4 Absolute Rules for Setting Appropriate Rent Prices

You will have to come up with many thoughts when you start considering to acquire a multifamily property. The first, and likely the most important question which comes across in your mind is, what will the rent be?
This conversation can take a long time to cover all aspects, but I tried here in this article to cover more and more. The conversation about rent can give you a headache. But if you read this article you will get to know all the answers and can get rid of this headache. I try to shed light on all the question, you will have in your mind. Here are absolute rules for setting appropriate rent prices.

  • Rent should cover all your expenses
    Every landlord thinks rent should be high enough to cover all his expenses. Rent is the fixed income you will earn every month. So, it should be enough to afford all your expenses and something should be left over as cash flow.
    Well, I do not like any hard and fast rule, but the purpose of this conversation is, what should be a minimum rent requirement. For instance, a 50% expense ratio, which covers both the economic losses and the operating expense. So, in the case of a $600 rental, a 50% expense ratio would leave us with $300 to cover 3 very important characteristics which are:
  • Debt service
  • Capital reserve
  • Cash flow
    If you think practically, the $300 is simply not enough to cover all three above things. And since debt service is a prime factor, the choice we face is between our profit and Capital reserve. What we usually see is in the landlord’s pocket, the money left over after debt service, and then go to do some other work for some cash flow. This goes for years and years, and then their house gets destroyed.They find themselves needing to repair and renovate their houses like to replace the flooring, new painting, the water heater, and a stove. This is a sad experience for them because they have to do all these repairs from their cash flow. So, the situation can get worse for them. So, in order to get rid of this situation, always try to fix the rent that will cover your 80% expense. It is good if you can cover your 100% expense from the rent, but the minimum requirement should be 80%.
  • Protect and grow your investment
    Every landlord has two main objectives. To protect his investment, and to grow his investment. Protecting your investment is a function of operating at a price point which is attractive to an economically stable tenant base.But,it should not get so high that it limits our audience. In other words, until and unless you are in a very selective boutique market or asset class, you should not want your rent to be in the 90 percentiles. Many people cannot afford that rate.
  • Market range
    This conversation is specific about the market. I am talking about owning rentals that are within the 55th to 70th percentiles, within the range of, availability in the market place. So, if in your market rents range from $500 to $1,200 for class A, you probably want to be in the $725 to $1050 range. This will be attractive to tenants who are stable enough to protect your investment.Remember, it would not be so high that only high class of the marketplace can take on. Always set both minimum and maximum rent requirements for your tenants.
  • Rent of the property should be per square foot
    You have to price your apartments on a per-square-foot basis. Do some research online and then make rents for your property as per square foot not as per rooms.

5 Items to Replace when you Upgrade Rental Properties

Whenever you’re renovating a property, there are some items that you can delay in fixing, but there are other items that you should always replace whenever you’re renovating a property, and you should never ignore them but just so it. Here are five items that you should consider when upgrading, regardless of condition.

The first is the toilet. If it’s leaking, it can create a huge water bill, almost 10x what you will pay for the bill. They run all day, and if they’re leaking, it is continuous and a huge money guzzler.it’s also like super easy to fix, and you don’t even need to replace the whole toilet, just the “guts” of it, and takes only a couple of hours, and 20 bucks.

Then there are locks. You don’t know who all had the keys before. Instead of giving justifications, just change them. If you’ve got multiple properties, you can recycle locks as well, and that way you’re saving money when there is a turnover.

Then there are lightbulbs. Using energy-saving and long-lasting ones will reduce the bills, and they can reduce the number of phone calls to change the light. You can do this in common areas, or even in the places the person is living too. Once you do change the bulbs, it’ll be a long time before you change them again. You can get energy-saving bulbs that last 9 years, and they’re super affordable too, which is great.

GFCI outlets are electric outlets that are shut off when electricity goes through unintended paths. They are more expensive, and they’re perfect for safety reasons. Some places, they may be required by law, especially in areas where water is. You should definitely consider these if you have the budget for the renovations.

Finally, replace smoke alarms and fire extinguishers, for obvious safety reasons. Having these replaced, you won’t have to worry about them needed to be replaced for years. If you do use battery-operated ones, you’ll need to change these batteries a few times a year. You should try to have these replaced when you inspect the property every single month or every few months. You should consider getting the dual-sensor ones where there are ionization and photoelectric sensors, since these can help with detecting the fires that are slow and smothering, along with the fast-spreading fires in a simple, yet effective manner. It’s a great addition to have in the home and a must for replacement.

When it comes to fixing up which items you need to fix, you can do so with these five items. They’re simple, yet effective, and you’d be amazed at the difference that this makes in the home. They’re so simple, and if you want to save money on renovations of rentals, you’ll be able to do this in an effective manner, and you can ensure that your property has the safety precautions put in to help with this as well for you.


Avoiding Risks in Real Estate

To get into the real estate business real fast and efficient, people might use several financial instruments or even try to borrow investment from others. Mortgage is the easiest example when it comes to leverages in real estate. With a twenty percent or more down payment the property is handed over and the rest of the payment is done on monthly or yearly basis. In real estate joint ventures, the partners in the contract put all or some of the money in the dealing of the property. When using these leverages the investor should try to avoid the following things.

