On a typical day, I don’t give my rental properties any thought. There is a property manager to collect the rent and handle any repair phone calls.
When the property has a tenant in place, it is pretty typical to just have one email or phone call with the property manager per month. Or zero. Hardly any work at all.
But when I look back at the last 6 months, some trends start to emerge – this analysis is a great chance for me to realize what I need to do.
My goal is to show potential investors the two sides of the coin. It’s not that hard and it’s a pain. Somehow both are true.
Managing Your Manager
The goal of the investor is to make sure their property manager is doing their job. This is the case when you look into their hoa compliance, and when you consider what their work means. The rent is collected and deposited into your account. They handle all tenant calls and minor repairs without discussing with the investor. Instead, there is a short month summary sent.
Most of these details were pulled directly from the monthly summary email. Then I sometimes follow up by email or phone for additional information – what was the repair in more detail? Are there before and after pictures?
I also double check the money was deposited and matches up with the report – just generally keeping an eye on things.
The Bad – Late Payments
The Atlanta tenant has been in the property 5 years now. This really helps cash flow because as we saw with the Memphis property, tenant turnover is very costly.
But slowly over the course of 2015 the tenant fell behind on payments. Rent is due on the 1st of the month and she paid a week late. Then the next month it slipped another week, compounding the problem. Some months were on time, but the issue peaked at nearly 2 months late on payments.
We were perhaps a little more lenient than we normally would have been since this tenant had a four year history of paying on time. But we weren’t push overs.
Twice when she said she would have a payment by a certain time, we filed the eviction paperwork. Both times she caught up enough and paid the paperwork fee on top to keep the game going.
The Good – All Caught Up!
After an entire year various levels of behind on rent, then tenant is now caught up. So rather than exactly 6 payments of $950 for 2016, the tenant has paid much more – $7,665 towards rent, plus a little more for late fees and the eviction paperwork expense!
This is really going to help the cash flow numbers for 2016. It balances out the disappointing cash flow numbers from last year.
Rent payments the last several months have been on time and we won’t let that happen again. But I’m glad it worked out!
The Bad – Repairs
I already covered the process of placing a new tenant in the Memphis property through January and February. There were several repairs that were done to get the property ready for a new tenant, but let’s cover what has happened since then.
Even though a lot was done in January, there were still quite a few repairs that weren’t all that cheap:
- Replaced fill valve in master bath and hall bathroom. Repaired broken commode collar. $373
- Repaired closet shelves and re-secured fan. $111
- Water heater T-and-P valve. $99
In Atlanta there were some storms that damaged shingles and vinyl siding, but this could easily be repaired by looking for siding replacement alpharetta has to offer (if I were closer to this area). But as this is Atlanta, I’m going to have to find a service closer by!
The property manager pushed off making these cosmetic repairs until they were completely caught up on rent, which was a great move. She finally sent someone out to do the repairs and the total came to $245.
The total repairs for the last 6 months, excluding the expensive tenant turnover, were $828. Ouch!
My rough budget for repairs is $70 per month per property, which comes to $840 for the half-year. I went well over including the repairs not billed to the previous tenant during the tenant turnover. However, it is lucky that the valves for the water heater were found, otherwise, I’d have had to look into websites similar to bouldenbrothers.com/water-heater-replacement/ for a full water heater replacement, and that would have increased the total bill significantly! Then again, if a problem with a water heater cannot be resolved then a replacement may be necessary – it’s either that or no hot water! However, most problems can be rectified with some assistance from plumbing experts – navigate here to learn about some of the problems they can help with.
The Lazy
I believe I am paying too much for property management and repair mark-ups in Memphis. But I haven’t shopped around for a new property manager or decided to try self-managing yet.
I discussed raising the rents with the Atlanta property manager a couple months ago. It still hasn’t happened. I guess I haven’t followed up frequently enough to make it happen.
The insurance costs have gone up from roughly $600 to $850 a year on the Atlanta property over the course of 5 years. I know I should shop around for new rates, but haven’t done anything yet.
