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Albuquerque and Rio Rancho Rental Investments

A plan for finding the best Albuquerque and Rio Rancho Single-family investment property

The following are a few things to consider when planning on investing in a rental home in the Albuquerque Metro Area.   People have been building wealth by investing in real estate since the beginning of civilization. In Albuquerque and Rio Rancho metro areas approximately ten percent of the single-family homes are an investment property.  Just as every market is different every single-family home is different.  This discussion is intended for the investor who wants to hold their property as a rental for at least five to seven years and not for someone who is looking to “flip” a property for a quick profit. The following are some of the things I have learned over many years of investing for myself and managing thousands of single-family rental properties for Single-Family Home Investors.   These are simply my suggestions.  Be sure to check with your financial and real estate professionals when developing your own plans and benchmarks.

Strategies for finding the right long-term single-family home investment

1. Create a plan. Include in your plan, both the local and the micro local market in which you want your investment. (All real estate is local but market rents are micro local.).

2. Be sure to factor in the vacancy time as well as the cost of getting the property in condition. Inspections are crucial to include in your plan. From the inspection you will be able to assess better the condition of the property.

3. Deferred maintenance is a double-edge sword. Limit your fix up items to carpet, paint, yard work and minor carpentry, or as I call it lipstick and eye makeup. Larger projects often cost twice as much as estimated and take longer than expected.  The loss of monthly income generation plus the remodel cost can be hard to make up in rent increases.

4. If you pay cash, remember to factor in the cost of insurance and property taxes when figuring out the net present value of the initial investment and revenue streams.  Consider using a self-directed ROTH IRA.

5.  Be conservative with  vacancy cost and maintenance cost in your calculations.  For my own calculations I use a three year block of time.  I estimate an average of 18 months leased with four weeks of vacancy and  approximately two and a half months rent as routine maintenance cost.  This does not count any capital improvements.  If you anticipate having to make a capital outlay within five years factor that cost as well.

6.  The investment return % can be calculated using many of the revenue stream present value calculators available on the internet.  I escalate my rent by 2% each year and use a 2% inflation factor from the initial purchase for sales price at the end.  I wantshoot for a 6+% net present value over seven years as my minimum benchmark.

7. There is always a risk that something unexpected can go wrong with the rental process.  People, money and many Federal, State and local regulations are involved.  You can minimize that risk when you hire a local professional property manager with great experience and enough staff.  Murphy’s law of rentals says: if you do not have an expert on your team you will need one.  My corollary to this is: if your property manager does not have enough qualified staff the person you need will be sick or out of town when you really need them.   If you want to do your own maintenance at lease hire a professional for the lease up.  It you have a quick temper, do not do your own maintenance.

 

Should you allow cats or dogs in your rental home?

First, I believe renting to people with pet cats or dogs can be good business.   Approximately, eighty percent of the people applying to rent a single-family home own a cat or dog (“pets”).  This discussion is limited to these two types of pets. I do not recommend accepting renters with Parrots, but that is another story for another time.    In my thirty years experience, the risk and the cost of small-unsupervised children causing property damage above the security deposit is higher than the risk and the cost of dog and cat damage. This risk is harder to screen, as Fair Housing Laws do not allow most landlords to discriminate against families with small children.  Pet risk is also much easier to manage, and when managed correctly, pet damage rarely exceeds the security deposit.

The pet owning renter demographic provides a favorable supply and demand curve for landlords.  I would define a low risk renter as: a single professional with no children or pets that also has perfect credit, a spotless background check, plays well with neighbors, and has plenty of income to cover the rent.  Unfortunately, for single-family rental homes this renter is scarce.  They often prefer the no maintenance, amenity laden, high-end apartment over a single family home.  Further, they need to be looking for your rental home when it just happens to be vacant. Since, vacancy is normally the landlord’s biggest expense, occupancy percentages favor renters with pets.

When landlords allow pets their gross rental income is higher.  Renters are usually willing to compensate the owner for allowing their pets.  The common term in our area for this compensation is pet rent.  I recommend pet rent over collecting a separate pet deposit.  In the Albuquerque and Rio Rancho metro areas the landlord must pay interest if combined security deposits and pet deposits exceed one month’s rent. Pet rent is simply a higher rent for the privilege of renting with a pet. Be sure you treat everyone the same as to pet rent.  Further, a pet deposit can only be used to cover pet damage, while a security deposit can be used for rent and other charges the resident may owe, including pet damage. The extra pet rent is is not refundable.

To manage the risk, I recommend my clients accept pets on a person-by-person, pet-by-pet basis. I believe that three should always be the most pets allowed in a rental home. We find that when pets are well screened, pet damage, if any, rarely exceeds the security deposit.

 

 

 

What is it like to live in Albuquerque?

Albuquerque is a fantastic place to live, work and own a business. Many people out of the state have no idea or have misconceptions about what Albuquerque is like.   (more…)

Experts In Their Field: Residential Property Management

With residential property management, there is simply no substitute for experience.

Experts in Their Field: Residential Property Management

 

Blair Hart has over 30 years of experience as a landlord and entrepreneur. (more…)

Five Guiding Principles for the Successful Landlord

 

Whether owner/manager or a professional property manager of a residential rental there are some aspects of good management that apply to every situation. In addition to these five principles, to be successful the landlord must also consider how the rental home is unique, its neighborhood and the sociological and economic factors of the community. See our next post for an additional five principles for a successful professional landlord.

1.Keep your property in top shape.

You should have some funds set aside for replacement and repair. If the home needs paint, paint it before showing for rent. If the air conditioner breaks fix it, etc. A well maintained home attracts the best residents.

2. Be respectful no matter what.

Some people are difficult and high maintenance. Keeping your cool and maintaining respect under fire is essential to the successful landlord. Landlord/Resident relations are full of landmines: late rents, negotiations over requests, maintenance issues. Remember a disrespected resident often does not respect your property. There are many techniques you can employ when dealing with difficult people.  Some excellent resources for these techniques are Books on dealing with difficult people, YouTube videos, and The National Association for Community Mediation.

3. Keep your word on maintenance requests.

When you tell your resident it will be fixed on Friday, fix it on Friday. This involves work on the part of the landlord to identify a person, or multiple people who can deliver on fixing the problem right the first time and being organized and talented enough to stay on a schedule

4. Screen your residents well. 

Your rental income is needed and it can be tempting to “take a chance” on a prospective resident.  Remind yourself what happens if they move in and become a problem. By the time they are out you can eat up several months rent out of pocket. Review your procedures and background checks, etc. The worse potential renters are some of the best con artist. You are not the first landlord they duped. 

5. Run it like a business

Good business principles can minimize headaches. Document everything. Use a move-in and a move-out report with pictures to accompany your reports.  Have a handbook for the residents with your house rules, your policy on security deposits and other useful information such as utility phone numbers, etc. Include this information as part of your lease signing. Let them know up front that you enforce the provisions. Knowing what to expect, up front and understanding what they need to do to get 100% of their security deposit returned, is a breath of fresh air to residents.

 

 

What Can A Professional Property Manager Do For You?

Part 1

Historically, renting your home has been considered a relatively simple and low risk undertaking. However, in recent years, this apparently simple task has become progressively more complex and the risks associated with becoming a landlord far greater. 

While managing your rental is certainly within the abilities of most property owners, the time and effort involved in management may be greater than the cost of hiring a professional property manager.

(more…)