Q: What type of property class do you recommend for a rental?
A: It depends. In the Bay Area, if you want cash flow (at least the positive kind), you need to go with multi-residential. This means several units in one location and if possible, small 1-2 bedroom units. With any rental, you have diminishing returns. What does this mean? Look at the example below:
1 bedroom rent: $1300 800sqft
2 bedroom rent: $1500 1000sqft
The 2 bedroom unit has 25% more square footage but does not have 25% more rent (only 15%). When you buy property, the price of the property is based on the square footage. So the small the unit, the more return you will get on your investment dollar per dollar. You aren't getting a good pay off for the extra space. 1 bedrooms are good for the following reasons: easy to rent & easy to clean/fix. Also, people who live in 1 bedrooms generally won't be asking for anything fancy. As long as it works, that's it. You can make everything standard in a small, lower end unit. If the market goes up, you raise the rent. If it goes down, you lower the rent. Usually, you will always be able to rent it out as long as you set a fair price and keep it in good condition.
Tuesday, June 10, 2008
Rental Deposits Small Claims Court
See my comments at the end after you've read this article below
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This has happened to me before where a tenant lived in a unit for 1 year and used a can of spray paint to do "touch up." Let's just say it looked like a mess, was not in the ORIGINAL condition, and could not be rented without a complete repainting of the unit. I even showed up with PICTURES! My unit looked like it was a freeway sound wall tagged with spray paint. Like the landlord above, I lost the case.
Q: So Bo, what can I do in a case like this? Nothing. Or don't rent out expensive houses to bad tenants. I suspect the landlord didn't find the best tenant or possibly rented out to several individuals vs. one nuclear family. I know beggars can't be choosers but in the end, a bad tenant cost the landlord alot of time, frustration and money.
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Action Line: Questions linger for landlord after judge's ruling
Second, I also own a house in Santa Cruz and my tenants recently moved out, leaving the very expensive home a mess.
I had to have the carpets cleaned, door handles replaced, paint and general cleaning done, etc.
I refunded 30 percent of the deposit, which represented the deposit minus my expenses and extra days the tenant stayed.
The tenant had been there one year.
We went to small claims court and produced all the receipts and pictures of the premises.
I lost in court and the tenant didn't have to pay any cleaning or painting or extra days.
Aren't there some regulations that require a property to be professionally cleaned (regardless of home cleaning by the tenant) on the tenant's move-out?
And if they move in early aren't they still responsible to pay for those days?
B.C.
A I'll take the second question first, B.C. No, there are no regulations that require a property be professionally cleaned. The law says that the property must be returned to the condition it was in when it was originally rented minus normal wear and tear.
As for the extra days charge, it looks like the judge answered that one for you.
The organization you are looking for is Project Sentinel. It is a non-profit agency providing services to help people resolve housing problems.
According to its Web site, "The agency assists home seekers as well as housing providers through counseling, complaint investigation, mediation, conciliation and education. The services are funded by cities and counties in the greater Bay Area and Central Valley. All services are free and confidential."
You can contact Project Sentinel at (408) 720-9888.
San Jose residents can contact Santa Clara County's dispute resolution program at (408) 792-2314.
For a free copy of the California Department of Consumer Affairs "California Tenants - a guide to residential tenants' and landlords' right and responsibilities," you can call (800) 952-5210.
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This is called bad tenants and liberal judges in our small claims court system. Small claims court is just that, for small items less than $7500. No lawyers allowed. Most of the time, the judge will side with the poor tenant because the rich landlord/owner can afford it. There is almost no "justice" in small claims court. It's about quick resolutions and getting the case out of the system.
This has happened to me before where a tenant lived in a unit for 1 year and used a can of spray paint to do "touch up." Let's just say it looked like a mess, was not in the ORIGINAL condition, and could not be rented without a complete repainting of the unit. I even showed up with PICTURES! My unit looked like it was a freeway sound wall tagged with spray paint. Like the landlord above, I lost the case.
Q: So Bo, what can I do in a case like this? Nothing. Or don't rent out expensive houses to bad tenants. I suspect the landlord didn't find the best tenant or possibly rented out to several individuals vs. one nuclear family. I know beggars can't be choosers but in the end, a bad tenant cost the landlord alot of time, frustration and money.
