How to Price Your Rental in a Small, Secondary Market

The time-honored mantra of real estate – “location, location, location” – drives everything from a property’s purchase price to the rental rate. It can even dictate how much or little you should invest in improvements.

Real estate markets are classified by location type. There are primary, secondary, and tertiary markets, sometimes called Tier I, Tier I, and Tier III. The market classification for your rental property will be a crucial consideration as you set its rental rate.

An area’s population and state of real estate market development determine its classification as a primary, secondary, or tertiary market.

Primary Markets

Primary, Tier I markets are typically larger cities of 5 million people or more, with well-established rental markets. Examples include Chicago, New York City, Boston, San Francisco, Los Angeles, Washington, D.C., and Dallas-Fort Worth.

These large metro areas are usually more expensive than other metro areas – for both buyers and renters – due to consistent demand for housing.

Secondary Markets

Growing cities are considered secondary markets; their growth creates demand as new people move into the area, supporting new business development and job creation.

These Tier 2 locations demonstrate more real estate market flux, creating attractive opportunities for real estate investors.

Secondary markets tend to be a population of 2 to 5 million people. They are usually less expensive than primary markets but still in demand. Examples include Philadelphia, San Antonio, Phoenix, San Diego, and San Jose.

Tertiary Markets

Tertiary markets involve a lower population density of fewer than 2 million people. The population is spread out across a bigger geographic area.

There is typically less reliable job growth. In a strong economy, tertiary markets can provide attractive investment opportunities as property prices are typically lower.

These areas may be more expensive to develop as many are rural or outside of secondary market cities.

But can be prime markets for real estate investors as the properties cost less.

Whether you invest in a secondary market, tertiary, or primary market, it is essential to consider market-relevant data to price your rental correctly.

The key to pricing rentals in a primary vs. secondary market

The whole real estate cycle – from the purchase price to rental rate and eventual selling price relies on intelligence gleaned from current, comparable sales data for properties in the same price range.

When you review these comparables, you will get a good sense of amenities and the property improvements for other properties in the price range. As you determine your target rental rate, the purchase price is one factor but not the whole story.

You may be able to invest a small amount in fixing up the property, add or improve its amenities, and charge a higher rental rate than similar unimproved properties sold in the past year.

How you need to look at properties in secondary and primary markets differently.

Demand for rental property is always a local story. You can’t take an apartment in New York City and compare it to a similar apartment in Des Moines. Even if both cities are the largest in their respective states, large is relative –Des Moines has a population of 210,000, and New York City’s population is 8.175 million.

Even within Iowa and New York, you have the full range of markets to consider. So how do you determine the rent?

In real estate, comparing neighborhood properties wins out.

While you need to be aware of overall rates in the city where you plan to buy, your rental rate should be based on going rates in the immediate neighborhood. Each neighborhood will have a range that extends across unimproved and improved properties.

High-demand primary markets are top dogs because they have low turnover and can command higher rents. Secondary markets can present many growth opportunities. You can still improve a property in a secondary market to make it more attractive to tenants.

This will also allow you to raise rents accordingly. Tertiary markets also offer good opportunities, especially when the primary and secondary market values seem overblown.

Comparing apples to apples

In any market, you want to rely on current, accurate information to complete your analysis. Rentometer pulls rental rates from all online sources for current listings to provide you with accurate rental rates for any area. You can search within any state, city, or neighborhood to get the most up-to-date picture of rental rates.

Let’s compare rates for 2-bedroom, 1 1/2 bath rental units in Des Moines. The city’s average rent for this property type is $1,186 per month, but rates range from $943 to as high as $1,429. This range tells you that the right purchase price and a few property improvements could create a nice cash flow.

Comparing similar properties in a secondary market

Going a bit deeper, let’s compare three different neighborhoods in Des Moines: Downtown Des Moines, Bloomfield-Allen, and Merle Hay. Downtown has the highest average rents at $1,482 per month, while Bloomfield-Allen and Merle Hay show average rents of $890 and $891. Looking more closely at each area, you’ll find that Downtown has an entirely different culture and amenities from both the Merle Hay and Bloomfield-Allen neighborhoods. And while the two other neighborhoods are similarly priced, they have different amenities, culture, and crime levels.

