Category: Investor Information

Should I sell or lease my home in Austin, Texas?

Should I sell or should I lease my home? We seem to get this call about once a day and wanted to answer this for all homeowners.

As you might suspect the answer isn’t super easy. But it’s not that hard either. There are a few key indicators to let you know whether selling or turning your home in Austin into a rental is the right answer for you.

What is the payment on the home compared to the rental income?

Let’s say you’ve got a monthly mortgage payment of $1500 per month. That includes your principal, interest, taxes and insurance or PITI. Some portion of that is going toward the principal monthly. Make a note of that amount, it’s only going to increase as you pay down the mortgage. Now let’s say you’ve got a monthly rental estimate of $1750 per month. Already you can see that you’re in positive territory but wait, you know there are going to be some expenses. The amount you’re paying down your principal every month is monthly you’re saving for the future. Even if you had to spend $250 per month to keep a property going but you’re paying down the mortgage $250 a month you’re breaking even.

What’s it going to cost to get the home leased?

Most property managers in the U.S. are subject to the market forces. In other words they don’t create the rules. They work within the framework of their geographic region, state or city. Some cities have an average cost of about 50% of one months rent to lease a property. Those same markets may not permit sharing of information about properties for lease through the MLS and thus make it hard to get the word out you’ve got a great home to lease. Others at this price point don’t provide enough financial incentive for agents to show rental properties. Keep in mind that if the commission is 50% of $1500 that’s about $750 in total. Then we divide that by the listing broker and the tenants broker/agent. Now we’re down to about $375. Now lets take 20% for the tenants broker and 30% for the tax man since the agents are 1099’s or self employed and thus paying their own taxes. Now we’re down to about $187.50 for the agent. Don’t forget they have to pay for continuing education, MLS and other membership dues, computers, phones, the car that they take tenants out in, drive time, the electronic key they use to get into the house, the drive time home, time on site meeting with the tenants and then they’ll get stood up about 50% of the time. Are you ready to get your real estate license now? Not many agents show rental properties and this is why. Others cities or areas may charge as much as one full months rent to list your property for lease and that may not even cover the fee for the tenants agent or it could include it. Either way the jest of the story is that paying more to get your property leased isn’t a bad thing all the time. If it helps get your property leased faster it’s probably worth the money. Don’t forget on a $1500/month rental your vacancy is costing you $65/day. Would you rather pay to have it leased or save money and have it vacant. Depending on how long tenants should stay for your property manager or for your city this can be spread out. Let’s say your tenants stay an average of 24 months and the leasing fee is 80% of one month’s rent or $1200. That works out to $50 per month in expense. Easy enough.

What is the average annual appreciation in your area?

This is where many people love to look at the math. Let’s say the average annual appreciation in your area is 3%. If you’re lucky enough to be in Austin, Texas some say it’s higher than this. Your home, worth approximately $225,000 is going up in value at the rate of 3% annually or $6750 per year or $562.50 per month! Now we’re talking.

What is it going to cost to have it managed?

This isn’t the article for all the great reasons you should have your property managed by a professional so we’ll leave that out. We’ll also leave out the fact that even as property managers we hire our friends to manage any rental properties in other cities that we can’t easily reach. Hiring an expert is simply the way to go but we’ll save that for another article and assume you’d rather pay for a professional to manage your property rather than pay an attorney to help you get out of trouble and a contractor to help clean up the mess left behind. 52% of property managers charge 10% of the collected rent to manage a property. Some may charge as low as 5%. I can’t say I recommend paying above 10% unless you’re wrapping in  some others services which is possible. Areas such as San Francisco may charge less because the rents are higher. Other areas may charge more because the rents are lower. Yet some managers may even charge less than the cost of managing your property monthly because they’re simply bad business people. [Believe it or not this is quite common.  If you’re interviewing property managers I dare you to ask them what they’re current cost to manage a unit is at this time. I’ll be willing to be more than 95% don’t know the answer.] For the sake of this article let’s stay it’s 8%. That’s our most popular plan although we do have others which wrap all the service into one monthly fee, including the leasing fees. That means that for a $1500 per month rental you’ll pay only about $120 per month for 24/7 service, accounting and experts who are receiving all the complaints your tenants and neighbors can dish out and shielding you from the drama.

