Neighbor Danger: Survey from Real Property Management Reveals DIY Landlords May Put Neighborhoods at Risk

Neighbor Danger: Survey from Real Property Management Reveals DIY Landlords May Put Neighborhoods at Risk 

DIY Landlords do not Adequately Conduct Background Checks, According to Survey 

SALT LAKE CITY (May XX, 2014) – Do-it-yourself (DIY) landlords, individuals who manage their rental properties without assistance from property management companies, may be putting neighborhoods at risk, according to a survey on landlord practices conducted by independent research firm Liminality, Inc. on behalf of Real Property Management. That’s because DIY landlords have lenient or non-existent policies when it comes to conducting background checks, the survey of a national probability sample of more than 150 DIY landlords nationwide revealed, which suggests criminals – including sex offenders – could be living next door. The survey found that 21 percent of DIY landlords sometimes or never conduct background checks on their prospective tenants.

The survey also revealed these disturbing findings about DIY landlords:
• Only 44 percent conduct sex offender checks
• Only 51 percent conduct criminal background checks
• 23 percent sometimes or never conduct credit checks
• Only 51 percent contact past landlords for references

Why are background checks so important for neighborhoods? Without thorough screening, criminals – who are likely to commit crimes again in the future – can easily move in next door, potentially putting families at risk. Rates of recidivism, or the act of criminals committing another crime, are high, according to a study from The Bureau of Justice Statistics published in 2014 that tracked 404,638 prisoners from 30 states who were released from prison in 2005. That study found 76.6 percent of the tracked criminals were re-arrested within five years.

In comparison, Real Property Management, the nationwide leader in managing rental homes, has policies in place for franchise offices to conduct rigorous background screenings on behalf of their property-owning customers, which includes credit, employment, rental history, criminal and sexual offender checks. All franchise offices follow local and state rental regulations. “We are very surprised to learn many DIY landlords are not disciplined enough to routinely conduct background checks,” said Real Property Management President Don Lawby. “Not only are they risking an expensive investment in their property, but they could also compromise the well-being of their neighbors. The bottom line is if DIY landlords don’t have the time or resources to screen tenants, they should consult a property management company that can do it for them.” For more information on the benefits of professional property management or to find your local Real Property Management office visit: www.realpropertymgt.com. About Real Property Management Real Property Management is a privately held, Utah based corporation with over 25 years of experience providing full-service residential property management for investors and homeowners throughout the United States and Canada. For more information about Real Property Management, property management services or franchising opportunities, visit www.realpropertymgt.com. Follow @rpmwvphoenix

The Six Most Important Aspects of Legal Notices for Phoenix Rental Properties

All investors at some point will need to serve their tenant with some kind of legal notice however it is imperative to pay close attention and follow the following to ensure proper service.

1. The "WHO" - Be sure to address the notice to all lease holding residents not just one and the notice must clearly contain your contact information unless you use an on-site leasing office.

2. The "WHAT" - Be sure to use the correct notice for example don't issue a 10 day for a health - and - safety issue or a 14 day for a monetary demand.

3. The "WHERE" - The notice must be served in one of two ways; 1. Personally to an individual residing in the property or 2. via certified U.S. mail to the residence.  You may not post the notice to the front door or enter the property to "drop it off".  

4. The "WHEN" - Notices must be served in a timely manner so we recommend within a few days of first noticing the issues.

5. The 'WHY" - In your notice you must make the demand (remove the unauthorized pet), provide a time frame for compliance (10 days ), announce the consequence if the demands aren't met (eviction) and describe the cause of the notice (pets are not permitted).

6. The "HOW" - If serving the resident in person, be sure to use a reliable server or if serving via US Mail take the notice to the post office yourself so that you keep copies of all documentation for your records.

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Is my property rent ready? Do I need to make some updates? Am I making the right updates?

Does your home need carpet, paint or both? These are often the difficult questions you have to ask when looking to get your home into rent ready condition. As a Phoenix Property Manager, we understand it may not be in your budget to go both this year but just doing one may make a large difference in your homes marketability. With the vastly competitive Phoenix rental market even doing one or the other could make a difference in the time it takes to get your home rented. In fact did you know that most of the dollars spent on renovations are never recouped? That is even though spending on renovations grew over 10% in 2012, a report by Harvard's Joint Study on Housing, shows may owners won't see all that money returned. Think about how much of cost of your renovation will be returned in terms of rental value. Not all renters are looking for a newly renovated kitchen. On the other hand, badly stained carpet, flaws in the paint and or a poorly decorated or outdated kitchen is a big turnoff, so replace the carpet and paint only a few walls were the flaws are extremely noticeable in the front entry of the home. You don't have to remodel the entire kitchen or paint every wall and leave the stained carpet. Consider doing minor repairs and fix just badly needed issues. According to 2013 national averages, a minor kitchen remodel returned more than 75% in valve, while a major remodel returned on 59%. These are just a few suggestions to help minimize repair expenses. Follow @rpmwvphoenix