Part of this laziness is not wanting to rock the boat during a busy time in my personal life – the last thing I want to do on my honeymoon is deal with any issues that could come out of raising the rent (like a vacancy) or changing property managers.
As a result, I’m leaving a little bit of money on the table each month.
Overall: Pretty Solid
Extra rent money, more repairs than expected. I still come out ahead over the last six months.
What do you think? Was this a good first half of the year or would you be disappointed by this?
Must have been nerve-racking having to file eviction paperwork twice during those 6 months. Glad they’re all caught up now and your costs were all covered. During periods of late rent, does your PM keep any of the late fees? I’ve had a late paying tenant before and my PM keeps the late fee to cover the extra work needed to collect from the tenant.
I’m curious, while the tenant is on track now, do you still plan to renew their lease?
It was a little nerve-racking, but I felt pretty certain they would pay since they had been there so many years. It was just an expensive way to show them we mean business!
Yes, the PM keeps the late fees. We agreed on how many would be waved if they got caught up on payments – if I remember correctly they had almost $2k in late-fees, we kept the hard-costs (eviction paperwork) and maybe $500 in soft costs and waived the rest.
Definitely plan to keep the tenant. They have been there 5 years and fell into some tough times where only one of the couple was working. They take good care of the house and are handy so do small repairs themselves. Plus minimizing vacancy / turn-over is extremely important for cash-flow.
Hey Brian. Sounds like we invest in similar markets. My husband and I have 3 rentals in the Atlanta area (northwest suburbs where we live) and are closing on a turnkey in Memphis in a week or so.
A few questions:
1. Your Atlanta property – when was your last rent raise? I can’t speak for all of Atlanta, but I know in our area rents have skyrocketed. We just rented our latest rehab for about $200 more than a similar property (same street, similar floor plan) initially rented for 2 years ago. We didn’t raise rents this year and I’m kicking myself because our 2 other properties are waaay below market rents. I would really got on the PM about the rent raise, even if it’s a small amount just so you don’t get behind the market.
2. I don’t recall all of the background on your Memphis property, but are you using a turnkey provider? Just curious, since you mentioned shopping around for a new PM or self-managing.
3. One of the items you mentioned that had to be repaired in the Memphis property was broken closet shelves. Was that not something that could come out of the tenant’s security deposit?
I enjoy getting your updates. We’re just venturing into turnkey so we can scale faster so I’m always interested in hearing about others’ experiences.
Happy Investing!
Congrats on your success so far and making moves to scale faster! Very exciting!
1) I actually have never raised the rent on my Atlanta property! In 2011 when the tenant moved in, it was $950 and rents softened a little bit in the next year, so if anything it was a little higher than market. Then just in the last year or two has it been under market.
2) Yes, I have done turnkey for both of my properties. I consider it 80% of the benefits for 20% of the effort. Use the contact form on the website if you want to discuss who I went through.
3) Ya the shelves were a borderline call, but the decision was with normal use by the previous tenant, they still needed work. And it wasn’t discovered until the new tenant started using them. I bet they weren’t up to par for the previous tenant, but he was someone who was much less likely to call for repairs (which I loved!)
Congrats on getting that tenant caught up! That’s amazing that they finally bit the bullet and were able to catch up even with the eviction fees.
I think you’re smart to prioritize your busy schedule over fixing the manager issues for now. The nice part about having a property manager is that you can step back and take care of life when you need to. Just be careful not to let it drag on too long after the wedding. Sometimes inaction is tempting when it’s a means to avoid confrontation. It is for me, anyway. 🙂
Thanks for your thoughts – I agree, if I’m not doing more posts by September about taking action on some of these things, call me out on it!
Interesting to read about your situation . I’m managing my properties today but down the road might switch to a manager … I just struggle with the model. They are less incentivized to raise rents and keep the properties as ship-shape as I would, but they sure do free up TIME. Thanks for sharing and glad you were able to recoup those late rents!
True, the incentives aren’t perfectly aligned. The nice thing is you can tell them what to do – so if they are lazy and aren’t raising rents, you can get on their case about it (although they usually do this because they get paid on a percentage and if the tenant leaves because of it, they get another big tenant placement fee). Time is everything!