6 Tips for Home Owners Who Turn Into Landlords
Home owners who decide to rent out their properties have to stop thinking of themselves as home owners and instead consider themselves as running a small business, experts say.
Thinking like a businessperson means focusing on the monthly cost of maintenance, mortgage and taxes, as well as being aware of landlord-tenant regulations and avoiding liabilities.
Here are key issues to consider:
- Set a fair rent. Setting the right price will make it more likely that a landlord will be able to keep the place rented.
- Understand landlord-tenant rules. Running afoul of landlord-tenant regulations and rules regarding security deposits can be costly.
- Screen applicants. Eliminating potential tenants who can’t pay or who won’t take care of the property is very important.
- Lay out the rules in a lease. Widely available sample leases can help. If you have questions, ask an attorney.
- Consider a property manager. Despite the expense, turning the job over to experts can help a landlord come out ahead.
- Talk to the condo association. If the property is a condominium, be prepared to deal with a host of regulations.
Source: The Washington Post, Renae Merle (02/28/2009)
EXPANDED PROP ORDINANCE TO GIVE CITY ADDITIONAL ENFORCEMENT AUTHORITY 02/12/2009
In an effort to strengthen enforcement laws and improve neighborhoods, the City of Raleigh has expanded its Probationary Rental Occupancy Permit (PROP) ordinance. The PROP ordinance serves as a tool to address rental property owners whose property is found to violate minimum housing, zoning and nuisance laws or have demonstrated a pattern of criminal convictions for noise and nuisance party violations.
Under the expanded rules, activities resulting in a third conviction of certain behavior within a two-year period, will result in the landlord being required to obtain a PROP. This ordinance is effective Jan 1, 2009. The City of Raleigh has added the following crimes to the PROP ordinance:
· Prostitution;
· Possession of stolen goods;
· Violations of certain state alcohol and liquor regulations;
· Unlawful weapons;
· Unlawful possession of a firearm by a felon;
· Gaming violations; and,
· Disorderly conduct.
The landlord placed in the PROP program must pay $500 per year for the two-year permit to cover the cost of administering the permit. The landlord must also attend a residential management course that is offered by or approved by the City of Raleigh.
A landlord cited for a second code violation during the two-year probationary period could lose the rental permit for the property for two years. A third code violation could lead to a two-year revocation of PROPs issued for all other property rented by the landlord. The landlord would also be ineligible to apply for a new permit for two years.
For more information about the City's PROP ordinance, call 831-6167.
Durham Begins Tiered Rate Billing for Water Services Today
New Billing System Encourages Conservation and Efficiency
Durham, N.C. — Effective Tuesday, July 1, 2008, the City of Durham will begin a new tiered rate system for its water services. Monthly customers will see the rate change on their August 1 bills and bi-monthly customers will see the rate change on their September 1 bills. The new system includes five tiers for single- family residential customers with progressively higher rates as water consumption increases. The system encourages efficient water use by charging less per unit for residents who use less water. Those residents using more water will pay more per unit for the water.
All non-residential customers are set at the Tier 3 rate, and all irrigation accounts are set at the Tier 5 rate. Efficient and essential water uses are captured in the lowest tier, known as Super Saver Tier 1. Discretionary water use, such as irrigation and pools, can bump customers into more expensive tiers. Water and sewer service charge increases are also included in the new system.
“It is important that our residents know what the new tiered rate system means to them—the less water they use in homes, the lower their rate, and the more money they can save for other important things,” said Vicki Westbrook, deputy director of the City’s Department of Water Management. “The more water a customer uses, the higher the tier and charges for water use. The system rewards those who conserve water, which is a great benefit to our City.”
The tiered billing system reflects what the City charges for a “unit” of water as shown on bills, which is 100 cubic feet, or 748 gallons. Most residential customers fall in the Tier 3 range, using about sixteen units over a two-month billing period. A super- saver customer using four units over the two-month period will be charged at the Tier 1 rate and see about an $11 increase in their total bill. A customer using 12 units over the bi-monthly period will be charged at the Tier 1 rate for the first two units of each month, at the Tier 2 rate for the next three units of each month and at the Tier 3 rate for the remaining unit used each month. This customer’s bi-monthly bill would increase about $13.