Landlord Inspections: The Do’s and Don’ts of Apartment Inspections

Maybe you’re suspicious one of your tenants is breaking the lease’s pet policy. Maybe you just haven’t checked in with them for a while.

If so, you may ask yourself: can a landlord do random inspections? Well, the answer isn’t an easy yes or no.

As a landlord, you can drive by, walk by, or bicycle by your property anytime. But you cannot walk into the property unannounced. We’re here to walk you through the do’s and don’ts of landlord inspections.

Legal Reasons to Inspect an Apartment

Apartment inspections need to be performed for a variety of reasons. Let’s take a look at those situations in which you can legally enter and inspect an apartment.

Maintenance and Repairs

Your tenant might ask you to service or repair something. Typically, landlords are only permitted to enter the premises during “reasonable hours.” That varies from state-to-state.

Any time between 9 a.m. and 5 p.m. is usually considered reasonable. Those hours are within normal business operating hours.

However, when a repair is specifically requested by the tenant, you can enter and perform the necessary service at any hour that is mutually agreed upon.

In a scenario where the tenant has not requested maintenance or repair, but you still need to perform it, give them 24-48 (dependent on state and local law) hours’ notice of your arrival. Additionally, make sure to come at a time that falls within the scope of “reasonable hours.”

Decorations, Alterations, or Improvements

Can landlords do random inspections to address the aesthetic? As a landlord, you have the right to make aesthetic changes as you see fit. This is different from maintenance or repairs. That’s because it’s not something that you need to do to maintain the unit’s habitability.

For example, you might want to repaint the front porch or install new light fixtures. In these cases, stick to the “reasonable hours” rule. Make sure to give your tenant proper notice.

Showings

You have the right to show the unit to prospective tenants. Again, be sure to notify your tenants in advance. This gives them the opportunity to ensure that they’re out of the apartment during showings or give the unit a good once-over, if necessary.

Keep in mind, with millions of Americans working from home due to COVID-19, it may be difficult to schedule a showing during the workday. If that’s the case, you’ll need to work with your tenants to schedule a time that works for them without disturbing their work. You could also “show” prospective tenants your available units via 3D apartment tours.

Lease Violations

Though you may have done your due diligence, there’s always the chance that you may have a tenant that is egregiously committing lease violations. Whether you suspect there’s an illegal subletter on the premises or that your tenant has willfully ignored your no-pet policy, you have a right to check it out.

As it goes for all instances in which you may want to enter the unit, give notice. If you find that your tenant is committing lease violations, you may need to serve a notice to quit.

Move-in/Move-Out

It’s essential for landlords to conduct move-out inspections to assess the damage, if any, that the last tenant is responsible for. Your findings will dictate how much of a tenant’s security deposit you’ll refund back to them.

Upon move-in, inspections enable landlords to confirm the condition of their unit. Then, they can make any necessary repairs before their new tenant officially moves in.

Extenuating Circumstances

While the previous reasons to perform an apartment inspection were very clear, there are also extenuating circumstances in which an inspection can be legally performed. These include:

Court Orders: If you’ve obtained a legal order granting you permission to inspect one of your units, then you can legally perform the inspection. Typically, the order may stipulate a specific date and time that you can perform the inspection.

Tenant Abandonment: Keep in mind that the requirements to be considered “abandonment of a property” are different state by state. If a unit has been abandoned, you’ll need to remove any remaining possessions. Be sure to document the abandonment.

Tenant Violation of Health/Safety Codes: Not only does this put the tenant and others at risk, but it can also lead to significant damage to your property in the form of a pest infestation.

In Case of an Emergency: For example, a fire, gas leak, water leak, burst pipes, or an extreme weather event that may threaten the safety of your tenant gives you license to make necessary repairs as quickly as possible.

