lease term

April Financial Update

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We started getting emails about end of school year activities, and boy was that a surprise that we’re at that point. The middle one is done mid-May and the big kid is done at the end of May. Less than 2 months until summer break.

Mr. ODA took the second round of the government’s offer for administrative leave, which means he would only have a few weeks left working. I’m still working my part time job, which is taking way more hours than we had planned for. I’m enjoying it, but it’s been a juggling act with the family, which is probably why my son who absolutely loves school begged me to stay home because his belly hurt last week.

Buckle up because apparently I have a lot to share this month.

RENTALS

We received about $600 in tax payment reimbursements from one of our localities, so that was a fun surprise this month. Really helps my psyche that I have a tenant who hasn’t fully paid, didn’t tell us why ahead of time, and hasn’t been up front with when she’s going to actually pay us.

I executed 2 short term leases. Both included a rent increase for their short term period; one house is increased by $75 and the other by $25. Luckily, both are here in the Central KY area, so we can flip it between tenants. One is scheduled to leave June 30th. That house will need new carpet in the bedrooms, and it’ll need probably a whole-house paint job again. They smoked in there, even though we covered the lack of smoking rule multiple times. I’d be more upset about it if the carpet hadn’t reached its useful life years ago. The other house leaves July 31, and I can’t even tell you where we’ll need to begin with that one. She made a wood feature wall without permission. She had a giant fish tank without permission. She spent a lot of time doing things that really weren’t an improvement, so I’m definitely worried about what we’re going to uncover in that house. Mr. ODA and I are talking about fixing it up and selling it. We may look for a short term renter so that we can sell it in the Spring instead of this Fall.

I had 2 other properties accept a rent increase that will go into effect later this year. I require 60 days notice for changes so that starting at the 30 day mark I can begin advertising it if needed. One house goes up by $25 per month as of June 1, and the other goes up by $50 per month as of July 1. I also have another property that has a rent increase of $50 per month going into effect next month.

I have 4 houses that renewed another year, and I didn’t change their monthly rent rate. There are 4 more houses that haven’t been discussed. My intent is to have them renew for a year at their current rate. There are 2 of those 4 that could leave at the end of this term, but time will tell.

We have multiple maintenance issues to address. One house requires a tree trimmed off the roof, the siding cleaned, and the back deck stained/painted. We still have termite damage we’re dealing with at a house in Richmond. I have a leaking toilet that was just addressed, and then they hit me with a faulty HVAC unit during a heat wave. Then we have some houses that really need eyes on them to see what condition they’re in at some point this summer back in Richmond. It’s amazing to me how people just don’t care to tell a landlord that something is broken. I woke up this morning to a text that one of the houses here has a flooded basement due to a water heater failure.

I spent some more time fighting my insurance guy here. It irks me so much when I see him offer up his services on the local facebook group for property owners. He’s quite terrible. I sent him photos of a house that had some issues with a cluttered backyard and had the tenant clean that up. I had to fight him last month on an increase where he changed one house from a crawl space to a basement when I assure you that the vines growing through the windows solidify it should not be deemed a “basement.” When the dust settled from that debacle that he was insanely unresponsive to, I ended up owing $9.68. When I asked why my account wasn’t put back the way it was found before this mess he created, he said he didn’t know but it’s probably from the audit and changing square footage. HIs guessing and not actually answering infuriated me. I gave up and paid it, but then I ran to get quotes from other people. I hadn’t done that before because our 4 claims in a 12 months period are killing us (again, because I really wanted trees to fall on us!). I hate when people make the claim that because it’s not a lot of money, I should just give up and accept it. That’s a ridiculous way to treat people.

PERSONAL

Our electric bill is almost double what it was this time last year thanks to the vehicle charging and hot tub. Our electric bill is relatively low, so that’s not all that surprising. We also have 5 full people in this house now (as much as you can count a 2 year old as a full person… but he knows how to control light switches and eats a ton of food that we need to cook him, so I’m sure he’s a factor there!).

I’ve been working at my new part time job for over a month now. Mr. ODA was making fun of my hourly rate, but I’ll tell ya, it felt good to receive a paycheck that wasn’t $45 like it was for a day of subbing at the preschool.

I took the kids to get haircuts. My middle has had her hair cut once before, but I’ve cut the boys’ hair forever. I had family coming into town and the oldest was looking really shaggy. So I swallowed my pride and threw money at the problem, which is very out of character in this household. I just didn’t have the time to cut their hair, clean them, and clean up the mess. For $66 and 45 minutes from the time I left home until I got back, it was well worth it to me.

