The Truth About Property Inspections

As I met with an owner today it came to my mind that some landlords are under the impression that inspecting a property while it's occupied with eliminate problems with tenants.  Unfortunately this is not the case!  Inspections are typically used as a tool to keep the owner up to date on what repairs he or she will need to take care of, to reiterate common mishaps to the tenants, and to look at the property.  I have run into frequent occasions where a landlord will say to me "how did the tenant leave the house like this, didn't you do any inspections?!"  The answer is YES!  We were in the property while the tenant was living there but it's almost impossible to know what's hiding behind pictures, under couches, etc.  If a tenant is doing something that's in breach of the lease, that activity is usually hidden, removed, or covered up when the property manager or landlord enters the property.  Per Colorado state law we must post notice to enter a property and give occupants reasonable notice.  This is typically considered 24 or 48 hours.  By the time we have posted notice and gotten into the property, the dog that's not supposed to be there is magically gone, or the marijuana that was growing in the closet has been removed, etc.  Although I do think inspections are an important part of owning real estate don't be fooled into thinking it will keep your occupants on the straight and narrow!  The best hedge against problems with tenants is screening!  Your objective as a landlord or property manager is to get the best person you can find to rent your property.  If you have a high quality responsible tenant in your property the inspections won't reveal anything that you didn't already know.  The house will be clean and organized, the yard will be maintained, and minor maintenance repairs will be completed without even bothering the owner or property manager.  If you are so uncomfortable with a person renting or living in your property that you need to do frequent inspections, owning real estate may not be your thing.  Tenants can take offense to owners constantly coming into their home. 

Investing in Multi Family or Single Family Residential

Hello All!

Let me begin by clarifying what type of multi family properties I am referring to.  Apartments and single family homes are not a close comparison so for the purpose of this post multi family will mean duplex, tri plex, and four plex.  Choosing between investing in multi family or single family residential can be a difficult decision for some.  Although investing in multi family housing can be rewarding it's a more intensive investment.  By this I mean you turn over tenants more frequently, there is more maintenance involved, rent fluctuates more, and your investment is heavily impacted by larger multi family developments such as apartments.

Since multi-family units resemble apartment living, many folks looking at multi family units are also looking at apartments.  This can be bad for the multi family owner because apartment complexes can be built at any time and they offer many services that are not offered in smaller multi family properties.  Pools, high speed internet, cable, club houses are all amenities that smaller multi families do not offer.  In my local market area of Colorado Springs, CO there are numerous apartment complexes currently under construction.  These developments consistent of dozens or hundreds of units that are in direct competition to your smaller multi family property.  It's very difficult for a multi family owner to compete with these huge developments and therefore rents will need to be adjusted to compensate.  This equates to lower rents per unit and therefore lower potential profit and return on investment.

Since many multi family units are 2 or 3  bedrooms many folks use them as a stepping stone to a larger unit.  This means most tenants stay for 1 to 3 years and then they need more space.  Plan on turning over tenants every 1 to 3 years when factoring in your return on investment.  Since each unit is it's own "home" you will also be responsible for four fridges, furnaces, stoves, etc.  For this reason you will need to make sure your cash reserves are available for repairs.  You will also need to factor in tenant disputes.  There is little separating each unit and noise can be heard easily.  If you have a daytime sleeper difficulties can often arise.  If you are purchasing a multi family I would suggest getting units that are arranged side by side.  This way there is only one wall or one side of the unit that is shared and will help cut down on noise complaints. 

Yard maintenance is another thing that will need to be addressed.  Since the building is shared, many times the owner is responsible for yard maintenance.  Depending on where you live this can be costly when considering sprinkler systems, mowing, tree trimming, etc.  Utilities will need to be addressed prior to purchasing a property.  Is each unit individually metered?  Is there one main meter that is split 4 ways?  Who pays for the common area lighting and heating? Will you provide trash service? Make sure you research all of this before jumping into a multi family property.

