Inside the world of landlords – attitudes, challenges, and fears of investment property owners

Currently, there are 111,532,119 renters in the U.S., with 2,654 new renters every day. But there are also 22,910,370 landlords or rental property owners in the U.S., which means 1 in every 14 or so people are landlords in America. 

While some may think that being a landlord is all sitting back and collecting profit, the reality couldn’t be further from that perception. In fact, landlords exercise a tremendous amount of time, risk, work, their own money, and even legal exposure.

But when done correctly, they ensure the win-win scenario of making a good investment AND providing a safe, comfortable, and nice home for deserving renters.

You’ll find hundreds of blogs about renters and the rental market, so today, we wanted to bring you a profile of landlords, including their attitudes, fears, and challenges with being property owners. I break these down into the categories of Tenant screening, Repairs & maintenance, Landlord stressors, problems, & fears, Profit!, The dreaded “E” word (eviction), and the Damage Deposit.

Landlord stressors, problems, & fears:

The #1 concern for landlords is non-payment of rent.

Only 51% of landlords say that being a landlord is more attractive or lucrative than it was a year ago, a shockingly pessimistic stat.

Even worse, 33% say that it’s less attractive or lucrative to be a landlord now compared to a year ago.

According to surveys, this is what stresses out landlords the most:

22% Loss of income

22% Troublesome tenants

16% Maintenance

13% Tenant evictions

12% Tenant turnover

10% General stress of the role

5% Staying on the right side of the law

A second survey yields similar landlord stressors:

18% High turnover of tenants

12% Tenants not paying rent

10% Keeping up to date with safety checks and

8% Keeping up to date with changes in legislation

5% Finding good tenants

5% Property maintenance

3% Time consuming

But when asked if they’ve ever had to deal with a problem tenant, 51% of landlords surveyed said “yes,” while only 49% had not.

Profit!

88% of property managers were able to increase rental prices in the last year.

In fact, rental properties now generate 31% of the average landlord’s annual income!

Homeownership rates are at a 50-year low, but at the same time, rental inventory is at a 20-year low, causing the average renter to spend 10.4 weeks looking for a new home or apartment!

California is ranked #4 (behind D.C., New York, and Hawaii) for states with the highest percentage of renters. In fact, 43% of California residents now rent.

88% of the property managers they surveyed increased their rental rates over the past year.

Tenant screening:

36% of landlords just “trust their gut” when screening renters, and not all run eviction reports or criminal background checks.

38% didn’t screen a particular potential tenant because they “didn’t raise any red flags.”

13% didn’t want to spend the money to screen tenants properly, and an astounding 21% of landlords just weren’t aware that they could screen tenants online.

But more than 95% of landlords say that tenant screening is beneficial – they just aren’t doing it or doing it right.

When screening prospective tenants, 59% of landlords felt that a steady income was more important than a solid credit history.

Another shocking revelation is that 66% of landlords would overlook a relevant criminal history when accepting a renter.

But only 56% of landlords would take a tenant if their credit was bad!

These days only 38.6% of renters have a credit score of 660 or above.

Unfortunately, many landlords set up their tenants to fail because they accept applications they shouldn’t (costing themselves a lot of money and aggravation in the process.)

For instance, 40% of potential tenants are cost burdened, which means they would be paying more than 50% of their income in rent, which magnifies the risk of late and missed payments.

Repairs & maintenance:

According to data, the most common (and costly!) maintenance problems for landlords include:

·      Smoke detectors

·      Water heaters

·      Getting keys organized

·      Pests like termites, ants, roaches, etc.

·      Furnaces and flues

·      Clogged sink drains and toilets

·      Electrical systems

When it comes to their opinion or renting a tenant with pets, landlords are just about split down the middle, as a pet can cause a lot of damage.

 In fact, 53% of landlords said that they would rent to a tenant with pets compared to 47% would not.

The dreaded “E” word (eviction):

The average eviction now costs landlords $3,500 and takes at least 3-4 weeks (past the month(s) of non-payment. However, if not handled correctly the first time or in extenuating circumstances, there have been cases where evictions cost the landlord up to $10,000!

Interestingly, new eviction filings spike in the summer months, specifically July, August and September every year.

The damage deposit:

54% of rentals have tenant turnover every year.

Landlords commonly have to withhold a tenant’s deposit because of maintenance issues, damage to the property, or other conditions. The common reasons include:

49% State of the garden/lawn/landscaping

15% Damage to fixtures and fittings

13% Cleaning

12% Rent in arrears

1% Damage to furniture

9% Other damage

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If you have any questions about purchasing a rental property, being a landlord, or even how  a property management firm can help you, feel free to contact us.

Calculating the right rent for your investment property.

Owning rental property is one of the soundest investments you could make, to the extent that 90% of millionaires have income-producing property in their portfolio.  But making day-to-day decisions to manage those properties can be challenging if your not properly informed.  There is no greater decision than what rent to charge a new tenant.

