Things You Can’t Turn Over To Your Property Manager
by Robert Locke

Some property owners get confused about what their property manager does when they hire them. It’s probably easier to define what we can’t, or shouldn’t do. After managing rentals for 30 years we have developed a short list of things that you should never ask your property manager to do for you.

1. Make your mortgage payments
   No one should make your mortgage payment for you. The consequences of not making them on a timely basis could be catastrophic. Your mortgage could go into default, your credit can be affected and you risk loosing the property in a foreclosure if the payment is not kept current. Never trust another to make your mortgage payments for you especially your busy property manager.
    
2. Pay your property taxes
   You don’t want your property manager responsible for paying your property taxes. Owners should have the county mail tax bills directly to them for payment. Failure to pay them can have serious consequences and should not be passed to a property manager. If you get a tax bill and want it to show up on your monthly owners report for tax purposes mail it to them along with a check but don’t expect property managers to receive the tax bill and pay it.
    
3. Maintain your landlord insurance and umbrella policy
   If premiums are not paid the consequences could be disastrous. You should stay in direct control of your insurance coverage and premium payment. This is too important to pass off to your property manager.
    
4. Track and pay your Home Owner Association dues
   If you don’t pay your dues, you can be fined, accrue attorney fees, and get a lien put on your property. You should have your HOA mail everything directly to you and pay your HOA dues directly to them. Also, HOA’s don’t respond well to third parties like property managers. They want a direct line to the owner regarding violations, assessments, amendments and community problems. You must stay in the loop, receive their communications, and get them to your manager to address. As much as you would like to pass this on to your property manager there is too much at risk.
    
5. Contact with your home (builder) warranties
   Warranty companies don’t respond well to third parties like property managers and tenants. They made promises to you, not us, and often we need your help getting them to respond. Also, they are not good at responding to emergencies. Property managers need your muscle with the warranty company when they have a problem.
    
6. Turning the utilities on and off
   Utility companies are making it harder and harder for third parties (management companies) to turn utilities on for someone else. Utility companies want the owner of the property to set up the account, pay the deposits and monthly bills when the property is vacant. Also, when property managers have multiple properties active with the same utility, the utility companies consistently misapplies deposits, charges and refunds. We are constantly fighting them (and the owner) over incorrect account records.

   The solution: turn them on in your name during the vacancy. It only happens every couple of years so it’s not time consuming.
   Note: Utility companies will not allow third parties to set up "continuous service" preventing utilities from ever shut off. Only the owner can do this. Set up continuous service one time and forget about it forever.

You should not let your property manager manage everything. Some issues just have to stay under the owner’s control for their protection.

Come See Robert Locke at North Metro REIA Saturday June 12 – Click below for details!

Click below for a 45 minute radio program interview and educational
content from our main speaker, a video introduction of this
month’s meeting, and meeting details including 3 great focus
groups, market update, free refreshments, business expo, and our North
Metro REIA benefit of the month.

Click on this link for meeting details:

http://northmetroreia.com/category/main_meetings__subgroup_meetings/ 

The stale sales market in Atlanta
Five personal stories of the pain of selling in this market.
by Robert Locke

After 30 years of buying, selling, leasing and managing rental houses in Atlanta I am shocked and saddened by the stories that are unfolding before me with some of our investor clients. The current state of the sales market is causing some serious pain ‘for those who must sell their houses in this market’. Here are just a few stories I have personally seen in the past six months.

Story #1
One investor bought a perfect little investment property (through Crown) in Acworth seven years ago for $142,000 (about $10,000 under market). We’ve managed the property as a rental since he bought it. He had to sell the property recently so we ran the comps and listed it for $159,000 after he put granite counter tops in the kitchen, tile floors and several other upgrades. It was beautiful. It was a little ‘over-improved’ but the community supported $160,000 plus. After 30 days he lowered the price to $149,000, then $139,000 then $129,000. Finally, after four months, we got an offer of $129,000, with seller paying closing costs and commissions of $10,000. He took the offer because ‘he had to sell.’ After working out the details of the home inspection the appraisal came back at $120,000 and the deal fell apart. How can this happen you say? Simple. Due to the slow economy, and fear of mortgage lenders, there are very few buyers and lots of sellers. Lenders (and their appraisers) are very cautious and not sure where it is all going to end up. Lenders are making it very hard to finance good buyers and good houses. The way they protect themselves is to ‘lend with very low loan-to-value ratios.’ They do this by manufacturing low appraisals. It’s just where lenders are in today’s market.