What about depreciation?

For this I’ll say you can depreciate a rental property over 27.5 years. Beyond that I say speak with a licensed CPA for the best advice. Good news is that it’s all going to be positive when discussing this topic.

So what does all this mean?

It means that if your home leased for $1750 per month. Your payment was $1500 including PITI. Your leasing costs were about $50 per month and your management costs about $120 for a total of $170 averaged out. You’d be making about $80 per month. Now we factor in the appreciation, on the banks money, and you come out to about $642.50 per month in gains. Talk to your CPA about depreciation and you’re really in the green.

What about maintenance and make ready costs?

Don’t think we forgot about these. They are important. We tell clients with newer homes to take about 10% of the monthly rent and put it away in a saving account they control. For average homes about 20 years old we say 15%. For 1920 construction, IF you don’t want to sell it, we say put away about 20%. These numbers are very conservative and include not only HVAC replacements but also make readies between tenants. You’re going to need the money at some point. Don’t get caught with zero in savings. Remember, time is money so we’ve got to get the property turned and leased quickly. We can spend money on the make ready or burn it thinking about whether something needs to be repaired only to find out 30 days later we should have done it right in the first place. This puts us, on a very conservative basis, at $262.50/month for newer homes, all going into your saving account for a rainy day. What’s the worst things that can happen? You save too much? Now we’re down to a gain of $380 monthly and remember the rental rate was only $250 above the mortgage payment.

The takeaway

Real estate investing works. The math isn’t that hard and a professional can show you how to make it all work in your favor.

Choosing to sell the home in this example would cost about $18,000 in transaction costs alone. What if you took that same $18,000 and instead of spending it on fees invested it in your home, your future and a saving account for a rainy day. A make ready could cost $0 to $8,000 in most cases. Vacancy should be limited to 30-60 days maximum costing you about $3,000 max. This leaves you with about $7,000 to start a saving account. Even if the HVAC goes out the next day and costs $6,000 you’ll still have money left over and a new HVAC that will last 10 years.

The choice is yours. You’re going to spend the money one way or another. Do you want to spend it on paperwork or invest in your future? I can tell you that personally I get about $4 out of my personal rentals for every $1 I put in. I don’t hear the S&P making that kind of return for anyone. If we can help you with your rental property in Austin, Texas we hope you’ll give us a call. www.1836propertymanagement.com or 512-994-4323.

Note: In this scenario we had a property which rented for more than the payment. This does work on properties where the rental rate equals the payment. Speak to your professional property manager to run the numbers and see if leasing your home is right for you.

 

Why does property management cost so much in Austin Texas?

Some owners come to us and say “we thought you would charge more”. Some come to us and say “Why does property management cost so much”? The biggest question all investors should be asking it “What is the value of the service”?

When you call a plumber or a dentist or an electrician it’s not because you want to burn money or just need someone to talk to. It’s because you’re seeking an experts opinion of the best way to solve a problem and don’t mind paying to have that problem solved on-time, right the first time and backed up by a guarantee in case something doesn’t work out perfectly. Can you imagine trying to save money on your own dentistry? No way! You could of course go back to dental school and learn how to do it yourself but it’s simply not worth the time or effort. So you pay a dentist for their expertise. You pay a plumber to come out and fix things right the first time. No one wants a supply line, under pressure, to start to leak inside their home at 2am. You pay an electrician. Not because you can’t figure it out yourself but because your time is valuable and a house fire from doing it wrong isn’t worth the risk.