I had a medical procedure done this month. We haven’t met our deductible. In February, they said I had to pay my deductible to them. I said that didn’t make sense and refused to have them hold $2800 of my money for 2 months. They gave me an attitude and said I could never ever ever ask for a payment plan in the future, so that I could pay $500 to hold the date. I then showed up for the procedure, knowing I haven’t met my deductible, and they didn’t take any money from me. Another business model that bullies the customer into illogical money decisions. I also had an eye doctor appointment that was frustrating in itself, but I’ll spare you those insurance and communication details.

On top of everything else I’m juggling, Mr. ODA is coaching our kids’ t-ball team. Coaching means that I am team mom. That means that I’m responsible for communicating updates from the league (in the slow and haphazard fashion I receive information), gather value card sales that are required of every team member, organizing a basket for a raffle, and the best one – raising $350 for team sponsorship. What the heck, man?! Where did I say that my signing up of two children to play in the league means I have history or ability to gather money from businesses?? Well, I did it. I raised $350 and another mom raised $200 for the team.

No financial impact, but I’m also juggling our HOA board duties. I released our longstanding property manager and hired a new company, which took effect April 1. That’s taken a lot of time to get them stood up and make sure we stay on track for our annual meeting schedule in June.

NET WORTH

And with all of that said, that doesn’t even address the giant reduction in our investments that continues to happen. To counter some of the loss, I updated our property values for our houses. I don’t do that every month because they don’t move very much, but I can usually count on a few increases as the spring market ramps up. Our net worth did slightly increase (based on yesterday’s market closure, not today’s) from last month, which was a nice surprise.

I wonder why I’m tired and bogged down, but that post outlining what I’ve done recently made me realize all I was able to accomplish even though I felt like I was a jack of all trades and master of none. Hopefully things will settle down in our lives going forward now, even if I know there are definitely two house turnovers in my future.

2021 Rental Terms and Lease Expirations

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Spring is a time for lease renewals or preparing to re-rent a house.

Spring and Summer are times when people are most active in the real estate market. It’s the best time to be listing your house for sale and for rent, which may yield you a better sale/rent amount because of greater competition. This timeframe is likely most active because of the better weather for moving and the school year – if a family is looking to move, they’re more likely to do it when they don’t have to transfer their kids to a different school district mid-school-year. Personally, when I was in college, nearly all the rentals were available in May or June. I remember being frustrated that I couldn’t get an August lease and had to pay for the summer months even though I’d be back living at my parents’ house. Now that I’m older and have more experience, it all makes sense. Below, you can see the increase in applications processed by SmartMove (the way we process tenant applications) that occur during the summer months, which indicates the most active time in the market.

We have seen this reflected in our days-on-the-market and rent prices. When we can list a house in the Spring months, we’re able to get it rented with very few days vacant. Houses that we’ve closed on at the end of the Summer (when school starts) and in the Fall have taken us more time to find a tenant, and we’ve had to reduce our asking monthly rent amount.

For those houses that we had purchased in a less-opportune time of year, we’ve worked to get them back to a Spring-time market for renewal.

  • We purchased two in September 2019 that we weren’t able to get rented until November 1st that year; we offered those tenants an 18 month lease so that their lease expiration would become May 31st.
  • We did similar with a house that we purchased in August. After that first year, a prospective tenant tried negotiating the list price for rent, and we said we were willing to reduce the rent a bit for an 18 month lease; they agreed, and we got our rental on a Spring renewal.
  • We recently had a tenant break their lease (with our concurrence), so that house has a lease expiration of October 31st now. We intend to offer a 6 month lease term to that tenant when the time comes.

With that said, we have lots of activity at this time of year.

We have 9 houses in Virginia and 3 in Kentucky. These markets are so different for us. We do our best to work with our tenants to encourage them to continue renting with us. I wrote about this in detail in my Tenant Satisfaction post.

Here’s a break down of how we handled all the leases that are expiring at this time of year.

