Blog

Before you invest your money in a rental house, there are some things you should think about. First, make sure the property can be rented. Some neighborhood associations restrict the number of rentals allowed. You should review the covenants for any rules that might affect your investment.

Financing a Rental Property

Financing for investment property is different from a mortgage that’s given to a homeowner who is an owner occupant. Find a mortgage professional who can help you understand down payment requirements and interest rates. Insurance policies are also different for rental properties. You need to learn which companies will insure rental houses.

Choosing Reliable Contractors

Liability is always a concern for landlords, so hire licensed and insured contractors when maintenance is required at your property. Do-it-yourself repairs are never a good option, and you cannot require the tenant to make repairs either.

Tenant Screening and Leasing

You have to know how to screen a tenant. It’s better to wait on a qualified tenant than to approve a bad tenant and allow that person to move into your house. It’s tempting to approve any tenant who wants to move in tomorrow, but that’s usually a red flag and you want to avoid it.

 

Have everything in writing during the move-in process so everyone remembers what was said. Do a move-in condition inspection with lots of documentation, and note the condition of the house and any existing damages. Take pictures. At the time of move out, do another inspection to assess damages that were caused by the tenant. You have to follow certain procedures if you’re withholding money from the security deposit.

Lease Terms and Fair Housing

While the tenant is living in the house, that tenant has possession of it. Your lease should allow the property owner to gain access and inspect the property when necessary. It also should allow that marketing can begin toward the end of the lease.

 

Fair housing applies to rentals also. Landlords cannot discriminate based on race, religion, color, sex, national origin, handicap or familial status. You also can’t refuse to rent to a tenant who has a service animal or a therapy animal, even if you don’t want to have pets in your home.

 

The Georgia Association of Realtors has published a new document: What Landlords Need to Know About Renting Houses. It outlines all of this and more. If you’d like to read it, we have a link on our website http://www.tricityrealty.com. You can also contact us at Tri-City Realty Services to talk about our investment opportunities.

We’re sharing some of the best reasons to hire a professional property manager, and explaining why it can actually help with your profit margins.

Strong Leases and Low Turnover 

First, we write the lease to benefit our clients - the landlords. Our goal is to keep the property occupied and ensure that consistent rent is coming in. We advertise the date the house will be available, and the rental has to begin within 10 days of that date. Sometimes, tenants will expect landlords to delay the start of the lease to suit their moving schedule. That can cost money. If the rent is $1,200 a month, that’s $40 a day.

Security Deposits and Avoiding Tenant Damage 

The security deposit is typically equal to a month’s rent. Georgia law requires we do a move-in inspection to document the condition of the property when the tenants get the keys. If that’s not done properly, no part of the security deposit can be held for damages. We hold that deposit until the move-out inspection has been completed at the end of the lease. Our lease provides we can assess the tenant for damages, less normal wear and tear. Also, our lease allows us to keep 25 percent of the security deposit for the landlord’s turnover expenses, regardless of the damages.

Collecting Rent on Time

During the term of the lease, if the rent is late, we’ll send a demand for payment and file for an eviction if necessary. We can do that in small claims court because the lease is between Tri-City Realty and the tenant. We will go to court and get the payment in most cases. If we don’t get payment, we get a judgment for collection and possession. If you don’t have a property manager, you may have to get an attorney and pay legal fees for an eviction.

Maintenance and Vendor Relationships 

Another part of our service is to coordinate routine maintenance for the landlord. Since we manage so many houses, vendors respond to us right away and invoice us directly. We pay them right out of the rent proceeds. We also handle turnover work between tenants. This might include changing locks, refreshing the paint, installing new flooring, and whatever needs to be done. They understand a quick turnaround is needed so we can get a new tenant in place.

Protecting You from Pet Damage 

We understand that nearly everyone has a pet, so we accept adult dogs and cats. There is additional rent of $30 per pet in most cases. Any damage caused by pets is paid by the security deposit. Your property manager should have the experience to answer every situation from qualifying tenants to maintaining and enforcing the terms of the lease.

 

If you have any questions about how investing in professional property management can actually save you money, please contact us at Tri-City Realty Services.

This video and blog will review the maintenance and repair responsibilities for the tenant who rents one of our homes. This information is all spelled out in your lease agreement, and this is an overview.

