A New Lease on Rental Lifestyles™
Rental Property Investing from A Real Estate Broker Perspective
UPM Interview with Julie Geller, Broker/Owner of R. Peterson & Associates
Julie has been a realtor since 1999, recognized as a Top Producer & Honor Society by the NAR., and one of 2011 Idaho Business Review Women of the Year. She purchased R. Peterson & Associates from her father in 2007. Julie has worked with property investors for some time, particularly of late. So she has direct experience with how rental property investors think, along with the expertise to offer some sage advice.
As an experienced real estate broker, what are the seven key basic considerations for residential rental property investors to remember?
- Location is always important in any purchase. Is it a desirable location that will be convenient for people going to work, the store, schools etc.?
- Is the house structurally sound? Get a home inspection done to find out. A minor fixer upper is most cost efficient and quicker to get rented.
- What are houses selling for in the neighborhood? Is this something you can sell, get out of, or make a profit if it had to be sold quickly?
- Have enough money set aside for repairs, vacancies and unexpected events.
- Get good insurance on the house after you purchase it.
- Be careful of the real estate taxes and the homeowners exemption. It may have the homeowners exemption on the house when you purchase it, but it will come off the following year when it turns into an investment property. Plan appropriately for the higher taxes in the monthly payment.
- Have a good accountant and attorney in place to help you make each decision and protect your investment.
What are three key investing mistakes to avoid?
- Not having enough money to support the rental for repairs, vacancies, and unexpected events. You have to be willing to take a loss every now and then without it affecting your own financial needs. Do not purchase a rental if you are barely getting by at the moment.
- When you write an offer on a property, know ahead of time if you are obtaining financing or paying cash. If you are paying cash, is the money coming out of savings, checking or an IRA? If it is an IRA, you need to pull the money out at least 2 weeks before closing. If you wait until the last minute and there is a delay, it could kill the transaction by not closing on time. Check ahead with your IRA and find out the amount of time and requirements it takes to access that money. Changing from a cash purchase to a financed purchase will cause some bank foreclosure properties to become null and void. Visit with a lender ahead of time and have a plan in place before you even begin to look at property.
- Know how you are going to take title to the property ahead of time. Most bank foreclosures and short sales will not allow the property to be purchased in a Trust or LLC. Fannie Mae- and Freddie Mac-owned property, for instance, will not allow the purchaser name to be changed once the contract is accepted. Have all these details worked out with your attorney, accountant and Realtor before you begin to look at property. Once you have purchased the property, you can always quitclaim it into your trust.
Are there specific types of rental properties that best suit particular profiles of investors?
Yes, there are. For example, parents with kids headed to college may find it a good idea to purchase something close by the college ahead of time and then use it for the kids to live in while they go to school. There are a lot of new 4-plexes going up right now. They generally have a on-site property management team in place. If you want a place to park your money and let someone else handle all the details, this would be ideal. Check ahead to see what the community vacancy rate is and what the fees are for this service. Some of the contracts are lengthy. If in doubt, get your own attorney and accountant to review the contract. For those who have not had a rental before but want to try it, find a good Realtor and a Property Manager to help guide you through the process and what to expect.
Working with a knowledgeable Realtor will help investors determine which type of rental properties will best suit their goals and expectations, budget, resources, time frame, and management style.
What is your advice regarding short and long term goal setting for rental property investors?
A rental should be a long term investment. It is not a quick, easy return, it is a long term commitment.
Are there investing tools that you recommend to clients, i.e. checklist, ROI calculator, etc.?
A good accountant, an attorney, a Realtor, and a Property Manager 
What are the advantages of teaming with a real estate broker to build a rental property portfolio?
A Real Estate Broker will know the area, prices and the trends of the area. A Property Manager will be valuable as you build the rental property portfolio and maintaining the value in the portfolio.
Overall Piece of Advice: I think building a team with attorney, accountant, Realtor and Property Manager are the keys to success if you are serious about getting into the rental investment market.
