Getting the Most $$$ (and Happiness) From Your Investment Property

Getting the Most from Your PropertyCurrently, we real estate investors are up against increasingly rigid lending criteria. This affects the investor’s ability to build a portfolio that consistently produces enough income to maintain an overall debt coverage ratio (DCR) of 1.1 or 1.2 in order to satisfy most lenders to allow you to buy more property.If you own even one property in addition to your principal residence, congratulations, you are one of a very small group of people who have taken a giant step in building wealth for today and the future. The challenge is making that property or real estate portfolio produce a consistent positive cash flow.There are a number of tips you can employ to squeeze the most cash out of your properties in order to keep your properties making money and keep your DCR high enough to qualify for more property. Most of these tips come down to managing your tenants and keeping a close eye on your costs.What’s that saying? Happy wife tenants, happy life?At the risk of sounding “preachy”, all properties require regular maintenance and by keeping on top of your repairs, you are ultimately doing yourself and your property a favour. Think of regular maintenance as necessary as regular oil changes on your car. If you miss too many oil changes, you probably wouldn’t be driving long. Property maintenance is similar. The number one reason tenants vacate is due to neglected repairs, even at a tenant’s most compelling request. Clearly, most tenants will rarely treat your property with the same respect you would, but to ensure lengthy tenancy as well as a healthy building, you need to intentionally stay on top of repairs. When you are proactive in regular maintenance, you keep your repair costs lower and often avert much larger, more expensive repairs in the future.When you have tenants who are content, you often will have smaller repair bills. The following ideas will go a long way to enable healthy properties and happy tenants.1. When any unit becomes vacant, do all necessary repairs. Repainting all rooms, cleaning thoroughly, removing the carpeting and replacing it with laminate, replacing inefficient appliances and replacing old fixtures and leaky taps are just a few very inexpensive ideas which can justify higher rents and add value to your property.2. Prior to your tenants moving in, have a checklist which essentially outlines the condition of every wall, ceiling, floor, window, door, sink and appliance. As you move from room to room, you and your new tenant put a checkmark of poor, average, good, working or whatever makes sense and perhaps make a comment and take a picture. Once the inspection is over, both of you sign the sheet. This promotes a great starting point in knowing the condition of the unit as well as establishing a professional relationship between the tenant and you.Something like this:Working? yes noStoveOvenRefrigeratorOr:Condition Good Average PoorCommentKitchen:FloorCounterSinkTapsWallsCeilingWindowsDoorsLiving room:FlooringWallsCeilingWindowsDoorsAnd so on.3. Next, I give the tenant a “repair request sheet.” This makes the tenant responsible to write down the repair details and gives you a paper trail in case of a dispute. Here’s an example:Name: Date:Address: Unit #:Repair description:Date you noticed the issue:Signed:To take your professional relationship to the next level and ensure there are no lingering issues which could lead to much more significant repair bills, put in writing that if you don’t do the repairs within one week of the repair request being submitted, you will refund that tenant the pro-rated daily amount of their rent up until the time that the repair is completed. This shows the tenant respect and creates incentive on your part to get the job done. This also contributes to maintaining a high overall condition of your property, ensuring a high appraisal value and justifying a higher rent.4. I will also reward a tenant who is pro-active in taking the initiative to do their own repairs. Obviously discussion must happen prior to any repair and a written agreement made, allowing the tenant to engage in the repair based on the tenant’s experience and proficiency in such tasks. I will reimburse the tenant for any materials as well as give the tenant a gift or gift card for their effort.5. Keeping your tenants long term and averting vacancy ultimately puts more money in your pocket. It is important to do simple little things which encourage your tenant to remain faithful to you for years. Remembering tenants (or their kids) birthdays, anniversaries and key holidays with a bottle of wine (not for the kids!) or a gift card can pay dividends in long term loyalty.Paying less for repairsWhen you do have to pay for a repair, there are a number of things to consider before calling the local contractor. Assuming the repair is more involved than a leaky faucet or running toilet, you must evaluate whether the job is big enough to require a contractor or will a handyman be fine. A handyman is usually the more inexpensive choice as you can pay hourly rather than an estimated “blanket” price for a much larger job.It is wise to accumulate a list of handymen in your area (or near the property) to call in a pinch. The most effective