Water and sewer service charge increases also will take effect in July. Service charges, also called base charges, cover the cost of the meter reading and billing and other fixed costs of the water and sewer operations. For customers with five-eighths inch meters (primarily residential customers), service charges will increase from $2.58 to $5.11 per month for water and from $3.19 to $5.71 a month for sewer services. Customers living outside of the city limits will continue to pay twice as much as customers living inside city limits.
“Water is a precious resource and is vital to our area’s economy and sustainability, Durham Mayor William V. “Bill” Bell said. “And since Durham and the region have experienced a drought and water shortages, it makes sense economically and environmentally to encourage residents to begin thinking about and practicing habits that conserve water in their everyday lives,” he said.
In addition to benefiting the environment, the new tiered rates also will pay for large capital projects including a new automated meter reading system, a new elevated water storage tank, additional water supply options, interconnections with other utilities and plant and system rehabilitation projects.
On June 23, 2008, Durham started a campaign to promote water conservation tips and strategies to its residents. To get the lowest rate, residents are encouraged to follow as many of the 111 water-saving tips as possible promoted on the City’s Web site. Each tip may seem like a drop in the bucket but they add up to a lot of water savings if every Durham resident does his or her part every day. For more information, visit www.DurhamSavesWater.org.
Foreclosure flood brings more renters
Report: Rental rate hits record level in 2007
By Inman News, Wednesday, April 30, 2008.
The share of rental households jumped by about 1 million last year and this group is likely to expand further if foreclosure trends continue, Harvard University's Joint Center for Housing Studies reports today, while the monthly rental rate reached a record high last year.
"Now that large numbers of former owners are flooding back into rental markets, expanding the available supply of affordable rentals is critical," the report urges.
Foreclosures will convert some homeowners to renters and will also displace renters who are living in foreclosure properties and may compound affordability problems in the rental market in the short term, according to the report, "America's Rental Housing: The Key to a Balanced National Policy."
Nicolas P. Retsinas, director of the Harvard center, said in a statement that "the fallout from foreclosure is hitting the same neighborhoods where many of the nation's most economically vulnerable renters live."
Investor-owned multifamily rental properties with one to four units have accounted for about 20 percent of all foreclosures, Retsinas stated.
Annual growth in the share of renter households averaged 0.7 percent from 2003-06 before the 2.8 percent gain last year.
"The growing numbers of renters must now compete for the limited supply of affordable housing, adding to the longstanding pressures in markets across the country," according to the report, which cites statistics from the National Low Income Housing Coalition (see related Inman News article) stating that no single minimum-wage earner who works full-time throughout the year can afford the cost of a modest rental unit in any market across the country.
The debt burden of low-income renters has been growing, and the population of lowest-income renters in debt grew by 20 percent from 1995 to 2004, to 7.6 million, the Harvard center reported. Average outstanding debt for members of this lowest-income group rose 62 percent in inflation-adjusted terms, from $3,200 to $5,200.
Affordability may ease in the long term, as "the flood of foreclosed properties onto the rental market could ease some of the affordability pressures, but only to the extent that for-sale units converted to rentals meet the needs of households in the market. Indeed, lowest-income renters may be unable to afford even the highly discounted asking rents on foreclosed homes," the report states.
There are threats to the supply of affordable rental housing, as the U.S. Government Accountability Office estimates that mortgage restrictions and rental assistance contracts on about 1 million subsidized units are set to expire by 2013, and "limited funding ... hampers any widespread or permanent solution" to preserve this supply.
"Since developing new affordable rental housing remains difficult without steep subsidy, preserving whatever low-cost units remain should be an urgent priority," and the report also suggests that such efforts rely on Congress to ensure adequate money is available for low-cost rental units.
The report also recommends continuing efforts to eliminate land-use policies that limit affordable, higher-density rental housing in suburban areas, and that housing assistance programs also improve access to health and human services, child care, transportation and other workforce initiatives to promote higher-income employment.
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Daily Real Estate News | April 8, 2008
Families Feel Crunch From Rising Rents
Residential rents are up across the country, confirms the National Low Income Housing Coalition in the latest issue of its annual report "Out of Reach."