Do’s of Landlord Inspections:

Give Proper Notice of Any and All Inspections (24-48 hours)

Also keep in mind that, even after giving notice, you can only enter a tenant’s unit during “reasonable hours.” Typically, though this varies by state, a time between 9 a.m. and 5 p.m. is considered to be within the scope of “reasonable hours.”

It’s even better to give even earlier notice than the recommended time frame. That’s the case especially in cases of routine inspections that you’ve scheduled in advance.

There are real legal consequences for failing to give notice. Those include arrest, fines, and legal action being taken against you.

Avoid this by giving written notice, leaving a note on the door or in the mailbox, or sending notice via email. Those methods are sufficient and serve as proof that you adhered to the law.

Schedule Property Inspections a Few Times Throughout the Lease Term

There’s no magic number for this. It’ll depend on the length of the lease (we recommend no more than quarterly for a year lease).

What’s the rationale behind scheduled, incremental inspections throughout the duration of a lease? Well, it ensures that maintenance and safety standards are up to date without being excessive.

Remember: Purpose, Professionalism, and Tenant Privacy

If you must enter a tenant’s home to perform an inspection, consider purpose, professionalism, and tenant privacy. State your purpose upon your arrival, give proper notice as a professional courtesy, and respect your tenant’s privacy by ensuring that you don’t overstep.

Document All Routine Inspections in the Lease Agreement

If you have a policy that allows for inspections over a set interval of time, then you need to document that in the lease agreement.

It’s imperative to discuss these provisions when you’re face-to-face with the tenant at signing. This way, everyone knows what to expect ahead of time. It’s much better than having tenants, who haven’t read through the lease, be caught off guard by your routine inspections.

Be Smart and Reasonable

Just because the law is on your side, doesn’t mean you should completely disregard the importance of a good tenant-landlord relationship. If you’re continuously notifying your tenant that you’ll be stopping by, it’s likely to frustrate your tenant over time. If you’d like to increase your rate of renewed leases, limit your inspections.

Don’ts of Landlord Inspections

Breach a Tenant’s Right to Quiet Enjoyment

The right to quiet enjoyment is legally protected. For tenants, this means that they can peacefully enjoy their homes, bar entry from landlords, and that the landlord is responsible for the maintenance and upkeep of the property. Entering the apartment without permission or not giving notice would breach this right.

Show Up Unexpectedly

Outside of an emergency or extenuating circumstance, you need to give tenants proper notice. If your state has a statute that describes a specific notice period that you must give to tenants before entering their homes, then you must always adhere to it.

Remember that a tenant may refuse entry to a landlord that has not given appropriate notification. Additionally, avoid requesting inspections outside of reasonable hours: typically, 9-5.

Ignore State and Local Law

Laws regarding apartment inspections vary in different states, so it’s imperative to be up-to-date with your knowledge of current inspection law. For example, Alabama requires a two-day notice. Connecticut requires reasonable notice. New York has no statue on a state level.

Give a Vague Notice

When you are letting your tenant know you’ll be coming by, stipulate a date and time. Don’t leave the “when” up in the air. Be sure to state your purpose for entering.

Are you coming by for a showing? Are you repairing something? Or is it a regular inspection? Fill your tenant in on the details for your upcoming visit.

Final Thoughts

As a landlord, you’re ultimately responsible for the upkeep and condition of your property, even when you’re renting it out. Though you’ve gone through the process of thoroughly screening all tenants, there’s always a chance that your tenants may not keep their apartment in top-notch condition. That’s where landlord inspections come in.

Whether your tenants don’t report a leak which ends up causing extensive damage or you simply want to perform a routine check-in, you have a legal right to inspect your property.

However, you must comply with the law when you do. Typically, this means giving proper notice and not entering a unit without permission from your current tenants, except in emergency circumstances.

Can landlords do random inspections? The answer is yes if you follow the above advice and adhere to local laws, your lease, and best practices.