Hiring a property manager is very similar. You could do it yourself. You could attempt to guess the latest market conditions based off free information on the web, not knowing if it was accurate or not. You could hope that Zillow guessed correctly  in a non-disclosure state such as Texas. You could hope that the tenants appreciate your idea of a “ready” condition and don’t complain or change their minds. You could attempt to negotiate contracts with the tenants without knowing real estate law, being an attorney or even having the appropriate authorization to use forms your Realtor provided you for free. You could attempt to run background checks on tenants, not knowing what to ask, what not to ask and how to even obtain the information. Do you know what criteria delivers a 0.5% or less eviction rate? We do. Do you know how to legally say no to a tenant if you’ve seen their credit? It’s a federally required form. We know. Do you know what to do when a tenant tells you they’ve been the victim of domestic abuse? What about a military transfer? How about they simply got locked out at 2am and want a key to get in or they’re threatening to break a window. What would you do?

We know the answers. That’s what you’re paying for. It’s not just rent collection and disbursements on good days. It’s staying up to speed on all laws, federal, state, local, staying insured, licensed and available 24/7. It’s about proper detailed accounting, only software for you and the tenant and about having experts keep you out of trouble before you accidentally step into it. If you hire a property manager and never have a problem, it’s because they’ve removed opportunities for problems to arise or grow, dealt with the problems before they reached you, knew how and when to communicate with tenants, vendors and even the neighbors who call in to complain about the tenants. If you can imagine it, it will happen. The question is do you want to deal with it or have us take care of business before it ever reaches your inbox. Remember this is the biggest investment most of you will ever make. Why would you take a chance on that going wrong when you can hire an expert to help ensure it goes right?

Call us today at 1836 Property Management for the best property management services in Austin and central Texas. www.1836PropertyManagement.com or 512-994-4323.

Austin Rental Market Update for Landlords

What’s going on with the Austin rental and leasing market? Want the latest. Here’s a video update for you.

If you’re considering leasing your home or renting a property in Austin, 1836 Property Management is the place to start your search. Give us a call today for the best property management services in Austin. If you’ve got a rental property, you need 1836 Property Management.

 

 

Are you having a tough time getting your home leased? How about a market update?

Here’s a video update on the Austin rental property market. The market has shifted. What will you do to beat the competition and get your property rented? Call us at 1836 Property Management today for answer and the best property management services in Austin.

 

What’s new on Austin Texas Investing and Property Management this week?

Welcome to another property management conference, this time in West Palm.

What does that have to do with the management of your investment property in Austin, TX? Everything. In Austin there are approximately 330 different property management options, believe it or not. Now just as with fortune 500 companies there can only be a few at the top of the heap. There are about 150 property managers here at this ancillary summit which is not part of our traditional national trade group. These are the property managers that want to lead the industry. There are only three managers from Austin present, 1836 Property Management being one of those three.

So what did we learn?

Technology is creating big changes in our industry.

No surprise there. Technology is affecting everything, everywhere. What about national chains? Are those taking over the mom and pops? Not really. It appears that service isn’t so easy to deliver on the cheap. Everyone agrees that there is a connection between what you pay and what you get when it comes to quality service and quality products.

I think the biggest thing changing is the level and style of communication between property managers and their clients.

The old way was to answer the phone and meet in person and hope the client liked you better than the competition. The new way to interact is through specific chains of events based on each type of client. While this may not be so interesting to clients it’s makes a huge difference in the quality of information they receive. For example when someone asks for a sales call, do they want a pushy salesperson or do they want education about the topic that they want to learn more about or are having challenges with. Most people reach out to us because they want us to solve a problem or take work off their plate. What if we could share information specific to their request, not general in nature. Now we’re talking. This includes not only being aware of the clients needs but also tailoring everything from educational emails to videos to research to their needs.

If you’re looking for a property manager in Austin Texas that wants to meet your needs and provide service for one of the biggest investments of your life, don’t try to save $10 and lose $10,000. Go for quality and you’ll always be pleased you did. Call us today to get started.