way to begin getting numbers is by getting referral from other investors. You can also pick up numbers from many local papers, Kijiji or Craigslist as well.Your interview with a handyman should determine the person’s experience in the field, their scope of expertise, their availability and their supplied list of happy customers you can call as references. I recommend going through this process and categorizing your list into expertise and hourly rate. You often can pay handymen $15-$30 per hour to do smaller repairs and can often pay once the job is completed and inspected by you.Contractors are normally used for larger jobs such as roofing, replacing windows, foundation work or constructing additional units. Contractors typically charge by the project and will expect an upfront deposit followed by regular “draws” as the project moves forward. I have written extensively on the subject of dealing with contractors in past articles, but suffice to say, it is important when hiring a contractor to stay in control.You must make every effort to keep your renovation on time and budget, not to mention keeping the contractor accountable. When pricing any job get at least 3 quotes which outline the projected time each job should take and get a separate price for the materials. Ask for a copy of each invoice for the materials and don’t accept any more than a 10% mark up on any material invoices. You want to avoid the “blanket” cost for the entire project as this makes it impossible to know where your money is being spent.You can create a bonus structure which gives the contractor extra cash if they finish the jobs under time and budget, meaning, if they do the job adequately under the agreed timeline, they keep the cash they otherwise would have made if they put in the agreed upon hours. Conversely, if they spend more time doing the job than agreed upon, the contractor “eats” the extra amount. Make sure to inspect each job to ensure it has been done to your satisfaction and get everything in writing!If you are new at the renovation or repair “game”, it is wise to find an impartial contractor (who you don’t intend to hire for your job) to quote out your job in time and materials. Be prepared to pay up to $100/ hour for this service; however it shouldn’t take more than an hour. This way, when you get other contractors or handymen to quote, you will have a better idea of who is in the ballpark and who is not. This allows you to hire more effectively and will let you know who you want to keep on your “shortlist” for next time.Saving on Property ManagementProperty management can be great or be the cause of major cost over runs. A good property manager will keep your units occupied and work with efficient handymen who will do your repairs. In a best case scenario, the repair costs will be paid by the property manager and the invoice will be broken down into materials and the hourly rate paid to the handyman. The property manager should also call you if there is a repair needed which is estimated to be above a certain amount, say $250.00. You discuss the repair necessary; the property manager gets 3 quotes and then proceeds accordingly as per your discussion. Again, this is how your property manager should work with you.In many cases, when it comes to repairs, it is common for many property managers to “pad” the repair costs by inflating the hourly wage of the person they get to do the repairs and then pass the invoice on to you. Unless you are hiring the handyman directly, it is very hard to control this typical scenario… especially if you are an out of town owner.It may be more economical for you to hire a caretaker for your property instead of a property manager, especially if you own more than one unit in a particular building. A caretaker can be paid an hourly wage and can have a series of duties which can be outlined accordingly. These duties can range from showing vacant units, dealing with tenant issues to maintaining the outside maintenance of the property such as lawn care and snow removal. The caretaker should have good enough handyman skills to tackle many of the small repairs as well as be in charge of overseeing the larger repairs and handling the contractor process.The agreement with your caretaker could be an hourly rate for specific jobs, as outlined above, as they come up or you can pay for a certain amount of hours each week and expect particular things to be accomplished which you can list. Either way, the caretaker can work out as an inexpensive alternative to property management.If the caretaker happens to be a tenant in one of your units, you must not lower rent for their service, but pay them by cheque for the tasks agreed. It is perhaps better your caretaker not be a resident as they will remain more impartial to the requests of the tenants and treat your building as a job site as opposed to the place where they live… the mindset is different.It is important to take an active role in your property when it comes to repairs. You may find people who may not want to work under the guidelines you are proposing and that’s OK. There are many, however who will be more than happy to work under your proposed offering and will do a great job for you and save you lots of money at the same time.

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