Our thanks to Julie Geller of R. Peterson & Associates for sharing her insights with all of us. If you are considering investing in, or looking to build your portfolio of Idaho rental properties, especially in Nampa, you can contact Julie at 208-989-1861 or julie@rpetersonrealtors.com.
New to UPM's Local Arts Program: Glenn Oakley, Photographer
New to UPM's Local Merchant's Program: Black Smith Signs
To Be or Not to Be an Entrepreneur
Copyright UPM, LLC 2012
The long-term success of a business is contingent upon a number of factors. Beyond the basics of a viable business model, operational and marketing savvy, the ability to navigate change, and an enduring customer base, there are other influences which play part. The economy, whether it be local, national, or global, is one such influence. The health of other businesses also contributes to a company’s vitality.
At UPM, we wholeheartedly believe the success of other businesses in turn feeds our own. We support local businesses in a number of ways, including through our Local Merchants Program. Because we are such strong proponents of mutually beneficial fortune, we encourage well-planned entrepreneurship.
UPM's 5 Key Considerations for Aspiring
Entrepreneurs
- Be brutally honest with yourself.
- Are you really an entrepreneur? Are you a calculated risk taker? Are you willing to learn new skills to grow and support a new business? Do you have the means to self-sustain a business for at least 2 – 3 years?
- Do your research.
- Conventional wisdom is “do what you love.” That’s fine in concept, but reality dictates you research what the market is for a business built around your passion.
- What is the total universe of potential business in your identified market? Is there competition? If so, how many competitors are there? How many are local to you? What is their market share (in other words, is there enough of the market pie for your business? How will you differentiate your business from theirs?
- Be practical.
- Will your business idea require infrastructure? For example, if you are considering launching a business with a storefront, do you plan to rent or buy space? How much space will your business require? Whether you plan to rent or buy, determine how much you will have to spend monthly on that space and other related costs you need to calculate into monthly expenses, as you need to be informed as to the amount of cash flow your business will require.
- You must learn to manage your “passion for profit” as a business. You’ll need to accept you’ll be doing things you may well not enjoy or feel comfortable with, like bookkeeping and accounting, inventory management, sales.
- Consider building your business in a scaled fashion. If you can launch your business from home before you commit to additional space, it may more prudent to do so.
- Non-inventory based businesses are far easier and far less costly to launch and support. So if you do not have access to initial funding or have not saved toward launching a business, it’s best to pursue an idea that complements your financial profile.
- If you need to acquire funding to launch the business, consider the consequences of pursuing third-party financing. We see standard advice having you consider loans from family and/or friends. However, there is a considerable downside to doing so. Just as banks, VCs, or Angel financing means you relinquish a percentage of control over your company, the same holds with family and friends. Moreover, you risk the additional impact of damaged relations and emotional turmoil.
- Write a plan.
- A business plan doesn’t have to be long and fancy, but having your vision, strategy, and logistics down in writing a) makes the business real, b) gives it structure and discipline, c) is a very useful tool for monitoring progress.
- Once you write the plan, revisit it on a regular basis; amend it as needed. At a minimum review on an annual basis, quarterly checks can be very productive. These reviews show you where your business has been and where it is going. Be open to making directional changes when opportunities arise or if something isn’t working. In other words, your business plan should be a living document, a road map to your success.
- Make profit margin your goal.
- Revenue and cash flow are the lifeline of a business, but profit margin is the true measure of success. Unnecessary, redundant, or hidden overhead; convoluted operations and/or pricing structures, especially coupled with limited resources/personnel; under- or non-performing, expensive, or superfluous service or product offerings---all these impact your bottom line.
- Streamline as mantra. Streamlining your operations should be a continual pursuit, from capital investments to monthly expenses to processes and policies. Regular and rigorous scrutiny of all aspects of your operations is indispensable to achieving maximum profit.