In Kentucky, one lease was set to expire at the end of April and another at the end of May. These two properties are under a property manager. She attempted to increase the rent for a new lease term, but the tenants pushed back. Landlords don’t have a lot of leverage in a pandemic. Since the property manager is the one who handled the communication, I don’ t know what the details were. We believe both these houses are rented for less than market value, so that’s unfortunate. But, we’re grateful that both tenants renewed their lease for a year, so we don’t have to work to turnover the houses. Within reason, we’d always rather rent for a few bucks under market value than to handle turnover and lost rent (vacancy) by trying to maximize monthly cash flow.

In Virginia, we have an array of situations. Richmond was quick to acknowledge the property value increases that have occurred over the last year or so. This means that they increased our assessments, which effectively increases our property taxes.

We have the first two properties that we bought in that market, which are next door to each other and both have long term tenants (one since we before we purchased it, and the other is the second tenant who moved in a year after we purchased). We inherited their rent at $1,050, and then we increased it to $1,100 two years ago. With the property assessment increases, it was time to raise their rent again for this July. I initiated a letter to each of them stating the rent will increase as of July 1, which gave two options: they could leave the property by June 30th in accordance with their lease, or they could sign on for another year at the increased rent rate. Both chose to stay in the property, and they signed another year at $1,150. This is still below market value for the houses, but we’re happy with the lack of maintenance needs in these houses over the last 5 years. We’re in the middle of replacing the flooring in one of the houses. That house has a family of 5 and a dog living in it, so it’s not surprising that it’s worn out faster than the identical one next door with one person in it.

We have a 2 bed, 1 bath house that rents at $795. She’s been in the house since July 2018, which means that her lease ends June 30th of this year. Based on the 1% Rule (i.e., we’re looking for the monthly rent to be 1% of the original purchase price) for this house, our rent goal is $635. Since we’ve exceeded that goal for the life of our ownership, and the house hasn’t cost us much in maintenance, we chose to not increase her rent if she wanted to renew for another year, which she did. She has also spent some of her own money to spruce up the house and make it her home, and we recognize the value to us that her efforts also bring.

Another house reached out to us and asked if we were willing to renew her lease for another year. She’s been there since we purchased the house in 2017, and we’ve never increased her rent. She usually pays rent early and doesn’t ask for anything. The 1% Rule puts us at $660, and we’ve been collecting $850. Since we’ve been lenient on rent increases, I thought it a good idea to re-evaluate her terms. I plugged all the numbers into Mr. ODA’s calculation sheet to see how we were doing since the taxes increased so much on this house. Our cash-on-cash return (which we aim to be at 8-10%) came back at 19.8%. A rent increase for the sake of increasing rent isn’t worth it for such a good tenant, so we agreed to renew her lease for another year at the same rent. She wrote back: “omg thanks so much for the good news!” Happy tenants = good tenants, remember?

As for the others that I haven’t mentioned:

  • Two of our houses were put under a two year lease last year, so they didn’t require any action from us this year.
  • We have another house in KY that has a lease ending 7/31 and is under a property manager. We’ll offer a renewal option for them (i.e., we’re not interested in asking them to leave), but we haven’t worked out those details yet. Since we’re very hands off for our KY houses, we don’t know the satisfaction level of those tenants to gauge. Historically, we’ve had trouble renting this unit, costing us long vacancy times, so if we can renew their lease for even the same rent, we’re happy. Plus, having a 7/31 end date starts pushing us closer to the Fall for any future year-long rental agreements.
  • One of the houses that we have with a partner has a difficult tenant. I mention the tenants almost every month in the financial updates because they don’t pay their rent on time, and getting information out of them is like pulling teeth. They’ve rented there long before we owned the property, and their rent has always been $1,300, which is well below market value. We plan on offering them a drastic rent increase and a new lease term (we’re still managing under the previous owner’s lease agreement) in July for their September 30th expiration term.

While we don’t have any houses to turn over, we’re going to get into each house this summer. Since so many of our houses don’t typically have turnover, we don’t get into them as often as we should to make sure things are running correctly (i.e., don’t want small issues to go unnoticed and cost us in the long run). Specifically, we need to make sure that the HVAC filters have all been changed and verify there aren’t any red flags. I plan to give the tenants at least a month’s notice before we enter, so that if there are any maintenance activities they should have been performing, they have time to get it situated. I’ll walk through with our typical move in/out inspection form and note any concerns or areas of interest. I also understand that by being visible, I’m opening myself up to being asked for things that a tenant may not necessarily ask for via email or text, but I’ll cross that bridge when I come to it. For now, we’re just grateful that we have no houses to turn over and no expected loss of rental income for the year thus far!