February 2016 Owner Newsletter
Are You Considering Adding To Your Rental Portfolio!
The beginning of a year is often the time we reflect on our investments and make plans for adjustments.
If you are considering adding to your real estate investment portfolio the following list of rental features, as suggested by Erion Shehj might be of interest to you.
The Top 10 Rental Features That Attract Cream of the Crop Tentants
The quality of schools zoned to the property was the primary deciding factor for over 85% of great tenants we interviewed. Schools are extremely important to families and single parents with school-aged children, and those tenants use this factor as an acid test. To these prospective tenants, if schools aren’t good, it’s as if your rental property didn’t exist. Furthermore, school quality is the best predictor of neighborhood quality — something ALL great tenants seek (even those without children). Therefore, to ensure your success, only purchase properties zoned to high-performing, desirable schools.
RMA Comment: Reference rating sites such as Great Schools for ratings and reviews.
Safety is our most basic human need and a powerful motivator for excellent tenants. One of the main reasons why your prospective tenant decided to spend more to lease a home (as opposed to an apartment) is to provide a safe environment for themselves and their family. Therefore, research crime statistics and only purchase properties in safe neighborhoods.
RMA Comment: We are lucky in the Boise area to have low crime rates. Therefore this is not so much of an issue. However, another major reason tenants choose a house over an apartment is for space, privacy and a yard. Make sure your investment property offers these qualities if you want to compete with the abundant new builds in the multifamily category.
Move-In Ready Condition
The condition of the property — and more specifically the ability to move right in — is very important to excellent tenants. You can rent out a property that’s not quite move-in ready (requires paint, flooring, cleaning, etc.), but I assure you it won’t be to an excellent tenant. Your target tenant plans to take care of your property and has high standards of cleanliness and maintenance. If you provide a move-in ready home, you are communicating that you share those same standards.
RMA Comment: Not only do you communicate that you share those same standards, but more importantly you set the standard! Having your property in move-in ready condition is a vital necessity to starting off the landlord/tenant relationship on a good foot.
Proximity to Employment
Let’s face it, no one likes to commute! So proximity to employment centers is very important to great tenants. You can have a great, move-in ready home zoned to great schools, but it won’t matter if your tenant has to drive an hour to work each day. As you look at potential properties, think about where your target tenants are likely to work and how close the property is to that area.
RMA Comment: Check out the Boise Valley Economic Partnership for great information to guide you with regards to this. Their focus is in helping businesses move to the Boise Metro area.
Most inexperienced investors subscribe to the myth that their investment properties just need to be “good enough for a rental.” Therefore, they purchase starter homes with cheap finishes and rent them to mediocre tenants for mediocre results. Don’t do that; instead, purchase homes that have strategic upgrades that move the needle with excellent tenants: hardwood flooring, granite counters, stainless appliances, covered patios, etc.
RMA Comment: The Boise metro area is price conscious. So be cautious with the upgrades, you don’t want to price your property beyond acceptable market range.
At the very beginning, your tenant incurs a large expense when leasing your property. They have to pay a month’s rent for the security deposit plus the first month’s rent. If your property does not include a refrigerator and a washer/dryer, the tenant would then have to purchase those items, increasing their upfront cost. So remove the friction to make their decision easier by providing those appliances on the front end. Often your tenants won’t mind paying a little more for a property that includes all appliances.
RMA Comment: As a rule, in the Boise Metro area single family rentals almost always include a refrigerator – washers and dryers, not so much.
Neighborhood quality determines lifestyle quality. Think about the community you live in — didn’t the neighborhood amenities play a major part in your decision to live there? Wouldn’t your lifestyle be different in a neighborhood with running and bike trails, lakes, community pools, tennis courts, a gym, etc.? Quality tenants care about neighborhood quality. A community doesn’t have to have ALL those amenities, but the more the better.
RMA Comment: Proximity to public amenities is always a plus. When considering the purchase of an investment property in a sub division community that provides it’s own amenities, remember to factor in the cost of the HOA dues.