The Move-In Inspection

The move-in inspection is conducted before you move in. It’s done to document the condition of the house and the grounds, and to note any existing damage or conditions that you don’t want to be held liable for when you move out. When you sign the move-in report, you are accepting the property in its current condition.

Tenant Maintenance Responsibilities

The tenant is responsible for taking care of the property inside and outside. You agree to change the filters in the furnace every three months. Pilot lights are your responsibility, and it’s also your responsibility to change the batteries in the smoke detectors. However, you must contact us immediately if you notice there’s a detector that doesn’t work.

 

Minor maintenance like batteries in the garage door remote or a stopped up garbage disposal or resetting the GFI switches are your responsibility. If the air conditioner or furnace isn’t working, notify us in writing through your tenant portal. If you notice a leak that is causing damage, you should report that as soon as possible as well. We will take care of the repairs on any built-in appliance like the stove or dishwasher. If a refrigerator, washer or dryer has been left in the property, it’s for your convenience but we don’t maintain them.

Landscaping Responsibilities

You’ll need to keep the exterior looking nice. Mow and edge the lawn and keep the flower beds looking neat. Some neighborhood associations will contact us if the yard needs attention and then we’ll have to take care of the lawn, and there will be charges to you. In some cases, you’ll also receive a fine from the association. Don’t let that happen to you. Any neighborhood rules and regulations are attached to your lease. Please read them and abide by them.

Insects and Pests

We are in Georgia, so we have ants, bees, and spiders. You’re responsible for any necessary treatment to take care of these pests, and the landlord is responsible for termite treatment. Let us know if you see any wood destroying insects.

 

Thank you for leasing with us and taking care of your home. If you have any questions, please don’t hesitate to contact us at Tri-City Realty Services.

When you hire a property manager, you’re entering into a long term relationship, so it’s important that you find one who is a right fit. Do a good search so you can compare companies and choose the one that will work best for you.

 

Where to Find Property Management Companies

 

Get referrals from other property owners, your neighbors, and your friends. Ask professionals who you trust like your banker, accountant, or insurance agent. Research and review the websites of several real estate companies. Then, you can check out the listings and homes they have for lease. Additional online research will tell you more about the company.

 

Comparing Costs and Services

 

Every property management company has different fees for their services, so compare costs. Remember that the company with the lowest fees isn’t necessarily the most experienced. Find out what’s included in the leasing and management fees.

 

Consider Experience and Knowledge

 

Know how long the company has been in business and if their main business is leasing and property management. Some real estate companies are primarily focused on selling homes, and their property management divisions include just a few agents who occasionally manage a property. You may find it’s important to hire a full service property management company.

 

Measure Customer Service Potential

 

Call a few companies and ask to speak to someone about leasing and property management. If you have to leave a message, note how long it takes to get a call back. You can also call about a house that’s available for rent, and you can find out how responsive they are to prospective tenants.

 

We are active in the Board of Realtors and the National Association of Residential Property Managers. That’s one way we stay on top of changes and current events. Because we are active and experienced, many real estate professionals refer people to us. I have worked in real estate investing for more than 30 years, and we lease and manage 140 single family homes in and around Peachtree City. If you have a home to manage in Fayette or Coweta County, please contact us at Tri-City Realty Services.

Chasing down late rent is not a good use of your time and resources, so it’s important to have a plan in place when your tenants fall behind or stop paying rent.

Tenant Screening

At Tri-City Realty Services, we have a standard procedure for approving our tenants. Experience has shown that it doesn’t pay to make exceptions to those procedures. Placing a tenant in a house who doesn’t meet our guidelines will often prove that it would have been better to wait a few more days and find a qualified tenant. Qualifying the tenant in the beginning saves you a lot of headaches.

Enforcing the Lease

Sometimes, a tenant doesn’t pay rent even after being qualified and approved. Things can always go wrong in peoples’ lives, whether it’s a divorce, a job loss or an illness. We still have to enforce the lease, regardless of the situation. If a tenant doesn’t pay rent, a delinquent letter goes out on the 5th day of the month. On the 10th day of the month we send a letter of demand, and on the 15th day of the month, we file a Dispossessory Action in the magistrate court. The lease is between the tenant and Tri-City Realty Services, so I can file the claim and go to court if necessary. This doesn’t happen very often. Most times, the tenant will pay the rent before the court date and we dismiss the action. The lawsuit gets their attention and they find a way to pay the rent.