The organization identifies Hawaii, California, and New York as the least unaffordable states and names Connecticut's Stamford-Norwalk market as the most costly metropolitan area in the nation.
According to the study, one in seven U.S. households is contributing more than half of their income toward keeping a roof over their heads; and low-income, minority, and first-time home buyers are especially being impacted by escalating shelter costs.
"The numbers in 'Out of Reach' are a stark reminder that in nearly every community in our nation, families are struggling to make ends meet," said U.S. Sen. Christopher J. Dodd (D-Conn.), in a preface to the NLIHC report. "While we have federal programs in place to assist people in affordable housing, they are relatively small compared to the great need. More must be done to ensure housing opportunities for all."
Source: Worcester Telegram & Gazette (Mass.), Bronislaus B. Kush (04/08/08)
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Daily Real Estate News | April 7, 2008
Rent Keeps Getting More Expensive
Average rents for U.S. apartments rose 1 percent in the first three months of 2008.
This was the 24th consecutive quarter that rental property rates have risen, according to New York-based real estate research firm Reis Inc. The last time rents fell was the first quarter of 2002, when they declined by 0.2 percent, according to Reis.
A soft housing market beset by stricter loan terms and falling home prices is the "dominant driver" pushing people to rent apartments, said Sam Chandan, chief economist at Reis.
New York had the highest average rent at $2,790 a month, followed by San Francisco at $1,801, Fairfield County, Conn., at $1,759 and Boston at $1,620, Reis said.
Source: Bloomberg News (04/05/2008)
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Back to Renting
A Massachusetts Institute of Technology professor predicts that about two-thirds of the five million renters who bought homes over the past decade will go back to renting because they can't afford their loans. William Wheaton, professor of economics and real estate at MIT, says that rents will eventually rise as a result, people will again see ownership as preferable to renting, and it will help turn housing around in two to three years.—P. Curry
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This article was published on: 03/01/2008
FOR BROKERS: REALTOR® magazine
Solutions Property Management
BY G.M. FILISKO
Home sales and rentals are like the two sides of a seesaw. When home sales rise, home and apartment rentals fall. But when home sales drop, rentals shoot up. “The number of renters is on the rise today,” says Brad DeVries, president and CEO of Semonin, REALTORS®, in Louisville, Ky. “Every day there’s a greater need.”
That’s why DeVries and other brokers are glad they offer rental services.
“In 2006 and 2007, our sales didn’t do that well,” says John Paulsen, a partner at Crye-Leike Coastal Realty in Destin, Fla. “But thanks to the vacation rental side, we’ve been fortunate to keep our doors open.”
What’s more, a strong rental market can help curb an oversupply of homes in your market if sellers offer their home for rent, not sale, at least temporarily.
“Any depletion of the for-sale inventory will help on the seller side, because inventory and home prices work in an inverse relationship,” says NAR Chief Economist Lawrence Yun. “Less inventory strengthens home prices, so taking some inventory could be taken off the market and turned into rental units will help stabilize sellers’ competition, lessen foreclosures, and stabilize the overall housing market.”
Does that mean you should follow DeVries’ and Paulsen’s lead? Perhaps, but be ready for challenges. Rentals are a tough business because keeping all your customers happy is a balancing act.
One Model Doesn’t Fit All
Brokers who do rentals range from huge to modest-sized operations.
Mike Tarantino, broker-owner of West Shore Realty Inc. in Milford, Conn., handles hundreds of rentals each year by offering four types of services — year-long unfurnished rentals; September-to-June furnished rentals, typically for students at nearby universities; weekly and monthly summer furnished rentals; and short-term furnished rentals (typically three or six months), usually for business use. For each type, the company charges 10 percent of the monthly rent. Tarantino’s profit on rental services is under 20 percent.
Paulsen’s company offers no long-term rentals, only seasonal rentals to snowbirds visiting the white-sand beaches of Destin. His company charges 28 percent of the monthly gross rental income, and his profit is 15 percent to 22 percent annually.
On a more limited scale is the small department at Semonin, REALTORS®, which has a full-time rental coordinator and two assistants who do nothing but work to generate relocation business. “Our rental coordinator keeps a database of rentals as a service to our sales associates and customers,” says DeVries. “Even sales associates who don’t work for our company will call her with a property they want rented.”
