Beyond The Deposit: Alternate Strategies To Protect Your Property Investment

With all the protection incentives being offered to building owners by property management companies today, it’s starting to become difficult to decide what truly adds value and what is just fluff. From rent guarantees to renter’s insurance, from first and last month’s rent to a traditional deposit, from a pet deposit to monthly pet rent, navigating all the options is similar to trying to pick your favorite coffee creamer in a sea of options in the supermarket. It leaves you screaming, “I just want French vanilla!” Options can be good, but one too many can leave you more frustrated and confused and choosing what is most convenient at the moment versus what is the most effective at protecting your investment. I have to wonder, is more always better? In my experience, the answer is not necessarily.

With any investment property, the first questions you must answer are what is my market and my demographic and what am I realistically able to charge? For more expensive properties in higher-end markets, it’s not unusual to change first month’s rent, last month’s rent and a deposit, plus any other pet deposits that may apply. It’s also not unreasonable to require renter’s insurance. This makes sense since the cost to replace damaged granite countertops or the entire master bedroom carpet would eat away at that deposit quite rapidly. However, when dealing with less expensive investments, it is not likely that charging first month’s rent, last month’s rent and a deposit will work. For many people, having that kind of upfront payment on hand is rare.

That’s why strategies for being creative for all parties, while still protecting your property, need to be established. Here are some ideas that may be suitable options.

First month’s rent, deposit and a higher income or credit score

As a great all-around option that ensures both parties are able to perform, eliminating the last month’s rent takes a hefty amount of the financial burden off of the tenant while still giving the owner a reasonable amount of recourse. A higher income-to-rent ratio and higher credit score is a good indicator of a responsible tenant. It can also provide the owner with more confidence if a garnishment needs to be initiated. As the owner, if you are still uncomfortable and feel you need more protection, consider having the applicant get a cosigner.

Thorough background check, credit check and reference check

One of the simplest ways to feel more assured about a new tenant is to require a detailed background check. These should cover previous evictions and felonies. Looking at a potential tenant’s credit score enables a detailed perspective on how their credit is being handled. Debt such as student loans or medical bills, if not outrageously excessive or past due, may be worth considering less of a red flag. However, past due cell phone bills, previous utility bills and same-day, high interest loans are typically warning signs. Reference checks with current and past employers are also solid avenues to collect reliable insight to the person applying. Avoid friends and family for obvious reasons.

Regular inspections

By far the most effective way to ensure that your property is being kept up to par is by inspecting it regularly. Far too many property managers assume that after one year in a property, the deposit will be sufficient to cover any and all damage beyond wear and tear. Even in higher-end properties, unfortunately, this is rarely the case. Nothing is worse than walking into a situation that could have been prevented by a simple walkthrough. Of course, you don’t want to be at the property more then you have to, so establishing a realistic number of inspections throughout the tenant’s lease term is important to maintain the tenant’s privacy and ensure the property is being kept up. Quarterly inspections are reasonable. Keep in mind these are not meant to be overly invasive. Usually, a 10-minute tour both inside and outside can give you all the information you will need.

Consider all your options to make sure you pick the formula that works best for your property. Just because you are offered more doesn’t always mean it fits for the area or demographic. In fact, certain options may actually price you out of your respective market and keep your vacancies higher. It’s crucial to understand your market and make sure you or your property manager is able to adjust. And once you decide on criteria, you must be consistent and unbiased to all parties who apply, as fair housing guidelines will require that.

In a world full of options, most of the time the simple approach of good credit requirements, reference checks and quarterly inspections goes just as far as the plethora of options that may be offered. Tenants are able to rent and not feel strained, and owners are able to have more peace of mind — truly a win-win.

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The Way Of The Property Manager

There are many niches in real estate, all of which tend to have sub-markets unto themselves. This is one of the beauties of the business and why you tend to find a plethora of diversity in the industry. You have your residential broker, your commercial broker, and then there is your property manager. Although property managers can technically be designated in the real estate industry, they tend to be put in their own category altogether. Almost like a duck-billed platypus, you scratch your head and wonder where they really fit. Ergo, how property managers can tend to be perceived in real estate as well.