Interesting Data Points on Entrepreneurs and Small Businesses
"Entrepreneurship growth was
highest among 45- to 54-year-olds, rising from 0.35 percent in 2010 to 0.37
percent in 2011. The youngest group (ages 20 to 34) also showed a slight
increase. In contrast, the 35- to 44-year-old and 55- to 64-year-old groups experienced
declines in entrepreneurial activity rates from 2010 to 2011."
"Entrepreneurial activity rates reflect changing demographics," said Robert W. Fairlie, the study's author and director of the master's program in applied economics and finance at the University of California, Santa Cruz. "Despite a slight decline in entrepreneurial activity rates this year, the share of new 55- to 64-year-old entrepreneurs has risen from 14.3 percent in 1996 to 20.9 percent in 2011 due to an aging U.S. population." (Entrepreneurship is Alive and Well, So Where are the Jobs?, Ned Smith, senior writer at Business News Daily)
From cnnmoney.com / May 2012:
- 34% of new businesses survive more than a decade
- 10% of startup companies don't need any outside financing
- 47.5% of small business loans were approved by small banks, while only 11.7% were approved by large ones
- $80K is the average annual capital needed by startups
- 49.3% of all U.S. workers are employed by small businesses
UPM's Local Arts Program: New Artist to Share
Introducing New UPM Website and Blog Design
A New Lease on Rental Lifestyles™
We're very pleased to introduce our new website and blog design, which better reflects UPM's professionalism and and its tagline "A New Lease on Rental Lifestyles™." It's our goal to make all visitors feel welcome while providing everyone quick access to the information they seek. We also continue our efforts to support Idaho with our complimentary Local Arts and Merchants Programs.
The the image above was chosen as the key visual for the redesign to represent:
- Welcoming atmosphere
- Fresh beginnings
- Streamlined operations
- Clear communications
Best wishes from all of us at Ultimate Property Management, LLC
Best Rule of Thumb for Managing Rental Property Mortgage Payments
- Maintaining a buffer reserve fund reduces if not eliminates stress related to meeting monthly mortgage payments.
- You will be able to make monthly payments early, regardless of timing of rent payments received.
- You will reduce if not eliminate related late payment fees and penalties.
- With at least two months' worth of reserve you reduce stress related to addressing larger unforeseen repair costs or short-term vacancies.
- How long it takes to build the reserve fund depends upon the amount of your mortgage payment(s) and what other income you possess outside of rents.
- If you are working with a property manager, you have the option of applying/stockpiling all of a portion of your monthly owner residual for this purpose.
What Investors Need to Know about Home Owners Associations and HOA Management Teams
HOA CONSIDERATIONS REFERENCE
- Ask for a copy of the CC&Rs and review them before you decide to purchase a property; make it a stipulation for making a purchase.
- Are the CC&Rs clear, logical, and manageable? Are there any obtuse or unreasonable rules and regulations? Is there too much room for interpretation? Do the CC&Rs allow or circumvent self-appointed vigilance committees?
- Learn about the HOA board.
- Are they accessible or a stealth organization?
- Interview the board. Find out if their collective HOA philosophy meshes with yours.
- Does the board represent the owners and act in their collective best interest (including financial) or does the board demonstrate it operates on behalf of a select core group?
- Does the board have a track record of penalizing rental properties more often than other home owners?
- Are owners included in the decision making with HOA fee increases?
- Find out how often board meetings are held, when, how the board alerts owners to the meetings, if/when meeting minutes are distributed and with what regularity. Regarding the latter, have the board provide proof of said distribution.
- Ask for the names and contact information of a few owners outside of the board and interview them about the board.
- Ask if there is a HOA management firm in place and if so, get the company contact information and key point-of-contact name.
- Conduct interviews and determine if the firm provides quantifiable ROI for their fees.
- Do they recognize owners as their customers and appreciate who pays their fees, or do they answer only to the board?
