Can you believe what the market is doing? As a homeowner who lived through the meltdown of the "Twenty Aughts," I'm constantly astounded how much the market has accelerated. Further, as with any gain, no small amount of fear accompanies massive wealth gains. However, while safeguarding gains is essential, so is protecting one's assets. We will touch on that in a few ways, such as acquisitions, buy and hold, and buy and flip.
First, will the market keep rocketing up?
In a word, yes. In a more prolonged sense, yes, provided interest rates stay sane. Do you remember when people agreed to pay up to double digits on home loans? 18% interest was not uncommon. Today, about 2.85% is not uncommon, which has made a massive difference in buying patterns. Look at it this way, if your property makes gains of 12% in a year, that 3% loan is nothing. But what happens if (or when) the federal reserve hikes rates? (See the most recent deliberations here) Well, in California, not too much. Sure, it will cost more to borrow money, but...
There are not enough properties to go around
In one of our recent webinars, this was a topic that came up. Property owner participation is highly encouraged in these events! One owner asked about values and rental rates dropping. Addressing the interest rates, as I did above, was done, but what about inventory?
As Ron said, even if the home builders started right now and built non-stop for the next ten years, there still wouldn't be enough properties to go around! Southern California has been so far behind on new housing starts for so long that a dwelling shortage is expected. It's supply and demand.
While the price rocketeer ride may slow, it should not crash any time soon. Still, prudence is always advised! All the more reason to...
Maintain Your Property…
What is the difference between a class A or B property and a class C? Professional management makes a difference, as does the area's location, amenities, and desirability. B properties are a little older, more out of the way, and have fewer amenities than class A properties. Class C properties you typically find in economically disadvantaged areas. They usually require extensive rehabs, upgrades and typically have higher vacancy rates. These can be a bargain to snap up and, surprisingly, aren't that difficult to bring up to C+, or even B, standards. However, if the whole neighborhood has sunken into the depths of despair, it's a lot harder to bring a C property up.
So, how do you keep your A or B property an A or a B?
Maintenance. Such a lovely word. It's right up there with phrases such as Property Rehab, Re-Key before Move In, Gentrification, and Rent Ready. Okay, a little overkill there, I'll admit, but maintenance is a golden word and a noble aspect when it comes to your investment. Stop and think about it: you are providing a home to somebody. This is where children could grow up and remember their whole lives. Birthdays, and anniversaries will be experienced. Waking to a new day, every day, the hopes and dreams of the occupants taking flight, every day. On that note...
The resident has responsibilities too
The resident paying their rent on time is not their only obligation. The renter also has an obligation to keep the property in good condition. Wear and tear will happen. We all know that, just as we know that, as an owner, there are obligations. The grand hope is that a synergistic symbiosis will occur, whereby the owner's hopes and dreams coincide with the renters. Mutual benefit, in other words. Rent rate: at the market and tolerable. Interior conditions, cozy and cost-effective. Exterior conditions, safe and appealing.
But what happens if maintenance slips? You get vacancies, then incur rehab costs, simple as that. If a home is sub-standard, what would motivate a resident to pay more for it when the lease renewal comes about? A convenient location may be reason enough. The kids in school, another. But let's be real here: someone willing to live with "subpar" likely isn't too keen on maintaining that at the same level or better. The only people I have ever known (or heard of) that chill in a subpar situation gladly is the Addams Family. And even at that, I must admit, their house was kind of cool...
So, what to do?
Fix-It - but be smart about it!
Bear in mind that any improvements you make should be of improving the property's value. And most improvements should be made when the home is vacant (between residents, as opposed to "hey, they're at work, let's put in a new kitchen!).
So far as maintenance, that will come a little later.
Below are some basic guidelines, and bear in mind, when you do any significant changes to a home while it is occupied, you run the risk of encountering the ol' "Hey-the-bank-is-open-let's-ask-for-everything" syndrome.
The carpet lasts 8 to 10 years. Luxury Plank Vinyl, 15+ years. Tile, done right, decades. Laminate, 15+ years.
Interior - Do this only between residents. There are a few exceptions to this, and residents should NEVER be permitted (not encouraged) to paint the inside of the house. They will, as a novice rule, paint doorknobs, switch and socket plates, and windows.