Landlords Steps To Prevent Tenant Lawsuits

Rental property ownership can be a rewarding path to financial freedom. However, whether the property is a vacation rental property that has tenants only renting for short periods of time, or an apartment building with year-round lessees, managing an investment property can also be intimidating,

Without prudent safeguards in place to shield against lawsuits from tenants, the landlord can be held personally liable for lawsuits stemming from the property ownership.

Landlords can protect their investment property from tenant lawsuits if they set up their business under the protection of a Limited Liability Corporation or LLC. This will protect any personal assets against a lawsuit from a tenant against the property.

A carefully drafted rental agreement, or lease, dictating precisely how the tenant is expected to treat the property is a necessity. Adding a clause that would make it necessary for arbitration instead of court is advisable.

Another layer of protection is an insurance policy for the property that includes liability coverage. That way, it is quite possible that the insurance company will show up in court to defend the lawsuit, should one occur.

To avoid premise liability lawsuits, landlords should also comply with all local fire and building codes. Routine inspections with local inspectors of all systems (think: fire alarms, CO2 alarms, hot water heaters, etc.) are advised to have on record annually. Being aware of any hazards such as trip hazards, lead paint, or chemical leaks, and not warning the tenants or removing the hazard can also lead to a lawsuit.

Discrimination is another area that can lead to lawsuits. Be familiar with the Fair Housing Act, or FHA, which not only states that landlords cannot refuse to rent based on race, religion, nationality or gender but also based on disability status.

Multifamily properties must also be accessible to all disabilities, per the FHA. Any requests made for disability modifications (within reason) must be granted.

Security deposits can be a major dispute between tenant and landlord. When a tenant leaves their rental property, they are expecting a quick return of their security deposit. Disputes over the cost of damages or repairs could lead to the tenant suing a landlord.

Doing a pre and post rental walk-through with the tenant and providing an itemized list of the damages and necessary repairs can minimize the risk of litigation.

Another important strategy to avoid tenant lawsuits is compliance with state laws and what they say about security deposits.

Investing in rental property can bring a lifetime of reliable income. Capable property management is important to protect that income from tenant lawsuits. If overwhelmed, to help with the day to day management, there is the availability of property management companies to assist.

With the right systems in place, the proper compliance techniques, and the best business practices, a landlord should be able to operate a successful and litigation-free property for many years.

Commercial Lease Agreements

Commercial Lease Agreements

You’ve purchased a rental property, and now you’re figuring out how to get started as a landlord. Failing to specify all of your requirements and expectations in the lease is one of the more common landlord mistakes.

Commercial real estate investors know the best way to safeguard their investment from potential tenant trouble is to craft a solid rental lease agreement that includes these key things:

1. The basic clauses. Every rental lease agreement must list the parties to the agreement, which would be you and the tenant, along with the property’s address.

2. Security deposit clause. Your lease should require the tenant to put up a security deposit that matches one month’s rent or more, depending on the value of furnishings and repair costs if something goes wrong.

3. Maintaining the premises. The lease should specify that tenants are required to maintain the premises, abide by noise control rules and not change the locks without your written approval.

4. Warning of concealed defect. In some jurisdictions, you have a legal duty to warn of a concealed defect known to you, or a defect that it is reasonable for you to know about.

5. Subleasing clause. At some point, most landlords have a tenant who wants to sublet the apartment to a friend or stranger. To avoid trouble, make sure your lease agreement includes a subletting clause that requires the tenant to obtain your written permission before turning the rental over to someone else.

6. Termination. The best practice is to know your jurisdiction’s rules on terminating a lease and include those details in your rental lease agreement so your tenant will not be surprised.

7. After the tenant leaves. Would you ever hold a tenant’s personal property for unpaid rent? In some states it’s against the law for a landlord to confiscate a tenant’s property and demand rent money in return.

Include these important clauses in your rental lease agreement and you will be well on your way toward building a successful real estate investment business.

With a core focus on flexibility, Winston Rowe & Associates really wants to be able to find a way to help everyone who comes to them find a funding solution that meets their needs.

They can be contacted at 248-246-2243 or visit them online at http://www.winstonrowe.com