Tuesday, March 4, 2008
Out of State Investing
Q: I'm thinking about buying a townhouse in Florida as a rental? What are your thoughts on that?
A: I'm not an expert on the Florida rental market specific to the city you are looking in. However, why do you want to go there? Real estate is about location, location, location. It's also about supply and demand. In the Bay Area, supply is low and demand is high. It has always been and will contine to be. There are people moving to CA all the time, the weather is great, and there are high paying jobs in tech and biotech. If you live here and you are knowledgeable about the area you live in, buy nearby. I always suggest to put your money where you can see it. Florida is not a place you can see.
Q: But it's cheaper in Florida!
A: Yes but you get what you pay for. You can't get 2 times the rent with a house half the price. You still need to do your homework and do your math. There might be some great neighborhoods there no doubt, but to do the rental, you need to hire a property manager you can trust without you needed to go there more than 2 times a year.
A: I'm not an expert on the Florida rental market specific to the city you are looking in. However, why do you want to go there? Real estate is about location, location, location. It's also about supply and demand. In the Bay Area, supply is low and demand is high. It has always been and will contine to be. There are people moving to CA all the time, the weather is great, and there are high paying jobs in tech and biotech. If you live here and you are knowledgeable about the area you live in, buy nearby. I always suggest to put your money where you can see it. Florida is not a place you can see.
Q: But it's cheaper in Florida!
A: Yes but you get what you pay for. You can't get 2 times the rent with a house half the price. You still need to do your homework and do your math. There might be some great neighborhoods there no doubt, but to do the rental, you need to hire a property manager you can trust without you needed to go there more than 2 times a year.
Saturday, December 22, 2007
Gardening/Pool Service
Q: Should I be the one to hire the gardener/pool cleaner? Or can I let the tenants do that?
A: YES YES and YES. The tenant will NEVER do any yard work or maintenance. You can easily hire a weekly gardener for under $100 to come by to cut the grass, spray the weeds, etc. For pools it's about $150 once a week. Unless you want dead overgrown jungle grass and a pool of green algae, always contract out the work. You will be 1) preserving your investment and 2)keeping your tenants and neighbors happy.
The last time I didn't hire the work I had a weed jungle and a pool that became a habitat for stray turtles. Don't be cheap, build it into the rent if you want. But do not neglect maintenance.
A: YES YES and YES. The tenant will NEVER do any yard work or maintenance. You can easily hire a weekly gardener for under $100 to come by to cut the grass, spray the weeds, etc. For pools it's about $150 once a week. Unless you want dead overgrown jungle grass and a pool of green algae, always contract out the work. You will be 1) preserving your investment and 2)keeping your tenants and neighbors happy.
The last time I didn't hire the work I had a weed jungle and a pool that became a habitat for stray turtles. Don't be cheap, build it into the rent if you want. But do not neglect maintenance.
Sunday, November 11, 2007
Section 8? Your thoughts?
Q: I've heard a lot about the government Section 8 housing program. Can you tell me a little more about this? Is it worth participating?
A: Section 8 is a government program by the Dept. of Housing and Urban Development (HUD). This program is administered by the Housing Authority of Santa Clara County (for those of us in Santa Clara county obviously). The short explanation is that low/no income persons get subsidized housing vouchers and have to pay very little to no money out of pocket. The size of the grant is determined by income and the # of people on the voucher. The subsidized portion is guaranteed.
Ex. Rent is $1500, gov't subsidizes $1300, and tenant pays $200. So in theory, it shouldn't be too hard for a tenant to come up with $200 a month and the $1300 is guaranteed.
So why is this bad? Without stereotyping, just think about the kind of persons that do not have jobs or very much money, they are good people but not all of them will be very good tenants. I do section 8 all the time and have been doing so for over a decade. My advice to you is that a section 8 tenant probably takes MORE work. The upside is the guaranteed rent or if you really need to find a tenant. There are more rules/regulations but that's a real basic overview. Be happy to provide more information.