If you read all the books on real estate investing, they cite a general rule as industry standard: To calculate rent, take 1.1% of the home’s value.  That means if your rental property is worth $100,000, the rent should be $1,100.  If it’s a $200,000 rental house, the rent will be $2,200. 

Universal axioms like that are dangerous when you’re talking about real estate because there are no “one size fits all” solutions.  For instance, good luck getting 1.1% in California, where the median home price is much higher than the rest of the country.  The good news about owning property in California is that our appreciation rates are much higher than the rest of the country during healthy markets – as we’ve seen with nearly 25% appreciation since 2012 in the Sacramento area.  Also, whether you’re renting a house, a halfplex or duplex, condominium, or apartment in a building you own has a huge impact on what rental price is appropriate. 

Assuming that you have a single-family residence or halfplex or one side of a duplex (not a condo or apartment) in a decent neighborhood in the Sacramento region, how do you price your rent?

First off, let me cover the three priorities of any landlord to frame the conversation.

In reality, you have three goals as a landlord, in this order:

1. Avoid vacancies.

2. Get a renter who pays on time and doesn’t trash your unit.

3. Get a renter who stays long term.

A renter who stays long term and pays on time helps minimize time, energy, and money-consuming transitions, where 90% of your work as a landlord will occur.  Of course you want someone who takes reasonably good care of the property so your fix-up costs (above their damage deposit) will be minimal. 

And vacancies?  Those are the enemy of the landlord – the monkey wrench that throws all of your calculations on profit out of whack.  Point blank: vacancies kill landlord profits. 

The reason I bring this up is because too often, landlords try to charge the highest monthly rent they can manage, thinking it’s good business to boost their monthly income as high as they can “get away with.”  But in reality, charging rent that’s above fair market value is detrimental to their business model.  Why?  They’ll have a smaller pool of applicants (who may have shaky credentials,) the tenants will move out more frequently or cause more problems, and it will take longer to rent the unit – all factors that contribute to a high vacancy rate.

Imagine that we have a house in a neighborhood where most similar properties rent for $1,200 a month.  At that price it’s easy to find good renters so let’s say the unit will have a paying tenant 12 months a year.  That equals $14,400 a year in rental income.  But if the landlord gets a little greedy and tries to charge $1,300 a month in rent it takes longer to find a tenant or they move out before the year is up.  If it’s occupied 11 months out of the year at $1,300, that comes to $14,300 a year profit.  If it’s vacant for two months, the total profit is only $13,000.  It doesn’t seem like much, but any benefit of trying to squeeze an extra $100 a month in rent is wiped out by even one month’s vacancy.

So as we determine a price for your rental property, we have those three goals in mind. What we want to offer is a rental price that is fair, a win-win for both the tenant and the landlord.  I even like to price my rentals slightly below market value because I attract far more applicants.  I can take my pick of those with the best credit score, income, stable jobs, etc. and I end up earning far more profit by eliminating vacancies, evictions, maintenance, etc. 

Here are the steps in determining the rental price that’s best for you:

1. Compare apples to apples.

When researching what other similar homes are going for, make sure you look in the same neighborhood and at the same type of property.  Don’t compare a condominium to a house, a unit in Granite Bay to one in Citrus Heights, etc.

2. Look into Craig’s List and other websites.

Do your homework online by looking into Craigslist and other websites that advertise rental properties.  This will give you a good sense of what other landlords are charging – your competition – and what options a renter has.  You’ll come up with an accurate range – low, average, and high rental prices. 

3. Talk to neighbors.

Knock on a few doors, announcing your intention to rent the property and inquiring what rents are going for in the neighborhood.  You may be surprised at the answers!

4. Add or subtract for amenities.

Honestly assess what your property has to offer.  If you have new appliances, new carpet, and a hot tub, you may be able to charge slightly more than a unit with old amenities in worse condition.  But you still shouldn’t get too happy adding extra money to fair market rent just because your property is in good condition – that’s almost a necessity.  It will help you attract more and better applicants, but definitely subtract off the rental price if your property is outdated or needs work.

5. Test the market.

As you put your house up for rent and start advertising, listen carefully to what the market tells you.  If you get no calls or interest, your price is way too high.  If you get a few people looking but none want to rent it, they’re finding better and cheaper properties to rent.  The more interest you generate, the closer you are to the fair market value price.  

6. Have a set schedule of price reductions every week or two.  That way, you’ll know you tested the market so you’re not leaving any money on the table, but you’ll get it rented soon without those dreaded vacancies.

7. Talk to a property manager.

The most efficient way to make these rental headaches disappear is to hire a property management firm.  A well-established company like Vienna Property Management in the Sacramento area has an intimate knowledge of rental prices, a pool of tenants looking, and all the marketing channels you need.  If you think big picture, their help will free up your time and energy and eliminate vacancies, evictions, etc. – saving you money overall even with their small fees.

If you need any help or would like some advice about pricing your rental property, give Vienna Property Management a call (916-520-1712) or email.  They're great people and do a wonderful job turning rental properties into cash flowing smart investments!