Exterior - Changing the outside color scheme to the most popular current colors can significantly impact your property's value. However, only do this when the property needs paint. That green-colored house of yours? Leave it green until 1) it needs to be rented or sold or 2) when wood rot damage is a distinct possibility.
Between residents is the time to do this. Several years ago, we had a house where the bushes in front of the house made the residents feel and behave like no one else in the whole wide world.
Another concern is that the time of drought - and water restrictions - is coming back. This is a house that did hide behind foliage, and we made that all go away. It never really left. So, utilizing alternate ground covers could entice the right resident. See the image below.
This single item can boost your home value the most. Generally, you put $15k into the kitchen. You improve the home's value by $25k. No other item impacts a home's value as much.
This is another item that you should undertake between residents. The most obvious reason is that your resident will be kitchen-deprived for a few days.
Click here to view our complete collection of before and after photos. You will not believe your eyes!
Keeping it ongoing and Operating
Day-to-day is the key operative phrase here. You see, it's easy to lose sight of a property to an extent as a property owner. It's also, apparently, easy to lose sight for years if my days doing insurance inspection are any indication. I saw so many properties that had extreme deferred maintenance that it was downright disheartening.
However, we see nearly all the properties we manage monthly, at the very least! I can tell you, firsthand, what a difference that makes. But what are the day-to-day maintenance needs of a rental property?
Like any property, a rental property requires maintenance constantly. Be it foliage rampaging, paint fading or peeling, or, in a longer-term sense, termites, awareness, and action help to preserve your investment.
At the same time, as I stated above, there are items that one only does with a vacancy.
The challenge I face all the time is deferred maintenance. And while I get that some items are not cost-effective nor raise property values (fences, I'm looking at you...), some do and protect you, too. For example, outside:
- Garage doors
- Front AND rear yards
- Uneven sidewalks and driveways
- Kitchens that show a lot of love (or, better put, age... you gotta love a 70's kitchen, right?)
- Window coverings that are falling apart
- Counters that show a lot of age, time, wear
- Worn out flooring
Exterior paint has a HUGE impact on your property value and curb appeal. Your wallet too. Here are the current top color combinations from MyMove.com.
This website was not chosen just willy-nilly, I looked at several, and my goodness, so many sites list Green as a great exterior color. It isn't.
Exterior paint as a value enhancer is not the only reason to paint. Wood rot will follow exposed wood. Every. Time.
A good many people have waited on upgrading their wood swing-up doors (they still have those???) to sectional doors, and now we are seeing prices skyrocket to the point of pain. However, in that 30% of the frontage of most homes is garage doors, even now, it is a great way to enhance curb appeal. Additionally, wood swing-up doors still have those blasted heavy-duty springs which impart an enormous amount of energy when they break loose.
Front and rear yards
Keeping the front yard looking good, no brainer, right? Right. Generally, a property retains residents longer and rents the faster with a landscaped backyard. But a good many people do not think much about their rental property back yard.
Uneven sidewalks and driveways
Best to take care of this item right away because someone will take a spill, and we will all regret that. I knew a guy years ago, his son took a spill, and he, being a shyster, was utterly convinced he's just won the lotto.
Kitchens and Baths
Keep this general rule of thumb in mind: for every dollar, you put into the kitchen, expect that plus another 40% back in value gains. For every dollar you put into a bathroom, you pretty much make your money back in value.
Replacing counters can raise a property profile pretty well, but a helpful hint: Never put new counters, such as granite, or quartz, on old cabinets. You spend all that money to put in lovely counters; they do deserve better than that., And so do you.
Worn out flooring
Sometimes the flooring needs doing. Stains and excessive wear on the carpet that's a good indicator that, yeah, it's time to change the flooring out.
With that in mind, generally, it's a bad idea to do this with an occupied property, but not impossible. Just be sure to get a good lease in place with annual increases to help protect your investment.
Also, if vacant, do consider changing the carpet out for a longer life product, like laminate, luxury plank vinyl, or porcelain. Yes, the cost is 3 to 4 times more, but it will last longer than carpeting, and the impact on a renter? Stellar. You are far more apt to get a better resident who stays longer.
Literally, this is the last line I'm writing on this, and it is the bottom line as well:
Pay as little as you can for the best you can get and get the most rent you can for the least expenditure. Okay, this is the actual last line:
Call us here at Management One. We know stuff.