Some Perspective on Rental Property Cash Flow Disruption

Bedroom fire and flood
Bedroom below attic while lightening caused home to catch on fire

About a year ago, Sept 2014, during a violent Austin thunder storm, a rental property I personally own in SW Austin was struck by lightening and caught fire in the attic.

As the thunderous flash of light, noise and immediate smoke jolted the tenant out of bed at 2:30AM, he quickly realized that he was standing in water. The home was flooding, and also on fire, simultaneously.

Wow! Wake up!! His elderly mother was visiting and he was able to get her and his son out quickly as the house filled with smoke. Then he called 911. Then me.

I showed up around 3:15AM, sloshed through about 18 inches of water at my driveway, as about 6 firetrucks were on the scene. It was an apocalyptic scene, like out of a movie. But everyone was ok, and the fire was contained to mostly the attic and three bedrooms. But the home was rendered uninhabitable.

Of course the tenant had to move out, insurance got involved, and a year later I’m just now getting ready to re-rent the home. Insurance only paid 4 months of lost rent, and denied my appeal for more, not accepting my explanations of why the job took longer. So, as it stands, I’m out of pocket 8 months rent ($12K) and about $8K more after insurance deductibles and other snafus that I won’t go into. Plus whatever continued vacancy loss I incur until I place a new tenant.

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Leasing a Home in Austin TX – Then and Now

When Sylvia and I started leasing and managing rentals in Austin in the early 1990s, the business operation was phone-based. I had a phone, answering machine, and spiral pad on a desk in our kitchen nook. All business happened there. I also had a Windows PC, a 386 with a dot matrix printer which ran the DOS version of my property management software. If you don’t know what 386, DOS or “dot matrix printer” means, you’re probably less than 40 years old. Oh, it probably had a 2400 baud modem as well, and a 50 meg hard drive. It wasn’t until 1996 that I put up my first website and started using email for business.

All rental inquiries thus originated with a phone call to that one phone. It was a “single channel” communication system. Those callers either saw a yard sign or a 3-line ad in the Rentals section of the Sunday newspaper, and called to inquire. That was the extent of the entire communication system with regard to advertising a rental listing and taking inquiries. We did also have the Austin MLS, so Realtors could show our homes for lease, same as today, but if they called, it came through that same 1-phone system.

Today leasing inquiries come through multiple channels. So much so, it’s difficult to control, and impossible to manage manually.

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Tenants: Who is Your Austin Property Owner?

average-rental-home-ownerI recently had a tenant utter the phrase “greedy landlords”. Ironically, it was out of frustration for what was in fact a tiny rent increase of less than 3%, raising the rent to a rate still about $75 less than market value. It was one of those “no good deed goes unpunished” moments that property managers frequently experience. More about my philosophy of rent increases can be read in a previous blog post on that subject.

But for this article, I want to talk about just who in fact your landlord is if you’re an Austin Tenant living in a single family home. I don’t mean the identity of your property owner, but more generally, what caused the owner to own a home that needed to be rented.

Owners fall into the following general categories.

Pure Investor – These are pure investors who purchased the property from the outset as an income producing asset. Many have maxed out retirement plans, or simply lost faith in the stock market and need a way to invest. Investing in real estate is very risky, fraught with uncertainty and surprise expenses. But for those with the right attitude toward proper care of the property, holding longterm, and treating tenants fairly, it can be one of the best ways to build wealth. They also need to have the financial and emotional strength to weather the ups and downs of owning rental property. All of our “investor” owners fall into this category, else we don’t take them as clients. But most of our clients are in fact not “pure investors”. Most fall into one of the categories below.

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Austin Lease Extensions Depend on Timing and Season

austin lease renewalAs we head into the Spring/Summer leasing season in Austin, and I just mailed my first batch of renewal letters, I’m already fielding inquiries from tenants who have lease-end dates that don’t coincide with their future plans.  The inevitable question is “can we have a move-out date of x instead of y?

For one tenant, planning to get married, extending the lease from a March 31 end date to a May 31 end date (two months) is not a problem. The home is owned by a long-term investor, and the new May lease end date benefits both the owner and the tenant. This is a win/win. It places the home dead center of the summer leasing season cycle.

In these win/win scenarios, I have flexibility because the adjustment benefits my client, the owner. I work for the owner and must only make decisions that are in the owner/client’s best interest. Thus, if that same tenant, in that same house, asked for the same 2 month extension for a lease that ended July 31st instead of March 31st, the answer would be “no”. Timing is everything.

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How to Find and Lease a Rent House in Austin TX

Austin Rental MarketAs the listing agent for a lot of rental homes in Austin (for over 20 years), I’ve been dealing lately with a lot of really angry, frustrated renters and agents.

The reason for the upset is primarily the renter losing a home to other (multiple) applicants who applied quicker and/or had their act more together. Then thinking it was unfair that they lost out.

I’ve dealt with some applicants who have lost out on 3 or 4 homes in a row and who have to be out of their current house in 1 week, and have nowhere to go. Understandably, in this tight rental market, that sucks. Big time.

But that’s the “landlord’s” rental market we have in Austin at present, so you better become more prepared and more competitive if you want to avoid this angst. This is no market for slug footed, unprepared renters who don’t take the rental home search process seriously. You have to bring your “A Game”, or you may experience great frustration.

This article is written to help those searching for a home to rent in Austin TX to avoid that unfortunate circumstance where you lose out on a home to those better prepared. It’s a step by step guide to help you become the most awesome rental applicant out there. So read this and you’ll be a step ahead of others. You will become the winner, not the loser, in this competitive Austin rental market, and hopefully find the house you want.

Determine Your Specific Move Date Window
This sounds like a no brainer, but it’s hard to believe how many renter prospects I talk to who can’t answer the simple questions “when do you need to move”. You need to know, with certainty, the soonest and latest dates you can start a new lease. The larger window of time you can create for yourself, the better.

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Austin Lease Renewals 2012 – Rents Are Increasing

I just mailed a batch of renewal letters for leases expiring April 30, 2012. All of them include rent increases, but most tenants will still be below market rent value even with the increase. More on that in a minute. Furthermore, many tenants will be paying a rent amount lower than the rental rate the house would have rented for 11 years ago. No, I’m not kidding. Austin rents peaked in 2001 and we’re just now starting to get above 2001 rates on some properties.

My Approach to Lease Renewals
I’ve been renewing leases in Austin for 22 years. I’ve mailed thousands of renewal letters. During that time, in dealing with tenants who are trying to decide whether to stay or go, I’ve noticed something interesting about basic human behavior related to lease renewals.

First, an increase above $50/mo. seems to trigger in many tenants in Austin a negative emotional reaction, causing the tenant to feel slighted, even if they logically understand the reason for the increase and the data supporting it. This results in some interesting phone conversations where a tenant confesses to knowing that the increase is fair, but it still makes so them so mad they might move.

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