Hi everybody
I was wondering if anybody has any out of the box ideas for creating a little extra cash flow out of your rentals. For example, the apartment i just leased was a one year deal (only did it because I don't know the area well enought o buy just yet) and they gave us an option to break the lease for an upfront charge of $400.
Any ideas would be appreciated. I know the previous idea probably seems very basic but, i just came out of a back woods town in Alaska and I have a lot of catching up to do as far as learning these creative ways to produce cash flow.
Thanks,
Madison
I'm not very creative, but we make extra money 3 ways:
1. We charge extra for pets. I typically charge $25 extra per month for a cat or small dog and $50 per month for a medium size dog or multiple pets. In addition, we charge $100 to $200 extra for the security deposit.
2. We charge a $25 application fee to do the background check. I can usually do the criminal background check for free on the computer.
3. We charge a $50 late fee for anyone paying the rent after the due date but before the 3 day eviction notice has expired. That's usually good for an extra $100 or so each month.
Again, not very creative, but it's a little extra.
Mike
Just looking around on the application fee, I didn't go as far as looking through legal codes, but the State of Alaska's landlord-tenant guide states out of pocket expenses are probably lawful. I would interpret that as making money off of application fees as being illegal.
Interestingly, in Texas you have to refund the application fee if you don't rent to them. I'll have to check on California's laws regarding this. There is no shortage of landlords here that think it is perfectly acceptable to collect money for application fees when they have no intention of renting to the applicants, which is illegal (illegal to take and charge application fees if you have no intention to rent).
I ask for a copy of my report, which I have a right to do in California. This pretty much tells me if they are attempting to collect money, or if they are seriously considering me as an applicant. The clowns trying to make money off of application fees refuse to give me a report, so I don't bother applying with them. It just tells me their mindset is of a nature that can be a potential problem down the road.
Some other ideas for generating revenues:
-Lease to own, aka option to buy
-Refer them renter's insurance
-partner with moving company for discounts for tenants + % to you
-resell internet access (getting harder with more competition and cheaper rates)
-pool monthly cash flows into sweeps account, i.e. play wth the "float" on the money
-allow tenants to customize rental prior to move in; 52" flat screen TV = $39/month, additional ceiling fan - $5/month, new paint color = $79/month...
-security "fee" instead of deposit for renter's with excellent credit and references, e.g. if they check out fine, then give option to pay $100 fee instead of the security deposit. You still retain rights to collect for damages and they lower their move-in cost.
Amazingly, there is very little literature or centralized resources for answering your question. Contemplating a new book deal...
As the law is written currently, it would appear true. But, case law and what's really happening in the market place suggest differently. In addition, several states are changing this very element of the law.
California has pending legislation right now to allow surety bonds in lieu of a security deposit, which is essentially an insurance fee protecting the full amount of the deposit instead of charging the larger deposit amount.
www.SureDeposit.com out of New York is leading this charge and I expect that other states will follow shortly--I chatted with their CFO over the weekend about this very topic. Rents are increasing and move-in costs are quite high, urging lawmakers to allow reasonable alternatives. It remains to be seen in the final written version of that law whether the surety deposit must be issued by a licensed insurance company of if an individual (or PM company) can provide one themselves.
So, while the laws read that way (no fee, just a deposit), there are large companies in every state managing properties using the fee to help tenants with good credit backgrounds, which suggests that case law would support this kind of fee.
What the written law is meant to protect is having landlords charge an amount equivalent to a full security deposit up front and then not reimbursing it when a tenant moves out, essentially screwing them out of their deposit. If written as a much smaller fee amount explicitly in lieu of a deposit, it appears that case law supports that approach.
-Jeff
p.s. I'm not a lawyer. This is an issue I follow closely because it benefits all parties involved and is a logical solution.
Yes, I've read about those options. I think California allows for the insurance option. At least I've run across it quite a few times searching for an apartment. However, the landlords weren't charging anything close to resembling a reasonable monthly fee. They were looking for $50 a month and up. Any renter with even the most basic math skills can see this isn't really a good deal. I also think this is going to become the standard for high-risk tenants that typically don't have money on hand for deposits, with the better tenants paying standard security deposits.
But as it is now, non-refundable fees are illegal in most areas, and after this type of deposit is sorted out, I would guess the same thing will very much apply, such as laws prohibiting landlords from charging tenants $50 a month for insurance when their real cost is $25 (no charging more than the actual cost).
Well, good deal, bad deal...it all depends on whether or not you have the cash on hand. In San Diego where you might rent a 1 bedroom on the beach for $2,500/month, you could face needing first, last, plus security to move in...that's $7,500 in cash, PLUS your last deposit that you have to wait up to 30 days after the end of tenancy to recoup, which means a $10,000 cash spread just to move. That's huge and the demand for alternative products is large.