Story #2
Another client bought a new home in Alpharetta in 2006 for $220,000, ($30,000 under the ‘then market value’). He had the same tenant for the past three years. When the tenant moved out he put it on the market for $199,000 hoping to get a buyer quickly. Three months later he took an offer at $180,000 and agreed to pay closing costs and commissions. He netted $168,000, had a $200,000 loan balance, and had to bring $32,000 to the closing. After four months of payments, rehab costs and utilities he spent $42,000 to sell it, plus he lost his original down payment of $30,000. Conclusion: If you don’t have to sell …. Don’t!!!!!!!!!!!!

Story #3
Another investor bought a beautiful five bedroom home from Beazer near the Polo Fields community in Cumming, a great place to own real estate. This is a great swim and tennis community with tons of potential for appreciation. This is a prime area of Atlanta that traditionally holds its values, even in a recession. He got a bargain at $270,000 in 2006 during the closeout phase of the community. He borrowed $240,000 and leased it for three years. Then, he was forced to sell it.

We listed this beautiful property for $249,000 instead of the $320,000 we expected. He got an offer for $220,000 and took it. After commissions and closing costs he netted less than $200,000 and had to bring $41,000 to closing. Think about this. He lost his down payment of $60,000, spent $15,000 rehabbing and carrying the property, then spent $41,000 to get it closed. This is not the way ‘investing in houses’ is supposed to work, and not the way it has gone for the past 30 years. Conclusion … keep your tenants there and keep your property for a few years. Sell it when the market is back.

Story #4
Last October a builder client of ours was selling homes in Grayson in the low $300’s. One of our lease purchaser’s fell in love with one of them. Before he put down his $30,000 non-refundable earnest money they had SunTrust appraise the home to be sure they could buy it when the time came to close. The appraisal came back at $270,000. The builder reluctantly agreed to lease purchasing the home for the $270,000 it appraised for. Last month the tenant/buyer completed his final application for the loan. Just before the closing another appraiser went to the property and came back with a value of $220,000. The builder refused to sell for $220,000. The tenant can’t close at the agreed upon price of $270,000 and the builder won’t sell for $220,000. The buyer lost their $30,000 earnest money and the builder is letting the construction lender foreclose on the property, forcing the tenant to move out.

Story #5
Crown has been managing three homes for one of our more sophisticated investor clients. Last January he listed them for sale with a very strong broker in North Atlanta. He priced them well under market and offered to pay closing costs. He paid for extra marketing, utilities and lawn care for eight months. He has had six showings and no offers. He is not trying to rerent them.

We are in troubling times. It is clearly a buyers market and desperate sellers are paying a big price to ‘dump their properties.’ If there is any way to hold off selling your rental property for three to five years you should do so. Everyone thinks it will get better next year but my guess is it will be three to five years before we are out of this real estate mess.

What should you do?

1. Keep your tenants happy.
   Long term tenants will make you money and keep you out of the resale (and re-rent) market. There are plenty of good tenants in the market but they have lots of vacant homes to choose from and they are bargin shopping. It’s not the time to be looking for a new renter. Keep up the property and don’t give your tenant a reason to move.
2. We see some of our owners doing some radical things to keep their tenants in their properties at renewal time.
   Some are offering ‘no rent increase’ at renewal; others are ‘dropping the rent’ to keep a good tenant; some are painting rooms, cleaning the carpets, adding ceiling fans, installing garage door openers, and replacing carpets to keep good paying tenants for another year. These are all pretty insignificant costs when you compare it to the costs of a vacancy (see our article on “the cost of a vacancy” on our site).
3. Negotiate long term leases.
   Long term tenants are the key to making money in rental property as vacancies are very expensive. Always take a 24 or 36 month lease at a locked in rent. Remember, the issue is ‘long term tenants’ not and extra $50 a month.

The sales market in Atlanta is not as bad as some areas of the country because we have a stable real estate market. However, the current slump in sales won’t be over soon. We are three to five years away from having an acceptable sales market return and you need good tenants to sustain you until then.

The secret … Keep those tenants in your home and paying the rent.

Come See Robert Locke at North Metro REIA Saturday June 12 – Click below for details!

Click here for meeting details including our main speaker, 3 great focus groups, market update, free refreshments, and business expo.