Today’s economy has provided us with two types of clients. Professional investors and accidental landlords. I have written about accidental landlords before but basically these are the people who wanted to sell their home, could not get the money for it they needed, had to move, and decided to rent the home for cash flow. Unfortunately, there is often a lack of resources available to handle surprises with these homes since the Accidental Landlord is now living in another home and has expenses associated with the new home. It is also likely that there is a very small differential between outflows and inflows for the accidental landlord.
The first thing we need the owner to do is to change hats. The house is no longer their home. It is an investment. Investments have two elements of return. One is income, the other is appreciation. Other than covering the majority of the owner’s expenses, the typical accidental landlord’s former “home” is not going to likely provide an income return. With the exception of principal reduction and tax considerations, their former home is a long term appreciation investment. And there is nothing wrong with that! In fact, many accidental landlords hold onto these properties, having the majority of expenses paid, while paying off their mortgage. The goal is a property that is a retirement savings plan..available to be sold in the future debt free when the owner likely really needs the income!
A common reaction from the accidental landlord is they can’t afford professional management. The first question is are you an investor or still a home owner? Investors utilize professionals to maximize their investments value. A great property manager will pay for themselves in many ways…actually helping you to increase your income and appreciation!
Here is a list of some of the ways professional management pays for itself and why the accidental landlord should not decide to also be the accidental manager.
- Leasing the home through channels successful for your home and location. Each day the home sits vacant is costing you money. Advertising the home for rent also costs lots of money. Not to mention needing to show the home to all interested parties. What is your time worth?
- Taking an application and then screening it will cost you more time and money. Will you know how to assess factors such as income to rent ratios, and issues with FICO scores? Most applicants do not have great FICO scores. A lot of subjective professional judgement, based on years of experience, goes into the tenant selection decision.
- Interestingly enough, I have had our professional investor clients tell me that we pay our fee by simply being able to rent their property for more than they could as an owner. Two reasons this likely occurs. One is we have a lot of rental information that allows us to assess the market as of the current time. Not the dated rumors from a year ago when you heard your neighbor was able to rent their home for x dollars. Second, tenants seems to want to negotiate leases when dealing directly with the owner. When dealing with a manager, the stated lease is the amount we can accept. If the applicant needs less they probably need to go on to another property…or so we tell them. They usually stick around.
There are other ways professional management will pay for itself even when you are an accidental landlord. I will provide more in part two of this post next week.
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Tags: accidental landlords, Indianapolis Property Management, Indianapolis Property Manager, Wilmoth