And, while I think your point is valid, the concept is that the legislators appear to support a security fee (whether in the form of insurance or otherwise) as long as it is reasonable and doesn't screw the tenant. Frankly, if it costs a landlord $25/month to get the protection they need, then there's really no justification for charging more so yes I agree that charging $50/mo in that case would probably get you into hot water.
But, surety bonds and security fees are not banned across the board. The difference right now is between legislative law and case law. Legislative law reads pretty strict, but case law supports a looser interpretation of those rules. In California, they're just trying to make legislative law reflect the case law reality. So, in effect, it's not an absolute ban on fees.
Just my two cents.
-Jeff
If you have a multi-unit property, check into coin operated laundry equipment. Depending on your locale, you can probably find a company that will provide them, maintain them, even give you a cash "decorating" allowance to set up the laundry area, and still split the income 50/50. Of course you pay for the utilities to operate, but the income adds up.
Same goes for other vending machines, especially soda, and if you have sufficient traffic (for example an on-site office) a candy/snack machine too. Everyone has change to drop in, and the kids are right there pestering mom and dad to cough it up! Again, YMMV, but I have had name brand distributors put in a machine at no cost, I set the sales price, they stock it, and send a check every month. Sweet (pun intended).
I sometimes let a tenant paint interior rooms on lower end properties. I reimburse them for the paint after inspecting to see the job was done reasonably well. I advise them not to get paint on the floor or woodwork, and limit their paint choices to pastels so they can be easily covered if need be, but usually they turn out good enough to just re-rent as is once the current tenant moves out. The current tenant now has some "sweat equity" and typically is an excellent tenant, and I save the high cost of a contractor paint job (or the time and effort of doing it myself) on a property where appearance is not a priority.
If you are providing the utilities, meter ac's or other high use circuits, then bill the tenant for excess over a predetermined average cost which has been included in the lease document. Along those lines, put electric water heaters on a timer so they are off several hours a day when not normally needed.
Probably the single best thing you can do to increase cash flow over the life of your investment, is perform simple, routine, preventative maintenance and inspections. Be proactive not reactive. Run your business, do not let the business run YOU.
If you own a plex.... bring in high speed internet for $30-60 month. Share it to all of the units and allow tenants to use your "High Speed" connection for $25 or $30 / month.
Or include "high speed" free to tenants who have been on time with their rents for 3 months or more (inexpensive incentive to keep vacancy down).
I've enjoyed everyones ideas and thoughts.
Make sure your agreement with the ISP allows this. Most normal residential agreements do not.
That is true. You may have to bump to a business connection. Excellent point.
Tackleberry ~
Thanks for the link to SureDeposit. I'm not in the property management business but have been a renter for years and can see benefits to both parties.
The bond is less expensive for the renter than a deposit and the landlord doesn't have to "cough it up" when you move, which has been a critical issue at a few places I've rented in the past.
Some landlords think it's okay to spend the deposit and some have been very surprised when I decided to move after 4+ years and have tried to assess damages for normal wear and tear, even though I scrub everything and even have a carpet service come in to clean before I turn over the keys.
I've gotten to the point where I'm afraid I won't get my deposit due to a few unscrupulous landlords I've had the misfortune to rent from.
A nice thing for the landlord who DOES hold security deposits is that he doesn't have to keep track of each and every one with a bond in place.
I can see this as a win-win situation for both parties. I also have a bookkeeping service and have clients in the investment sector. I think I'll forward the link to them to see what they think as well.
Again, thank you. I appreciate you sharing the info.
a1propertyclean
I am tied in with a number of angels and angel groups in Boston, as well as with Babson College and Harvard University and think the idea of surety deposits for smaller landlords may have legs. If you're interested in talking a little further at some point PM me and let me know. We may have the resources to flush the idea out a little better but would want/need someone in the insurance industry with some solid experience to chime in.
Cheers,
Jeff
I am tied in with a number of angels and angel groups in Boston, as well as with Babson College and Harvard University and think the idea of surety deposits for smaller landlords may have legs. If you're interested in talking a little further at some point PM me and let me know. We may have the resources to flush the idea out a little better but would want/need someone in the insurance industry with some solid experience to chime in.
Cheers,
Jeff
Jeff,
Did you check out SureDeposit? Some good info there. If you use Google you will also see a settlement with an Attorneys General (MD I believe) for some mis-selling issues. It sounds like a fine settlement and not a ding on the core program. Just how renters thought the program worked vs. the reality.