Access to Transport & Basics
Access to modes of transportation and basic necessities like grocery stores, restaurants and shopping is very important because it affects other important factors such as commute to work and lifestyle quality. When you’re looking at investment properties think about: How easy is it to get to the main highway/park and ride/public transportation? Are there basic services within easy reach?
RMA Comment: The Boise Metro area has little, and in many areas, no public transportation system. Ease of access to main commuting corridors and grocery stores is an important factor.
Here’s one thing investors and their tenants have in common: They both don’t like hassle. The main factor that determines how much hassle either will experience is the age of the property. If you purchase older properties, they will have older systems (plumbing, electrical, HVAC) that break often, inconveniencing both you and your tenant. Purchase newer properties instead. A good rule of thumb is no older than 15 years, less than 10 if you can.
RMA Comment: Fortunately you have us to take care of all maintenance logistics. You might also want to consider the purchase of a Home Warrantee if the age of the house would imply that appliances and systems are approaching their end life.
Rent and Price
Last but not least, your investment is ultimately a business decision for you as well as your prospective tenant. Your tenant will be concerned with the rent, and you will be concerned with the relationship between the rent and the price you pay for the property. Make sure the projected rent isn’t so high that it limits your tenant pool and so low that it lowers the quality.
RMA Comment: Investors have their own particular dynamics that dictate a desired ROI. Ask 3 different accountants and/or investment professionals and you will get three different opinions on what your ROI should be. However, only you and your financial adviser can know what is best for you.
If a property manager tells you they can predict a rent for your property, they are spinning a yarn. Only the market can determine fair rent for your investment property. And market conditions are affected by so many factors it can change from one day to the next. At RMA we use a system of establishing a rental range. We evaluate the current rental climate and select what we consider to be a high rent and a low rent. We begin by marketing at the high rental rate and adjust weekly until we find the market sweet spot.
Despite lower vacancy rates in both Ada and Canyon Counties the Boise Valley experienced a surprisingly large decrease in rental rates. Ada County experienced the larger reduction in vacancy rates of 19% last quarter with a valley wide reduction resulting in an average 2.9% vacancy rate.
The overall vacancy decrease of .7% from last quarter was predominated by single-family homes in Ada County at 1.3%. Canyon county single-family experienced a decrease of .4%. Rental rates in Ada County decreased on the average of $139 for single-family homes. There was an overall decrease of $126 in rental rates for multi-family homes in Ada County. On average, Ada County showed a $182 decrease in rental rates over last quarter. This large decrease is thought to be due to seasonal slowness in rental turnover. Rental rates in Canyon County showed an average decrease of $230, from last quarter. This large number is in part due to the jump in rental rates for Canyon County in the prior (3rd) quarter, specifically in the 5-bedroom single family category and again related to the slow time of year.
Forth Quarter Rental Rates
The following data was provided by NARPM and collected from a total of 23 property management companies, which accounted for a total of 6532 homes: 2536 single-family and 3996 multi-family.
Average Rent ADA COUNTY $935
|Multi Family $690||Single Family $1,137|
|1 Bedroom $466||2 Bedroom $600|
|2 Bedroom $743||3 Bedroom $1,096|
|3 Bedroom $817||4 Bedroom $1,195|
|5 Bedroom $1,554|
Average Rent CANYON COUNTY $697
|Multi Family $560||Single Family $769|
|1 Bedroom $ -||2 Bedroom $325|
|2 Bedroom $600||3 Bedroom $781|
|3 Bedroom $649||4 Bedroom $828|
|5 Bedroom $915|
Average Rent BOISE VALLEY $867
Forth Quarter Vacancy Rates
What Percentage of Income are Tenants Paying for Rent?
- In 2015 the national average lowest percentage of income tenants are paying for rent is 17%. New York City is one of the highest places to rent, requiring, on average, 60% of tenant’s incomes. An average of 30% is common in many cities throughout the United States.
- Boise City Median household income for 2014 was $51,826. Assuming the same median household income in 2015, Boiseans were paying 25% of household income for the average 3 bedroom rental in Ada County.
Source: deptofnumbers.com & NARPM