Semonin’s coordinator spends 70 percent to 80 percent of her time providing rental services to corporate clients who need short-term housing for transferees. Another 10 percent to 15 percent is spent helping noncorporate transferees or local residents who have housing needs. The final sliver of her time is spent helping the company’s sales associates find renters for their sellers’ properties.
“Maybe the market is flooded in a certain price range,” says DeVries, “and the home owners need to generate some cash flow on their home. Maybe they’ve already moved. Or maybe they’re building a house and their current home sold first, sooner than expected, so they need a short-term rental.”
Fees vary depending on the length of the rental. For instance, if the coordinator rents a property for one year, the company’s take is 50 percent of the first month’s rent. And though the rental department generates a small profit, “it’s not a huge moneymaker,” says DeVries. “The true value is in providing full service for clients so that we can hold onto that business, build trust, and gain long-term business.”
Challenges? What Challenges?
Tarantino says one difficulty in operating a large rental business is the overhead. “You need a lot of staff to handle it,” he says. “For about 200 rental properties, you’ll need up to 10 people.”
Tarantino’s staff includes rental agents, some on salary and some on commission; a full-time staffer who handles tenant and landlord complaints; and two workers who are constantly on the road making sure properties are in move-in and -out condition and coordinating repairs. He outsources maintenance, cleaning, legal, and accounting functions.
If you’re interested in starting smaller with an operation like Semonin’s, DeVries estimates your initial annual investment would be no more than $45,000. “You’ll need to pay for desk space, a computer, a phone line, personnel, and benefits, but that amount should include everything.”
In addition to shouldering the overhead, another test in running a rental business is maintaining good relationships with everyone you’re trying to serve. That’s even more critical if your goal is to use the department to find a temporary solution for sellers whose properties aren’t selling and to build relationships with renters before they become buyers.
“You sit in the middle with tenants and landlords throwing rocks at you from both sides,” says Tarantino. “My biggest challenge is keeping both sides of the deal happy. For example, if tenants qualify highly as far as credit but then move in and don’t maintain the property properly, it’s very difficult when the landlord says you put a bad tenant in there.”
On the flip side, some landlords don’t want to spend the money necessary to maintain the property. That might mean you’ll spend your own money to make repairs to keep tenants — whom you’re hoping will become buyers — happy.
Phil Wood, CRB, GRI, who was once in the rental business, agrees. The broker-owner of John R. Wood, REALTORS®, in Naples, Fla., cites tenant and landlord tensions as one of the chief headaches he remembers. “Vacationers view rental units like they’re staying at the Ritz, and they expect everything to be perfect,” he says. “We’d get a call from renters saying something like, ‘The toaster is a two-slice pop-up, and I was expecting a four-slice pop-up.’”
Wood’s brokerage ran its rental operation for about 25 years and at its height employed a dozen people but closed it down in the late 1990s because of thin profit margins.
Lessons from the Pros
If you’re intrigued by the idea of using rentals to reduce inventory and build lifetime relationships with customers, brokers who know the business first-hand have advice for you.
“Product knowledge is important,” says June Prophet, regional rental manager for Prudential Florida WCI Realty, also in Naples.
Advises Wood: “Keep your overhead low, and let it grow only as revenues justify. Also, outsourcing things like accounting, cleaning services, and maintenance is really the key to making it work. Then all you have to worry about is the rental service itself.”
And don’t forget marketing. “Most rental companies don’t capture business based on advertising,” says Wood. “Most get the majority of business through REALTOR® referrals or a condominium or other project that you handle rentals for. So you’ll need a salesperson to go out and get that business.”
“Talk to somebody who’s filling a different role in your company to see if that person can begin to provide this service,” says DeVries. “Part of the beauty of doing that is word-of-mouth will let associates know the service exists. All of our sales associates know we provide these services, so we don’t have to market it to them. They won’t hesitate to call our coordinator to get exposure for a listing they want to cover.”
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Renters' rights are limited
The consumer protection specialist with the Attorney General's office said that the calls run the gamut, from security deposit refunds to repairs and early termination of lease. 