John Corey
John,
Yes I've talked with them on several occasions. They're also behind the pending legislation in California to clarify and legitimize it as a sec deposit alternative. Part of this is education for public, judges, all. SureDeposit won't underwrite/work with anyone who's managing fewer than about 10,000 units because of the lack of the landlord's substantiated details, e.g. vacancy rates, average security deposits, average damages at move out, timeliness, many years of data, etc. It's too much work on their part to come up with the "risk" numbers (the percentage due for the bond) for too little reward otherwise.
By inference then, working with smaller landlords is much more uncertain, therefore higher risk, therefore higher price on the bond per thousand dollars of coverage. I suppose you could just take a SureDeposit example, add 50% more, and try it out. Less scientific but you would know in 2-3 years if it was worth it or not. It's also less certain how the courts will react if individual landlords attempt this, instead of a licensed insurance organization or bank.
Jeff
Not sure if this is a good idea or not, but I just thought of it last night.
for lower income rentals (A.K.A. people who have a hard time saving money) you could start a "Christmas savings fund" (or holiday if you're politically correct"). They would voluntarily give you $20 a month or whatever amount they want to, you put it all in an account and then disperse it to them on, let's say December 15th. In the meantime, if you have enough people participating, you could earn interest off of that money all year long. It also might help them pay their rent in January :lol:
just a thought.
-Rich
for lower income rentals (A.K.A. people who have a hard time saving money) you could start a "Christmas savings fund" (or holiday if you're politically correct"). They would voluntarily give you $20 a month or whatever amount they want to, you put it all in an account and then disperse it to them on, let's say December 15th. In the meantime, if you have enough people participating, you could earn interest off of that money all year long. It also might help them pay their rent in January :lol:
just a thought.
-Rich
Rich,
This is not a way to make money. It could even require special accounting or a segregated bank account. Largely you are offering a service to the tenants for no economic benefit.
As an idea when brainstorming that later gets thrown out I like it. As a practical suggestion for increasing the landlords income it is a non-starter.
John Corey
I thought it was a federal law that you are not allowed to give the person their credit report. You are only allowed to give them the address to the agency you pulled the report from. When I signed up to do credit reports I had to agree to not give them a copy of their report. I am not even allowed to disclose to them anything about their report, only that I am rejecting them because of their report then I give them the address. If they want to discuss their credit report with me they must pull their own credit report and show me their copy before I can talk to them about it.
As for people not running reports, to check to see if you ran the report all they have to do is pull their own report to see if you ran a credit check on them, it'll show up under the inquiries section.
most of the rentals that we deal with are low income. these people want nice stuff and often are forced to go to rent to own type places.
so we have done this with a few tennants...not all.
we goto wlamart get a tv, dvd player, stereo, etc, and basically rent to own it....but cheaper than those other places.
ofton the stuff is paid for in about 3 months and then the rest is just extra money :)
Raider,
Great idea. We've been doing this for the past two years and met with some -- but not a lot -- of success. I think as we refine the pricing, this is a fantastic way to gain additional revenue. This strategy is also mentioned in Jeffrey Taylor's landlord toolkit book.
[size=18]On that topic, does anyone know of a real estate book on the subject: How to Get More Revenue From Rental Properties Without Raising the Rent?[/size]
We've been considering authoring a book on the subject. I haven't found any good existing book comps. Any ideas? Anyone willing to help contribute?
-Jeff
Looks to me like you have received some great feed back. I have been a Property Manager for over 10 years. I have managed large upscale properties, student properties, section 42 properties, and now I am working with an investor managing his portfolio of rentals and rent to owns.
The pet fee is very effective, not only can you make some addtl. ancillary income, but it helps to protect you as well. Just remember, if legal in your state to definatley charge a pet deposit. My deposit is "non-refundable." You can also charge say a $300 deposit with $150 refundable.
You can also contact your local cable company. If you offer their cable service exclusively, sometimes you can get a percentage of the sales in return.
Be careful offering the anything with the word security in it. Sometimes, depending on the state, just using the word "security" can make you somewhat liable if something happens. But you can also check with the local alarm company, just have the charges billed to you, then charge you tenant..slightly over.
When filing evictions, I have in the past charged a $100 admin fee for having to go to the court house and file, in addition to the filing fees etc..
Also, if you have a multi-unit community, you can charge for faxing service, check with your local dry cleaners and set up a pick up and drop off service at the office.
You can charge extra for certain views, first floor, second, third etc...
Furnished units are good as well. You can contact a furniture rental company, and upcharge. These are especially profitable if you can get a company or two to lease a unit, especially for their out of town employees or guests.
Those are a few ideas. Please contact me if you want any more ideas..I have a ton! Everyone have a great day!