A: Section 8 is a government program by the Dept. of Housing and Urban Development (HUD). This program is administered by the Housing Authority of Santa Clara County (for those of us in Santa Clara county obviously). The short explanation is that low/no income persons get subsidized housing vouchers and have to pay very little to no money out of pocket. The size of the grant is determined by income and the # of people on the voucher. The subsidized portion is guaranteed.
Ex. Rent is $1500, gov't subsidizes $1300, and tenant pays $200. So in theory, it shouldn't be too hard for a tenant to come up with $200 a month and the $1300 is guaranteed.
So why is this bad? Without stereotyping, just think about the kind of persons that do not have jobs or very much money, they are good people but not all of them will be very good tenants. I do section 8 all the time and have been doing so for over a decade. My advice to you is that a section 8 tenant probably takes MORE work. The upside is the guaranteed rent or if you really need to find a tenant. There are more rules/regulations but that's a real basic overview. Be happy to provide more information.
Monday, March 19, 2007
What is a necessary repair?
In a word: everything
Q: When you own the property, who suffers if an item is not repaired? (no matter how small)
A: You (the owner)
Ex. If there is a broken door knob, say the cost is $20, are you going to insist the tenant fix it/pay for it? or are you just going to do the right thing and fix it? The average house in the Bay Area is about $600,000. The average door knob set is about $20.00. You see where I'm going with this. If you don't fix the door knob your tenants are going to kick/slam the door. Then the door will become damaged and you have to replace that for $2-300 dollars (materials + labor).
A house is like a car and it needs constant maintenance. In theory, if everything is used properly it will never break. But do you think your tenants will take the best care of everything? It's human nature to not take care of things that you don't own.
Q: Are you saying I need to pay for everything?
A: No, but what I am saying there are alot of little costs that as the owner, you have to accept. If a tenant breaks a window, you need to fix it right away. You cannot wait for the tenant to give you money and then you go repair it. If you don't fix it, you are allowing a safety hazard to exist and that might be more trouble down the road if the house is burglarized because there was no window. In the case of the window, yes you can bill the tenant and you should. Also, you can collect the repair bill from the security deposit after the tenant moves out if they refuse to pay you at the time of the damage.
Q: When you own the property, who suffers if an item is not repaired? (no matter how small)
A: You (the owner)
Ex. If there is a broken door knob, say the cost is $20, are you going to insist the tenant fix it/pay for it? or are you just going to do the right thing and fix it? The average house in the Bay Area is about $600,000. The average door knob set is about $20.00. You see where I'm going with this. If you don't fix the door knob your tenants are going to kick/slam the door. Then the door will become damaged and you have to replace that for $2-300 dollars (materials + labor).
A house is like a car and it needs constant maintenance. In theory, if everything is used properly it will never break. But do you think your tenants will take the best care of everything? It's human nature to not take care of things that you don't own.
Q: Are you saying I need to pay for everything?
A: No, but what I am saying there are alot of little costs that as the owner, you have to accept. If a tenant breaks a window, you need to fix it right away. You cannot wait for the tenant to give you money and then you go repair it. If you don't fix it, you are allowing a safety hazard to exist and that might be more trouble down the road if the house is burglarized because there was no window. In the case of the window, yes you can bill the tenant and you should. Also, you can collect the repair bill from the security deposit after the tenant moves out if they refuse to pay you at the time of the damage.
Friday, March 9, 2007
The Cheap Landlord
Some tenants/people live paycheck to paycheck.
A successful landlord and real estate investor cannot live rent check to rent check.
If you cannot afford to have a property vacant for several months, if you don't have reserves for major unexpected repairs, if you can't be bothered on nights/weekends to visit your house, you have no business in being a landlord.
Real estate is about cash flow and investing. An investment generates positive income/cash flow. Real estate is a long term play. You need to invest your time in finding the right property at the right price with the right renter.
A successful landlord and real estate investor cannot live rent check to rent check.
If you cannot afford to have a property vacant for several months, if you don't have reserves for major unexpected repairs, if you can't be bothered on nights/weekends to visit your house, you have no business in being a landlord.
Real estate is about cash flow and investing. An investment generates positive income/cash flow. Real estate is a long term play. You need to invest your time in finding the right property at the right price with the right renter.
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