Single family homes on the other hand eliminate a lot of these issues.  The tenant is typically responsible for maintaining the yard, there is little to no common areas to deal with and utils are individually metered and the tenant pays for all utils. You only have one furnace, water heater, and appliances to deal with and tenants typically stay longer in single family homes.  Although there will still be maintenance that needs to be done and paid for by the owner many of the day to day items are handled by the tenant.  Single family homes are minimally impacted by apartment developments because many apartment dwellers are not looking for single family homes and vice versa.

In my experience single family homes are better investments.  Your rents are more stabile, you have little to no issues with shared walls, noise complaints and tenant disputes are less likely, and you have a better opportunity for appreciation.  I hear arguments frequently that with a multi family property if one tenant vacates you still have 3 properties rented.  I understand that if a tenant moves out of a single family home the entire asset is vacant but this does not make multi family properties better.  When crunching numbers on a possible purchase of a multi family property I suggest basing your return on investment on 50 or 75% occupancy.  Since tenants move frequently your property will not be at 100% occupancy all of the time.  If you can make the numbers work based on 50-75% occupancy you probably have an Ok investment.  If you are basing your return on investment on 100% occupancy you will be unpleasantly surprised.

I am a proponent of single family housing.  Based on my experience this offers the best potential for acceptable return on investment, appreciation, and less maintenance headaches.  Although the purchase price of a multi family property can be enticing make sure you look at all angles before making the decision to purchase.  I have seen rental markets change very quickly and properties that were renting for 725 a month are now renting for 595 per month.  You can see ups and downs in single family rent prices as well but from my experience they are less volatile and fluctuate less dramatically.

I hope this helps address issues concerning single family vs multi family investing.  Feel free to post questions or comment and thank you for taking the time to read this post!

Daniel Muldoon
www.muldoonassociatespm.com

Properly Vetting Prospective Tenants

Hi There,

Please take the time to read this short but VERY IMPORTANT step in owning or managing rental properties! Since the folks you rent to will be living in your home and maintaining it you need to be selective and have procedures in place to properly vet applicants.  There are many things I have learned that have proven to limit risk and increase profit and I'm going to share that with you today.

You will want to be well versed in HUD protected classes, landlord tenant law, and your state laws regarding rental properties.  At no time should you discriminate against someone (or multiple people) for familial status, religion, disability, race, color, national origin, or gender.  Your state may also have additional protected classes or additional laws regarding habitability. 

I have implemented a list of minimum qualifications that we require prospective tenants to review prior to even showing them a property.  We want them to be aware of what we are looking for and to assure them our standards are in line with landlord tenant law and protected classes.  We have received good feedback from our tenants.  They like knowing what the landlord is looking for before they waste their time looking at properties they can't qualify for  This also gives you a template to apply to all applicants equally and keep you inline with HUD regulations. 

Remember, the goal is to have a template that is equally applied to everyone!  .  Your minimum qualifications should address income, rental qualifications, criminal information, job requirements, and credit criteria at minimum.  You need to have procedures in place to handle folks who do not meet your minimum qualifications. If you are willing to accept a co signer, this should be addressed on the minimum qualifications.  It's imperative to supply an individual with an adverse action letter if their application is not approved based on credit.  This is a newly implemented law and you don't want the fines or headaches associated with not doing this step.

Make sure all prospective tenants are provided with the same application.  You will need their social security number, name, current and past addresses, employer information, number of occupants, pets, etc.  They will need to sign an authorization allowing you to process the information and to contact the people or entities needed to acquire the desired information. 

I have run into many licensed real estate professionals who are unaware of many of the laws affecting rental properties.  If you are a licensed real estate broker you will be held to a higher standard than the general public.  You ABSOLUTELY MUST get educated about the laws regarding your personal rental properties or properties you are managing for your investors.  I suggest taking classes or joining NARPM.  It's a relatively small cost and it's worth it!!

I will probably post more detailed instructions on our processes at our Property Management How To Blog.

Sincerely,

Daniel Muldoon
Muldoon Associates, Inc.
www.muldoonassociates.com