Days on Market for Rental Properties

I was asked the other day how the wintertime is affecting our rental rates. Even though we are entering the late fall period, we are still renting all of our properties without a problem, so traffic is still there. Instead of averaging 21 days on market in the summer, we are now at around 32 days, however.

A few of the added days on market could be eliminated by us being stricter with our owners on price competitiveness. One method that works quite well is to have a loss-leader rate in your advertising (e.g. $900 for 6 months), where you can negotiate a higher lease amount for the additional months. This is a lot better than waiting 2 months to get your desired $1,100.

The goal is to get eyeballs and calls on YOUR ad... not the others. Once you have a conversation going, the deal is typically yours.

Scott

Investor Competition Heating Up - Time for Turn-key Rentals?

Competition for Denver residential single-family investment homes, at least at the wholesale level, has picked up dramatically in the past 2 months. We understand this is due largely to a massive amount of out-of-state money moving in, making cash offers, sight unseen with no inspection contingencies. It is very hard to compete with this, though Echo Summit is still having success via its network of investors.

Given this phase of the market, it is probably time to start thinking about purchasing turn-key rental propertes, and aiming for cash flow, rather than short-term cash-on-cash return. Obviously, almost any property held for a minimum of 5 years will produce some form of cash-cash return based on appreciation alone. What I am a suggesting is to focus away from the masses who are hoping for quick returns on a wholesale flip, and target areas/property types that they are not.

Without getting into the boonies, I recommend focusing on transportation corridors (SSE is off the charts) and anything feeding into the Cherry Creek School District (for those of you who don't know what bond proposals 3a and 3B were for in recent elections... study up. They passed, and will have significance for property valuationn in the coming years).

Scott

Great Website for Zip Code Demographics

We now use this for our Available Rental Properties. Information seems to be accurate...

http://www.bestplaces.net/

Taxes on Passive Investment Activities

Upon sale of an investment property (as a passive investment activity), different tax rates apply towards different elements of the property:

Ordinary Income
- Personal property depreciation

Long-term capital gains
(15% for taxpayers in the 25%, 28%, 33%, and 35% tax brackets )
- Building / improvement depreciation

Short-term capital gains (Ordinary income tax rates up to 35%)
- Everything else

Critical Elements of Tenant Leases - 1

Over the past few months, I have reviewed many, many home-grown and 'Realtor-provided' tenant leases for individual investors and homeowners who are trying to go it alone in the property management route. I have been shocked by what I have seen.

My philosophy is that manageing your own property is always the #1 option... no matter what a PM company says, nobody will give it the care and attention that you will.

Tenant leases are different. This is where you can loose your shirt, your home, and sometimes both. I have spent over $20,000 in legal, financial and other fees over the years on creating the 'perfect' lease. Even with a perfect lease, it is easy for a career rental abuser to make the 'apparently perfect' application package. You will love them. You will empathize with them. You will want to have a drink with them. Then they will squat in your property for 6 months without paying rent, knowing there is nothing you can do.

Please, please, if you DO do your own tenant leasing, make sure you:

• Do not give more than 5 days grace period before posting a Pay or Quit noitice. This will be their first test for you.
• ENFORCE late fees. Behavior is learned, not inherited.
• Mandate they carry renters insurance. I make them add myself or Echo Summit as an additional insured under the Liability section.
• Include a PAYMENT OF FUTURE RENT provision that allows you to accept partial rent payments in the middle of the evicton process (otherwise, you have to re-start the eviction clock every time you collect a penny)
• Here are some good free forms that I am happy to share with you

Many other elements to consider, but at least make sure of these.

Scott Lukes
Echo Summit Properties
http://www.echo-summit.com/

Re-keying a Critical Issue - Our Technique

In my conversations with property managers, I am still surprised at how few PM companies do not change locks after acquiring a property from an owner. I am guessing the same goes for home buyers when they purchase in a consumer deal.

The fact of the matter is that you DON'T KNOW the property is secure unless you personally had the property re-keyed while it was under your management. From a 'plausable deniability' perspective (yes... a huge West Wing fan) this is huge. From a liability perspective, this is life/death.

At Echo Summit, a good system we have employed is to have the Owner pay for initial re-keying (we hire the vendor to conduct it), and have the Resident pay for subsequent re-keying after they leave the property (we withhold from their security deposit).

Scott Lukes
Founder
Echo Summit Properties
http://www.echo-summit.com/

Incredible Time for Property Management

I have been constatnly surprised as to the make-up of our new customer base. Not surprised that half of our new customers are 'unintentional investors' who have/need to move but don't want to sell their house, but VERY surprised as to the magnitude of the homes coming to us.

In a given week, it is not uncommon for us to take on multiple homes that are in the $500k and up range. A few weeks ago, we even had a $1.5M and a $600k in the same day. Perhaps more important, these homes are renting... some of them VERY fast. Cherry Creek School District is a huge driver (they are typically on the market for days), but expensive properties are renting in all areas as well (might take 4 weeks to move something in east Aurora, but they do eventually move).

Scott Lukes
Founder
Echo Summit Properties
http://www.echo-summit.com/