Court Process

If we do go to court, the tenant can agree to a payment plan that gets them caught up in a short period of time. The judge signs a consent agreement that outlines expectations. If tenant does not meet those expectations and fails to make their payments, we get a Writ of Possession and the tenant has to move. Most of the time, they make their payments. They get to stay in house and we avoid a vacancy.

Evictions are not my favorite part of property management, but if tenants don’t pay then they don’t get to stay. If you have any questions about property management, please contact us at Tri-City Realty Services.

 

Tax deductions are one of the greatest benefits to investing in single family homes. The property taxes, maintenance and insurance as well as other fees are all deductible. The other big deduction is called cost recovery, which is also known as depreciation.

Calculating Depreciation

The value of the house minus the value of the land is depreciable. The IRS uses a calculation that equates to allowing 27-1/2 years to write off residential real estate. So a typical rental house can deduct $4,000 or $5,000 from taxable income every year on depreciation. The taxable income on a rental house goes way down, so the passive income from your real estate has a lower effective tax rate.

Tax Rates When You Sell

What many investors don’t expect is that when the property is sold, the depreciation that has been deducted for several years can be recaptured and then you have to pay taxes at a 25 percent rate. That is if you’ve held a property for 10 years and deducted $4,000 in depreciation every year, you have a $40,000 taxable event. At a 25 percent tax rate, you’ll be liable for $10,000 in taxes on the recovery of that tax depreciation. In addition to that, the capital gains rate is generally 15 to 20 percent of the gain on your basis or the increase in value.

1031 Exchange Option

The IRS does provide a provision in Section 1031 of the tax code that allows you to exchange the property and defer the taxes. All you have to do is exchange the home for another like/kind property, which is real estate. It can be a single family home, duplex or any real estate providing income. It can’t be for your personal residence or a second home. You need to identify the property you want and use the proceeds from the home you’re selling to buy it. You also need to hire a qualified intermediary to handle the money and oversee the transaction. That won’t be very expensive, and we have handled several of these through the years, so we know who to recommend to handle the exchange for you.

I’m not a tax professional and I always advise investors to talk to their tax expert to discuss liabilities. Talk about these questions when you’re thinking about buying or selling real estate. When you’re ready, please contact us at Tri-City Realty Services.

When you want to invest in Peachtree City real estate, I recommend you buy houses because they are more liquid and less risky. I have been buying, selling and managing investment properties for more than 30 years and I can tell you that if you own a nice home in a good area, it will almost certainly stay rented. You can also spread your risk when you own three or four houses. That way if one of those properties goes vacant, you still have rent coming in from the other three. On the other hand, owning one office building means that you’ll have 100 percent vacancy when your tenant leaves.

Sales and Rental Market

There’s a market for single family homes if you need to sell. You won’t have to sell to another investor, because with a residential property, there will be a pool of owner occupants looking to buy as well. You can sell one house at a time whenever you’re ready.

Location

The old real estate adage is that there are three important things when it comes to property: location, location, location. This is still true and it also applies to rental properties. You want to buy in an area of growth, with jobs and retail activity and good schools. Tenants want to be in a location with access to jobs and shopping. Fayette and Coweta County schools are the top in the state. We’re also known for having a number of gorgeous golf courses in the area and plenty of shopping. Major retailers and restaurants are here, and these businesses provide lots of jobs. In addition, we have three major hospitals and several industrial parks.

Proximity to Atlanta

The new Pinewood Movie Studio in Fayetteville has also brought a lot of people who want to live and work in this area. We are located 30 minutes south of Hartsfield International Airport and about 45 minutes south of Atlanta. It’s a great area to work, live and own real estate.

If you are ready to invest in and around Peachtree City, contact me today at Tri-City Realty Services.

Through leverage, you can control a larger investment. So for a $200,000 house, you only need to spend 25 or 30 percent as a down payment. That means you can control a $200,000 for $50,000 or $60,000, and your investment will grow at the $200,000 value. The balance can be financed at under 5 percent with a mortgage. The payment for a $150,000 mortgage with principal and interest is about $800. There are other expenses that go along with this investment, such as insurance and property taxes, as well as potential HOA fees, maintenance and professional management fees. Added together, you can still realize a return of 6 to 8 percent on the investment.