Phoenix Property Rental Market Statistics

ARMLS (Arizona Regional Multiple Listing Service, Inc), publishes monthly rental statistics for the Phoenix metro investment property area based on all leasing activity in which the home was advertised through the MLS.  In March 2014, 3547 homes leased through the MLS marketing system with a median lease price of $1095, average lease price of $1256 and an average days on the market of 41.  For April 2014, 3065 homes leased through the MLS marketing system with a median lease price of $1150, average lease price of $1282 and an average days on market of 35.  What does this all mean???  That the supply of rental properties which was at an all time high after the foreclosure boom has decreased to the point where there is decent applicant competition for investment properties that show well and are priced right.  Additionally, rents especially in highly desirable areas should continue to increase.  This all leads to "it's a great market to buy an investment property"! Not only are rents increasing but any type of interest bearing investment will most likely continue to have no return given how low interest rates are and with all of the international turmoil the stock market can give even experienced investors the heebie-jeebies!  

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Tenant Communication is Key

Summer is nearly upon us, and many landlords experience a tenant turn-over in the summer related to school schedules. As a Phoenix Property Manager we know that the summer is a busy time in the Phoenix rental market with tenants trying to get settled prior to the new school year. When your tenant move-ins in or signs the lease communication is key. Let them know when rent is due, when you will take action as a result of non-payment. This will help you avoid confusion later. Although personal relationships and conversations about these things are important, it is very important to document everything in the lease. Advise the tenant about what types of repairs they will be responsible for to complete or try before calling in maintenance. For example, it should be clear the tenant is responsible for changing all light bulbs, air filters and trying basic repairs like resetting the garbage disposal or trying "Draino" in a slow drain. These simple items should be as clear as the rent policy to avoid any issues. Having clear policies laid out with the tenant is an important key to a good working relationship with your tenant. Follow @rpmwvphoenix

How to Handle a Bad Tenant?

What defines a bad tenant?  Here are some characteristics.

• Does not pay
• Always pays late
• Damages to the property
• Requests unnecessary maintenance weekly
• Breaks things and then wants the owner to pay to fix
• Receives multiple HOA violations & fines

It is important that your property management company handle the above issues correctly in order to protect your best interest as an Arizona Property owner.

The main thing is to take swift and stern action in response to any of the above issues.  You have to have clear and set definitions in the lease to handle these issues.  Also, stick to the setup you have put in place because tenants have a myriad of excuses that are rarely true.

While we could write many pages about how we handle the above here is one example.  A tenant calls in and says their tenant isn't working so maintenance does a screening on the phone to determine the cause.  After many questions, it is disclosed that the tenant broke the float and fill valve and then left it like that for several days causing a flood through out several areas of the property.  We move quickly and serve the tenant with a notice to cure and call a few days later to discuss the details of the repairs needed and arrange a time line for completion with the tenant.  We then follow up with the tenant at each interval of completion, go out to inspection with pictures to determine the work was done in a workmanship like manner.  In the end of the tenant completed the entire repair which consisted of rebuilding of the toilet tank, water dry out, replacing of flooring and baseboard.  Updates and pictures were sent to the owner along with way to keep them in the loop.

We have a process for all of the above items and these techniques have proven to reduce the frequency of each issue on the list.  If you would like more details on how we can help you reduce the pain of a bad tenant, give us a call.

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3 Key Steps to Determine a Good Rental Investment

If you are considering becoming a landlord and have researched the neighborhood including crime statistics then it's time to run the three most important numbers to see if the property is a good rental.  

1. Net Rental Income = Gross Income - (Operating Costs + Debt Payments)
In this case your operating costs include such things as taxes, insurance, utilities while vacant, property management fees, monthly mortgage payments as well as annual or variable costs like repairs, vacant periods and possible utility deposits. Many investors utilize 1.5 times the monthly rent amount for repairs during tenancy and 2 times the monthly mortgage payments for your vacancy costs.  If your result seems to be less than you consider "worth your time", it's time to start looking at a different property.

2. Calculate Cash-on-Cash Return: to do this multiply the net rental income by 12 to determine your annual cash-flow.  Next divide your annual cash flow by the total amount you're going to have to invest to get the property rented out not including the cost of the mortgage but the out-of-pocket expenses.  For example, if you will be purchasing the property for $100,000 with a mortgage for $75,000 you divide the annual cash flow by $25,000.  The closer your result is to .4 the better and really .3 and up is a good sign to move forward.  With a number less than .2 you probably want to move on because it will simply take too long to recoup your expenses.

3. Determine your Net Rental Yield = Net Rental Income *12/Property Value.  For example, if you have the $100,000 property from the example above and the rental income is $900/month than the Net Rental Yield is 10.8%.  In other words, your investment property will produce 10.8% of it's own value each year paying itself off in under 11 years.  Once you reach 100% your investment is paid off and you have an investment that is producing "pure capital".  Keep in mind that property values change and as such the Net Rental Yield will change.  The higher the Net Rental Yield of the property, the better the opportunity for net positive cash flow.  Many investors think that 8% is a good bench mark however you can calculate these numbers for several properties in your area to get a good idea of the range.

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