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Just about anyone can say they are an Austin Property Manager but what makes someone an expert property manager? Gladwell would say 10,000 hours, check. Others might say licenses or certifications, check and check. Still others may say it about the effort not just the perception. Check and we’re happy to say check on the reviews as well.
Here’s a short video to correspond with our FAQ #10 regarding what makes 1836 property management the best in Austin.
Are you considering leasing out your home instead of selling? You’re not alone. What can happen to you as a landlord? What do you need to know?
With the cost of a sale transaction averaging about 8% of the value of the home, that’s a lot of cash you could spend elsewhere, namely toward your retirement. Let’s face it whether you sell or lease you’re going to have to properly make the home ready for the market. This typically means ensure good paint, good landscaping, good flooring and having everything fully functional. Hide something at your own peril. It will come back to bite you no matter which route you go. Thus the make ready cost isn’t optional.
Now you’re leaning toward leasing or renting out your home but concerned about what mistakes you might make.
If the possibility of having a tough time managing tenants has crossed your mind you’re smarter than the average bear. So let’s talk about what you might run into.
PRICE IT RIGHT! Do not make the mistake that your fellow investors make every day thinking that your property is more valuable than others simply because it’s yours. Seek help from a professional, NOT ZILLOW! Texas, among others, is a non-disclosure state. In other words, 3rd party websites are guessing. Realtors with databases of statistics are not. Property Managers know what to do beyond the basic stats. They live and breath leasing. To them it’s their bread and butter, not a side job they do as a favor. Time is money so don’t waste time saving a couple bucks. Hire someone to do this right or you’ll waste more than you could save.
Failing to do a proper make ready. Your tenants are going to look similar to your home. What do I mean? If you deliver to market a junky home, expect a junky tenant. No one that pays their bills on time and cares for the family is going to lease a house that is dirty, has dirty carpet or paint, horrible landscaping or other issues. Want tenants with no issues? Start by delivering a property with no issues.
Failing to ensure everything is in fully functional, working order. You can’t put off repairs. If something is broken it’s not going to fix itself. Deal with it today or pay more tomorrow. This is the same as above but more functional than cosmetic.
Leasing the property yourself and not knowing what to ask, where to get the data processed and what to do if you counter or decline the tenants application. Do you know that if you run a credit check and then make a counter offer on the pricing or any other term you have to deliver a form with information required by federal law? I can almost assure you that your real estate sales agent doesn’t know this either. Hire a property manager to do your leasing even if it’s not us.
Not knowing what you don’t know. Failure to know what to expect can get you into a lot of trouble. The problem is you won’t know it until it’s too late and then you’ll be looking for a contractor and an attorney to help you out of the mess. We get calls from owners who self manage all the time wanting help.
Lastly document, document, document and get ready for late night calls and unusual circumstances. Life is really easy until you get people involved. Then all rules go out the window. Expect your tenants to wake up on a Sunday and want to talk to you about something they dreamed up that is opposite of what the lease permits. Get ready to say no, a lot.
If we can help you find, manage or provide support related to your Austin rental property give us a call today. 512-994-4323. We’re ready to help. www.1836PropertyManagement.com
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.
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.
Should I hire an Austin, Texas property manager for my rental property?
This video will go into some detail about what an investor or landlord needs to know before hiring an Austin Property Manager. If you’re considering hiring someone to manage your property in Austin, Texas they must be licensed as a real estate agent, supervised by a licensed broker and authorized to conduct property management. They must know more than just how to put out a sign and pick up a check. And more importantly if they say yes to everything you ask them to do, and you are not a tier one property manager, you may be getting sold services that can’t be fulfilled. Strong, experienced property managers do business a certain way and have processes and procedures in writing. It’s the only way to deliver service, on time and exceed expectations. If someone tells you everything you want to hear and doesn’t share with you their experiences they may not have any experience or the strength to do the right thing. Strong leaders make great managers.
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.