High level of appreciation
Every deal in the real estate investment is a new experience so one should not keep thinking that the next deal in a process will the same as earlier. The value of a property can increase and decrease at any time so expecting the same appreciation from properties at different times is not wise. Calculating the same rate when using leverages in real estate should not be done. If this is done the investor may have to face a loss or even a worse situation. When using leverages, all three scenarios should be imagines i.e. best case, worst case, and the most likely case. If the market remains calm and unfluctuating we can expect the best case to happen and a lot of profit is generated using the leverages. The real estate market can get effected by a number of factors such as the political situation and change in the map etc. If this happens the property may lose its value rapidly. When the value of the property is lost all the anticipated profit becomes a burden and the borrowed money has to be returned without any profit. This can be quite a situation for an average investor.
Having a too high payment in the end
Higher payments only come with leverages. In the case of mortgage, the buyer will have to go for monthly payments. The more the investor borrows, the higher will be the monthly payments. If the market fluctuates and one may face credit losses, the mortgage payment may not seem easier as it appeared in the beginning.  Not being able to pay the monthly payments can endanger the whole investment. The borrowed money has to returned in a specific time period and if the property has failed to prove enough benefitting at the end, the payment becomes a headache and may turn into a lawsuit sooner.

Good financing but bad purchase
Overpaying during investment when using leverages is a common thing among investors. At that time everything seems to be perfect and no issues are anticipated. Everything seems perfect as the investor is getting the property at a very less initial payment. There are several factors to consider. If the property is priced higher than it should be it can prove to a bad purchase sooner or later. It may lead to a significant loss in the end. Sometimes the deal seems to be so attractive that its overpricing does not seem to be a problem and is not given much importance but this can be a problem when the property does not gain enough value or looses the value it already has.

Importance of cash flow
If the rental property is generating enough cash that pays the mortgage and the expenses of the property, then the fact the property is gaining value slowly does not count much. But if it is not generating enough cash and also not gaining value, this is worrisome. As long as we are gaining from the property, everything is well and good.



Low-Cost Means to Improve the Costs of Your Rental Property

There are two goals you should have for your property. The first, to make sure that the property value doesn’t go down ever. The second is to increase the value of said property whenever you can, and ensure that the property is always rented out. Sometimes people leave, and that’s when you step in to make improvements, and you can use feedback from the previous tenant to make improvements. Here are a few ways to improve the value of the property so that you can attract tenants that are new and ones that will stay.

First, give your yard a makeover, and add some fences. You may not have a huge budget for landscaping, but upgrade so that the lawn is presentable, trim bushes and shrubs, remove any debris and the like that will make it cluttered. You should also try to add in some plants to make it look good and give off a positive impression. You can use inspirations to upgrade the yard with plants. If you have a fence, make sure that it’s kept up, and if needed, fix it. After all, this is the first thing people will see, and it doesn’t have to cost a whole lot.

Then, give the inside a good scrubbing. While painting the interior and exterior can cost a lot, and you may not have the funds for this, a good scrub down of the property, along with cleaning, can make a difference. It may take just a day, a ladder, some rags, and a soapy solution, and from there, just scrub it down. Paint the crucial areas that are obvious, and make sure that it at least looks welcoming in the foyer areas.

Next, clean up the carpet. A clean carpet will help with making the place have a new home feel. You can get a steam cleaner, which is low in cost but creates a huge impact and makes the place smell nice. If you have vinyl floors, do clean those up too, and if you notice that they’re damaged, you should clean them up. If you have a tiled floor, scrub this with waxing, or just cleaning it off, since it can make it look almost novel when you do it. If you have any chips, do consider replacing them, and you can always get leftover pieces.

Then, look at your appliances. Those that are shiny and maintained raise the value of the property. Do make sure that the appliances look new even when they’re not. A surface cleaner is great for appliances. Do make sure that they’re not malfunctioning since they will turn people off from renting. Do make sure they’re at least functioning well, even if they’re not new.

When cleaning up a rental property, you should take this as a rental exercise for a landlord. don’t be wasteful though, since you want every penny that’s spent to go into your own ROI, and lots of times, if you have new, new-looking, or even clean appliances and property, they will be happy with that. A clean washroom is a top priority too. If you’re thinking about renovating to upgrade, you should never ignore these, but instead, put them at the forefront. Tenants want the washroom to look modern, clean, and bright. Having appliances will make a difference in this.

You should also make changes based on the surrounding market. For example, having a house that’s turned into a semi-mansion in a poor area won’t get you the tenants that you want, or it will turn off others due to the area. You should never overcapitalize on the improvements that you do make.

When people visit, you want to create a good demand. This will get people interested. Even just adding something small that people want in a property can make a difference, and get them interested in whatever they’re getting from this. You owe it to yourself to make these changes.

By making the right changes, and doing small improvements to the property, you’ll be able to achieve great success with this. It makes all the difference in the state of your home, and it can make it easier to rent out.