- Do they/are they able to field more complex concerns like inter-owner issues like property damage and fencing conflicts, or do they simply issue written warnings and fee violation notices about lawn or lighting infractions?
- Do they field landscape maintenance requests in a timely manner or require additional contact?
- If you only receive contact information for a management team and not an HOA board, make sure there actually is an HOA board to which the management ream reports.
- Find out generally how often HOA fee increases occur and ask for proof that the increases are approved by/substantiated by the HOA board.
- Conduct interviews and determine if the firm provides quantifiable ROI for their fees.
WHY YOU NEED TO KNOW
You could wind up paying higher and higher HOA fees with no recourse, no substantiation of the increases. If you are an out-of-state investor you could have little to no leverage to have your concerns addressed, little if any visibility to the legitimacy of violation claims. If an HOA is not rental property-friendly or has a track record of penalizing rental properties more often than others, you stand to alienate and lose good renters, which in turn adversely impacts your revenue stream.
The Glamorous Life of a Property Manager
We know. You're shocked to learn the truth. You're shocked to learn that property management is not a career that everyone aspires to. Property managers tend to exist under the radar, like most entertainment agents.
Probably no one cliche/catch phrase sums up what property management is really about than "the devil is in the details." This business revolves around details. It absolutely demands strong organizational skills. The ability to problem solve, to think fast on one's feet is called upon daily. Verbal grace, if not an imperative, is certainly a key to ongoing success. Tireless follow through/follow up is the glue that binds it all together.
So why do it? What drives some to pursue a career or business in property management, if it isn't the glitz and high profile thrill of a Hollywood-like lifestyle? Perhaps it's making things happen behind the scene that some relish. Others may enjoy meeting the variety of challenges that can arise. Still others glory in the ability to wrangle seemingly countless details into a cohesive whole. Working daily with numbers and/or people can be a driving force. Winning new business and establishing long term relationships with investors and owners is a very compelling pursuit.
Whatever the reasons or combination thereof that drives property managers to do what they do, the best ones demonstrate a passion for it. They appreciate what it really takes to do it well. They make things happen. A resulting prosperous and growing business with a great reputation makes it all very worthwhile.
Evaluating Property Management Claims, Part III
Direct mail can be expensive. Canvasing blindly is even more so. Without follow up, like phone calls, these mailings will produce little in the way of sales. Such expenditure impacts the bottom line. Meanwhile, we see more PM firms scouting around for new business, at lower and lower rates while touting more and more services.
This begs a couple of related questions. First, if these companies are so good, reliable, and cost-efficient why are they resorting to direct mail to pursue new business? Don't they have a wide network and strong word-of-mouth reputations? Secondly, even if they can actually deliver a high level of service at increasingly lower rates...can they/will they sustain them?
We see a great deal of promises made for even 7 percent or less for management fees--including from firms from which some of our clients departed. If, as the direct mail would indicate, these companies' client base isn't already large enough to offset very low rates, how long will it take them to build it?
Of the possibly many services and types of data access marketed, how many do you really get for say that 7 percent? How many of these attractive features are extra? 24/7 online access to data, online payments, etc., all cost management firms money to run/offer. So do extra or different types of reports. If such expenses are not offset with property management fees, how are they financed?
Two outcomes of very low rates versus high services/costs, and certainly without high volume business, are possible if not probable. One is these firms will be unable to sustain them both without risking stability. Two, these firms find ways to subsidize their level of services through fees other than the monthly management versions.
For investors like you, the question comes back to what you will really receive from any firm. Claims are just that. Quantifiable and consistent service, proven return for the fees charged is always a great place to start when evaluating assertions that come your way. Determining any hidden costs is another.
An absolutely essential attribute of a reliable and successful management firm is follow through. Do these firms canvasing for new business return calls from owners, renters? Do they respond quickly and cost-effectively to repair requests? Can they sign on new tenants in a timely manner? All the bells and whistles won't matter without follow through.
