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Owning Rental Home and Managing Expectations

This article will be the first in a series of articles that illustrate a variety of items that should be considered when leasing residential rental homes.

It can be very un-nerving owning a rental home.  There are countless variables to consider. It is beneficial for owners to approach their rental home and the process with clear eyes.

When meeting with new clients who are thinking about renting out their primary residence or purchasing rental property I often ask those clients about their thresholds for risk.  Early on I attempt to set expectations.  I find it helpful to enlighten about past experiences and pit falls.

The first consideration is that tenants, even the best of tenants will not take care of or maintain a property like an owner does.  Tenants can be careless with safe guarding walls and paint. Tenants will seldom remove their shoes when walking on wall to wall carpet and tenants will often send stuff down a garbage disposal that has no business going down the drain; and thus, rendering the appliance and drain hopelessly clogged.

Rental owners should consider painting every five or so years, depending on wear and re-carpeting every five to seven years depending on the quality of their floor coverings and the make up of the rental household.  When at all possible tenants should be prohibited by lease from painting or changing wall colors.  If permitted to paint then tenants should be held to professional standards.  The more people in residence including pets and children the greater the wear and tear on the house.  Often hardwood floors don’t fare much better than carpet so sometimes a man-made laminate is the best choice when prepping for tenants.

Owners should also spend some thoughtful time evaluating the exterior of their rental property. Tenants by their nature, typically will not spend the time, effort or energy keeping the yard trimmed and the flower beds tidy. Therefore, exterior spaces should be made as low maintenance as possible.  Additionally, structural characteristics like leaf guards on gutters and slow growing shrubbery should be considered. An owner on a wooded lot or with trees near their home will need to have their gutters cleaned at least twice a year and if the trees are long needle pine; more often.

Many owners ask if they should invest in a home warranty in an effort to prepare for system or appliance failure.  My response is generally dependent on the owner’s capital recourses.  If a cash war chest, or lack thereof is an issue, then a warranty might be a good idea.  However, the owner or their manager if they hire one, will be best advised to warn tenants that items needing repair will be at the mercy of the home warranty company’s time line, which is often much more protracted than calling ad hoc vendors.  Tenants might just have to exercise patience; which in our day and age is a scarce commodity.  For example, I can often have my plumber, HVAC contractor or electrician on site in less than twenty-four hours. Home warranty companies generally can’t attain this kind of quick turn-around.

Here are the take away points;

  • Carpet will need replacement every five or so years.
  • Walls will need repainting every five or so years.
  • Yards should be made as low maintenance as possible
  • Home warranties might be a necessary purchase if a cash war chest is lacking
  • Be prepared to clean gutters 2 or 3 times per year.
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Renting and Leasing

According to CoStar Group, the #1 commercial real estate information group, almost every multifamily market saw strong leasing, rising demand and falling vacancy rates in the third quarter as the nations rental market continued a solid 2010 rally. As of now rentals should continue to surge over the next five years, with a growing supply of renters and very little new product in the planning and building pipeline.

Vacancy rates are above historical averages and in many multi-family communities robust incentives are being offered to move renters in. Still the national vacancy rate compiled from the 54 largest markets declined for a third straight quarter in 2010. Raleigh/Durham, Charlotte, Nashville and Dallas/Fort Worth have seen the highest demand and the sharpest decline in vacancy rates.

CoStar Group November 3, 2010

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