This perception is not without its merits. When compared to their counterparts, the residential and commercial brokers, property managers typically endure a much longer relationship with their clients and tenants. The kicker is it’s also for significantly less money. One of the biggest contrasts is the service aspect of the property management business and how much more diverse and flexible you have to be. It is not uncommon to have an affluent owner investing millions of dollars into a market for a tenant base and demographic that is blue collar or even on a government supplemental program. The shift from one side of the spectrum to the other takes a certain skill, along with a few others to operate and succeed in this niche.

If you’re considering getting into the property management business, here are some talents you must possess and issues to study before making the move.

Are you diverse enough in business to speak to every demographic?

As mentioned, in property management, you don’t always have the luxury of just dealing with an investor for one brief transaction (obviously, this doesn’t apply to repeat clients). It’s one thing to go through a sales transaction and wish your clients well after you have closed. It’s a whole other skill set to deal with that same investor for an average of one year (the typical length of management agreements). Closing a sales transaction that can last 90-120 days on the high end, versus 365 days, is a huge factor and tests your stamina and customer service.

While the upside to property management is the residual component, you must make sure you and your team have the endurance to provide the kind of service that will make you succeed. Anyone can be a property manager; however, it takes endurance to be a great one.

Are you prepared to work — a lot?

In property management, there are no days off. It’s a Monday through Sunday gig and your business is open 24 hours a day. If there is an emergency at midnight, it’s your responsibility to address it. If the stove breaks at one of your tenants’ units on the night before Thanksgiving, guess who is getting the call. It begs the question, is it worth it?

The answer lies in your objectives and how you plan on growing. As you begin to scale, you have the opportunity to hire more staff and hopefully delegate more. Until then, you can’t be naïve about how much effort it will require. The day-to-day realities of property management can wipe you out if you’re not prepared to work plenty.

Are you OK with a thankless industry?

“One man’s trash is another man’s treasure” is probably the best way to describe property management. It is rare that a tenant or owner ever calls you to say how great of a job you are doing. On the contrary, the calls you can expect to get will be emergencies, complaints, questions, concerns and threats of lawsuits. It’s not if something wrong is going to happen, because it will; it’s how many fires can you put out that day. Sound fun? Still want to take on the property management industry by storm?

Having the fortitude and grit to persevere is by far one of the prime requirements. Knowing that you are doing the right things and doing all you can to make your owners and tenants happy has to be what drives you. Also knowing you are making a difference in your community helps keep the fire burning. On the rare occasion you do get a compliment or thank you, the appreciation for it is all the more satisfying.

Why should I be a property manager?

If the list above hasn’t scared you off yet and you are still considering being a property manager, then congratulations — you just may have some of the required DNA it takes. Beyond the challenges of property management lies a vast opportunity. Besides residual income, if incorporated correctly into your business model, you can also use to your advantage the relationships you have built with your owners. This can turn into listings, being the buyer’s broker for new investments, partnerships and even first looks at deals before they hit the market. What starts out as a firestorm, if run right, can eventually be turned into a form of controlled chaos at its best. Come to think of it, maybe the property manager and the duck-billed platypus know exactly where they fit.

Hosting Airbnb Guests at the Holidays

Did you know that New Year’s Eve is one of the most booked nights on Airbnb?

Prepare Early

The holidays are a really popular time for Airbnb bookings, so you want to make sure that you’re prepared far in advance. A lot of people start planning and booking their trips early in the year, so we recommend setting your blackout dates, prices and minimum stay lengths for the holidays as early as July or August. 

When it comes to deciding on pricing, blackout dates, and minimum stays, keep in mind your own holiday plans. Of course you want to make money at this popular time of year, but you also want to make sure that you can enjoy your own holiday plans. This might mean making a 2-3 night minimum stay around Christmas so that you don’t have to worry about check-ins and check-outs during your holiday celebrations. 

Set Expectations and Rules

You should review your rules and policies before you start accepting holiday reservations. More people may be looking for a space to host a holiday party or their family for a holiday gathering. 

Clearly define the rules and expectations that you have for your guests in terms of holiday celebrations. This may mean writing some additional rules, charging a higher cleaning fee, or outlining noise policies. 

Decorate! 

Guests love little touches that make them feel special or like you went above and beyond to welcome them. 

If you have guests staying with you over the holidays, it wouldn’t hurt to put up some little holiday or winter decorations to welcome them to your rental. This can be especially nice if you know that they are hosting any holiday celebrations. You could also leave a regional or special holiday food or drink for them to enjoy.

Doing something special for your guests can make them feel welcome when they are traveling for the holidays.