenants.
PROPERTY AND RENTER’S INSURANCE
Notify your tenants that they must have renter’s insurance. Make it part of their lease (for new tenants) and add this addendum document to your current tenant’s lease. Make it a requirement and explain to all your tenants and prospects.
It’s best to explain how they are not covered through the owner’s property insurance if they have to move out due to a fire or other events that make their unit uninhabitable. Most good insurance brokers/agents can supply you with a basic form that explains how renter’s insurance protects renters. Most tenants expect the landlord to cover expenses for them in the event they can’t inhabit their unit, regardless of the cause. In most cases, the tenant will be responsible for finding a new place to live and replacing their damaged possessions.
Secondly, check that your policy covers loss of rental income and liability in case of a lawsuit from one of your tenants.
EDUCATION
The EBRHA has classes, such as Landlord 101 to help with learning all of the above.
Once you’ve taken care of all of the above, it’s time to work on lowering your expenses and raising your rental income.
LOWERING CURRENT EXPENSES
Lowering your expenses: I just recently had all the toilets replaced with low flow toilets. The cost was about $275 per unit, including installation.
Our water bill went down almost $100 per month, which pays for the cost of the new toilets in less than a year!
Secondly, if you have owned your building for more than 5-7 years, you could probably reduce your monthly mortgage through a no cost re-finance. Depending on the size of your property there are a couple of specialist here in the East Bay that can guide you, relatively pain free, through that process.
ADDING TENANT AMENITIES AND INCREASING INCOME
Installing or increasing the amount for your coin op washer and dryer.
When I’m touring multi-unit properties for sale, I’m always surprised at the incredibly below current market cost that landlords are charging or even not charging at all.
Currently, laundromats are charging $2.50-$2.75 to wash and $2 to dry. A fourplex can earn $125-$150 per month at those rates.
If you have the ability to add parking spots or are not currently charging for parking, as a general rule of thumb tenants will pay at least $150 per month per spot. This will increase your monthly income and value of your property.
Storage areas and separate storage units are also very valuable assets to tenants. Landlords can earn $50-$75 per month for storage lockers and $200-$300 per month for a storage area.
Your laundry income is included with your rental income in calculating your annual gross rent.
Currently, multi-unit properties are selling for 10-15 times annual gross rental income.
Thus, adding coin op laundry income will increase the value of your property by $12,000 to as much as $27,000.
Adding parking revenue and storage locker revenue can add hundreds of dollars in revenue per month. Between market rate laundry income, parking revenue and storage revenue a landlord can easily add $2,000-$3,000 per year in revenue without spending any or little on these projects.
Upon turnover of a unit, it’s always smart to consider how much more you can achieve in higher rent if you remodel the kitchen and/or bath(s)
If the total cost of the remodel can be earned back through increased rents within 18-24 months, it is probably a good investment.
If you own in one of the two cities with rent control, Oakland and Berkeley in our area, check with how to pass through any and all tenant improvements.
VACANCY
This is the most important aspect of being a multi-unit property owner. Most of us own in one of the two rent control markets. The rent we achieve upon a vacancy is potentially going to be our rent for that unit for the next 3-5 years. Yes, we will get to add a yearly rent increase as dictated by our local rent board, but that additional amount is very small.
I personally have made the mistake of raising the new rent by an amount that seemed substantial, only to realize either at the open house or shortly afterward that this new rent is hundreds of dollars below what I could have easily achieved with some research and leg work.
The first and most important rule of thumb: Do not assume that you know what current market rent is for any of your units. When your current tenant gives you notice that they will be moving out, this is a really important time that gives you the opportunity to greatly increase your monthly rental income and add potentially $100,000 or more to the value of your property.
Many of our current tenants may have only been in there unit for 2-3 years, but their current rent can easily be 40% below market rents.
For example: your current tenant is renting a 2 bedroom apartment and their rent is $1500 per month. Upon getting your notice that they are vacating, you do a quick assessment and get ready to list it on Craigslist, for example, at $1900. Yes, $400 per month is a great increase in your overall monthly rental income. Please keep in mind, with today’s rental market and the San Francisco Bay Area’s job market, thousands of well paid professionals are looking to move to the East Bay. The amount of available rentals and new construction in San Francisco is far below the demand. Tenants are looking for proximity to mass transit, walking distance to shopping and amenities and great neighborhoods.
If, for example, actual market rent for your upcoming vacancy is $2400 per month, you are losing $500 per month in cash flow.
Much more important though, is looking at how much you will lose over the course of the tenancy. If you rent your unit for $500 less than market rent and they stay for only 3 years, you’ve lost $18,000. Now personally, once I learned how important figuring out the correct market rent, I have put in much more work.
The first step is using one of the websites to look at what other landlords are charging in your and similar neighborhoods for similar apartments. When looking at comparable units, if there are no pictures or the actual address is not listed, do not use as a comparable.
Second, check for the amenities and layout of similar available units. I have found that renters will pay more for:
- Hard wood floors, gas stoves, smaller number of units in the building and shared amenities such as patio, backyard, laundry facilities.
Finally, you should go to at least a couple of open houses as soon as your current tenants notify you. Really seeing other units, and seeing what the competition has for rent is an invaluable piece of information.
Please keep in mind, many property management companies don’t really work that hard to get top rent, as they just want to rent the unit as quickly as possible to earn their fees.
If you’re doing your own management it benefits you greatly to achieve top market rent. Putting in all the above work will benefit you each and every month for years to come. With our current rental market, use a 3-5 years or longer time frame and really learn the benefits of your units. Whether its location, layout, amenities, privacy or price that make it desirable.
I am always available to EBRHA members to consult and pass on my 17 years of experience, as I’ve made plenty of mistakes, but learned a lot from them.