Some investment clients use their 401K money to do a self directed IRA. When you do this, your manager can take care of your rents and properties and pay for any maintenance or improvements out of your rental income. The 6 to 8 percent is a much better return than an average money market. The annual rate of return will be 6 to 8 percent regardless of financing.

Another benefit is the tax advantages you can use. These include depreciation or cost recovery deductions. You may also deduct the expenses we outlined against your real estate income. There are great tax benefits for the small investor who owns single family homes.

When you invest this way, your tenants pay your mortgage, taxes and insurance out of the rent. As the mortgage pays down, the value will rise. We live in an area of high housing demand. Rents are increasing, and as those rents increase, property values go up too.

Income from rental property can be valuable at retirement. The combination leads to equity growth. If you need any help planning an investment strategy and building wealth through real estate investments, please contact us at Tri-City Realty Services.

 

Achieving an excellent rate of return on your real estate investment is predicated on buying property in the right location for the right price. We get a lot of questions about the rate of return you should expect, and we have a specific calculation we use to look at what you’re gaining.

Measuring Income and Expenses

Begin with the gross income produced by the property on an annual basis, which is of course the 12 months of rent. That’s all the income a single family home will produce. Then deduct all the annual expenses, including the property taxes, insurance, homeowners association fees, management fees and variables like vacancies and maintenance. Estimate the vacancy and maintenance figures based on the property’s condition and the market. Sometimes, it can be between 10 and 15 percent of the income.

Example of Determining Return

So, consider you bought a property for $170,000, and the inspections and closing costs added some expenses, so you have a total investment of $172,000. This house will rent for about $1,400 a month, which is $16,800 a year. You can estimate the fixed expenses to be about $4,300. The maintenance and vacancy costs could be 10 percent in a good year. The net cash flow is the money you keep in your pocket, which is the gross income minus expenses. In this example, the net income is between $9,800 and $12,400. This is the number you compare to your total investment of $172,000 to come up with your rate of return. If your $172,000 was in another investment like a money market account, your interest rate would be your cash flow. So even using a 15 percent vacancy and maintenance factor, the rate of return can be calculated at 5-1/2 percent. About half of our tenants renew for another year and some stay three or four years. When your vacancy rate is lower, your rate of return is higher and this would be at about 7 percent.

Value Appreciation

The value of the house, $170,000, will continue to increase 4 to 5 percent a year. When you add growth and value to your annual cash flow, your long term return will be much higher than that.

Please contact us at Tri-City Realty Services with any questions you have on this topic. We look forward to helping you with your investment goals.

Expertise in Cash Flow Investments

Since I began working at Tri-City in 1976, I have marketed homes, office buildings, shopping centers and land. My specific market area has been the south side of Atlanta, from East Point to Peachtree City and Newnan. In the mid-1980s I began to focus on cash flow investment real estate. I took classes on cash flow analysis and learned about different rates of return and evaluation. With knowledge and research, I was able to begin working only with investors, and I continue to work with some of those investors still today.

Innovative Property Management Software

Now our company manages 139 single family homes in Peachtree City, Newnan, Coweta County and Fayette County. All of the homes we manage were built after 1980, and the average rent is $1,230 per month. We use Internet-based property management software that allows us to collect rent and pay owners online. This technology also allows owners and residents to look at their portal 24/7 for information on leases, their management agreement or rent status and maintenance requests. Our maintenance requests are made online and the system will notify us when something is wrong. We can then dispatch a vendor to take care of the issue. Everything is in writing, and we have clear direction and easy follow up.

Low Vacancy Rate

Our vacancy rate is under three percent, and in the last 12 months, our renewal rate on leases was 45 percent. We believe in keeping tenants happy and your turnover low. Another reason to work with us is that we keep up with what rents are doing in the area, so we know when we can raise that rent and earn you more income. Our renewal rates went up about three percent this past year, and with a new tenant in the property, that rent could go up nine or 10 percent.

Contact us at Tri-City Realty Services, and we’d be happy to share our knowledge and experience with you so your equity and real estate investments can grow.