All Forum Posts by: Penny Clark

@George P., the PM you spoke with is right about the need to budget for toilet repairs, screens and other things that go beyond wear and tear for this type of tenancy - so set a budget for it. When the PM referred to paying late, did they say that they pay once the notices are sent out? Some tenants (Section 8 and market rate) are consistent late payers and will pay upon receiving notice). If you decide to keep the rental and go with a Section 8 tenant, I would select a tenant that contributes toward a portion of the rent and pays it from wages earned from long-term employment. These tenants, in my experience, are usually more responsible and will take care of the place better, although finding them takes A LOT of screening. It is rare that Section 8 tenants have good credit or scores above 525, so don't expect this. What I would insist on is your PM only place a Section 8 tenant with an excellent rental history which would mean no more than 3 if any late pays and NO more than one 3 day notice in a period of one year for lease term violations.

If you choose to sell your rental, can you use the equity to purchase another one in a better area or one that is not inundated by Section 8 rentals? Section 8 can be a headache to deal with even if you have a competent manager. That is why many landlords don't opt to be part of Section 8 programs.

Good luck!

@Mike W., I would shop around and see if you can find a PM that will charge you only 50 percent of the first month for the lease up fee. If the $150 covers both units, you're actually paying $75 per unit which is not off the charts. Also, find out specifically what services are included in both the management fee and the lease up fee (these are two different things). I would also ask to view the management agreement prior to signing so you can look for hidden fees (For example, is there a surcharge for handling maintenance requests and repairs?) 

To answer your original question: PMs will give owners a break if they want your business and you ask for it as part of the negotiating process. They also will give some owners a lower percentage if they are managing multiple units. 

Another way to cut price is find a property management company that charges a flat fee rather than a percentage.

I would not accept a company or individual who offers to manage your two unit rental for less than $50 per month. These companies use ultra low rates to either lure in owners and charge a lot of extra fees on the back end while they got you under contract or they are just starting out, desperate for business, or operate their property management business "on the side" when real estate sales are slow. 

Good luck and check out my blog articles for more tips on how to find a good PM!

@Gregory Brooks, In order to get an accurate comp for your rental, do an internet search of "homes for rent in _________ neighborhood or ________ zip code".  Narrowing down your search to your zip code, neighborhood and amenities your rental offers saves you a ton of time. Click on the map shown to get an idea of the current supply (and competition) in your market, then find those rentals most similar to yours. Websites Zillo, Hotpads, Trulia and Homes.com are good to use because PMs place their ads on these sites and can assess market value with more accuracy than mom and pop type landlords who mainly use Craigslist.  PM will try to get the most out of a rental because their lease up fee and often management fee is dependent on the unit's rent, whereas inexperienced or hobby landlords may not have the time or patience to do the research and just want to get it rented to someone. I like Rentometer, however, it also includes apartments which is not quite the same demographic rental market as SFHs. 

Keep in mind, some areas and or streets can have a wide range in rental price because it may have pockets of good areas and bad. If possible, I also will do a street view to compare it to the street my rental is on. Renters will do this too and will sometimes drive by the property before calling for a showing so curb appeal is important; if your end of the street is more"kept up" than a block over, you can draw a better tenant and get a better price. Some neighborhoods in my town actually vary block by block, meaning renters may pay a higher price for a house on one street versus than on one just around the corner from it.

You can also assess if your priced too low by your ad response. For example, if you get a large number of calls (30-40 calls) within first couple days, you may be priced too low. If you have had your ad running for a week and you've only gotten 3-4 serious inquiries, your rental may be priced above market. In my experience, it's best to aim for 5-7 percent below market rate; this draws a enough interest  but is not set so low that you get barraged with unqualified renters.

Good luck!

@Matt Harris I prefer as both a property manager and a rental owner to have no tenants and start fresh. Whether we inherit tenants from another property management company or owner, there are almost always issues - that's why the owner either hires us or wants to sell the property because bad tenants have turned their investment into a money pit. If you do accept turnkey tenants, make sure the property management company who places them follows your rental criteria and also has the time and resources to manage your property effectively. 

@Benjamin Von Blon, That's a nice idea for a side business. However, in my experience, unless the realtor-broker has the resources and skill and time to properly manage the process it doesn't work out. Part of vetting a PM company is to ask to see the contract's financial terms before you sign, set limitations on maintenance reserves or use your own vendors, and observe their response time in getting back to you. 

@Tim Kunz, As long as there is a limited number of available units in a particular area rents will at least stay steady. However, ultimately, renters will only pay so much in particular areas. I had one client who insisted on setting his rental price at least 20 percent above the comps in a C area simply because he thought he could get it. He had put in new, updated appliances, flooring and some trim moulding. It stayed on market for 20 days before he dropped some in price. 

To your other question, I love the idea of allowing homeowners to build in-law quarters on their parcels. Lack of more affordable housing is what is driving the groups advocating for rent control and mandatory acceptance of Section 8 applicants. Any bill that seeks to provide a solution to ease the housing crunch and deter these groups from getting their way has my vote! 

@Ryan Wright, If this is your first investment property, I'd suggest purchasing prior to the job switch if you are going the conventional route. I'm not a loan expert but in my experience banks will include the debt you are taking on along with existing debt. Your wife will need at least two years of income source for hers to count. If the bank plans to sell your loan to the secondary market and not keep it in house, you may need to have a year or two of experience as a landlord for them to count a percentage of rental income to your D/I ratio. Sometimes you can overcome these hurdles with a higher down payment as was suggested above.

Good luck!

@Ray Johnson, Class C area rentals don't necessarily require more work if you screen your tenants well and keep your property in good repair. It only gets dicey (and this can apply to Class A properties too) when you take shortcuts on checking credit, income or rental history. There is equal opportunity for Class A properties to draw PITA tenants. The real advantage of Class A properties is they are likely to hold their value and continue to appreciate, be easier to rent if not priced too high and draw a more financially stable applicant. However, a paid off C Class property will cash flow better; You can refinance it and use a portion of the equity to purchase more properties. 

That said, we bought mostly B and C rentals because of the better cash flow and have paid off three of them. Because we do thorough screening, we have had almost no issues. However, if given the choice, I would want to purchase an A class property because of the reasons I stated above.

Good luck!

@Mark Smith, Never feel guilty about requiring your applicants "jump through some hoops" to apply; In the end your wallet will thank you for it.

@Ali Sheik, Since you are local, you can also check out the Sacramento Valley Rental Housing Association. For its members all forms for all PM needs are free and Fair Housing compliant specifically for California. They also offer education classes and free ask a lawyer sessions, rental owner mixers, etc. I became a member after experiencing our first eviction experience.

@Ali Sheik, Michael gave you some excellent advice. I would only add that whether or not you hire a PM that you build in that expense for your rental. Even if you manage it, one day you may not want to. For tips on what to look for when hiring a PM, check out recent article on my blog. Personally, I agree with Michael to manage your own first property. Doing so gives you the landlord experience you need to know how to manage the PM when you hire one.

Good luck!