Raising Rent...

Raising Rent involves a lot of variables, and a lot of emotion. At Patriot Properties we always try to raise rents between a range of 3-5% per year for all our clients. It is our duty to our clients to ensure we are setting their investment up for success, and this means out pacing inflation and increasing their NOIs.

Cash Flow is the holy grail of investing, and as such is something we focus on intensely at Patriot Properties. Expenses can only be cut so far to ensure the property is still being maintained at a satisfactory level, which means the only other place to increase the NOI is by raising rents.

Working with tenants while raising rents is always emotional.

Calculating a reasonable rental rate for your market is not as complicated as it may seem. If you’re a smaller investor with only a couple of units it is difficult to have much of an impact or influence on market rates, which means your best bet is to find comparable properties and base your rents on the rates that those properties are renting at. If you have the ability to influence the market though, it is important to know where to reasonably and responsibly set market rents.

Industry wide it is common to qualify tenants by requiring they make 3x the rent you’re asking for the unit. This means the rent is correlated with the income of the people within the area. If you can find out what the average income is for your area, and the demographics of those earners, you can easily derive a reasonable rate based on the target income range of your average tenant. For example, if the average income is $45,000, this means the average person can afford up to $1,250.

As I mentioned there are many variables to considered when making the assumption that the average person can afford up to $1250. It’s important to know how many renters versus homeowners are in the market. It’s also important to understand what type of property you’re managing. If you have a brand new, luxury apartment complex with numerous amenities, you’re going to be able to attract a higher level wage earner. Likewise, if you have a Class C property that needs some TLC you’re going to have to discount the rent to reflect this.

Typically we do not raise rents on current tenants more that the 3-5%, we usually try to make the largest increases upon turnovers.

We have been hired by clients that had below market rents that needed to increase their rents by over 20% on some of their tenants, and that was not an enjoyable situation. However it was a very eye opening and educational experience. Like I mentioned at the beginning, raising rent can be very emotional. The people of the building were all great tenants and they all took great pride in the building, unfortunately the manager prior to us did not raise rents at any rates higher than 1% per year, which put the owner of the building in a difficult spot.

AirBNB your apartments?!

Over the past couple of years AirBNB has become a household name, and has caused great waves in the hospitality industry. While this may not be great news for motel and hotel owners, this has opened up many doors of opportunity to our clients.

There are investors that have started to rent units specifically for the purpose to rent them out as AirBNB units, and a lot of them have been making +100% returns on their rent! Being open minded and adventurous, we’ve decided to give it a try ourselves and have been quite pleased by what we’ve found.

Here’s what we’ve learned so far.

In Tomah, WI, we have a 10 unit complex with a mix of 1 bedroom and studio apartments. These were renting at around $450-500 for our year long leases, so we figured these would be low risk apartments to test the AirBNB market.

For our AirBNBs we fully furnish them and try to include as many of the amenities that AirBNB recognizes as possible, this is a way for us to optimize these listings to rank at the top of the AirBNB listings for the area.

After about half a year we have found the units renting at $450-500 are now consistently grossing around $850-900, and we’ve had some months where they rent for over $1,000. Of course there are cleaning costs and operating expenses, but on average these cost around $100-200 per unit each month.

We’ve found a market of short term 1-6 month lease inquiries for these units, as well as the typical nightly stay. AirBNB Guests also seem to have realistic expectations and are generally impressed by the level of care we put into our units. We aren’t doing anything special or providing any above average services, we just ensure the units are clean and have all the amenities we claim on the listing.

How To Become A Full Time Property Manager

I recently joined the Bigger Pockets community and came across this questions on the forum, “I'm wondering how does one become a legitimate "full-time landlord.”

(BiggerPockets is an online forum specifically designed for real estate professionals and is a great tool to network and learn for anyone interested in real estate, whether it be as an agent, manager, or investor. )

Here is the response I posted to the above question.

I own a property management company that has 750 residential units under management and am a value add / buy and hold investor.

Owning real estate is absolutely the best path to financial freedom, but I think it's important to define what that means to you. The way I keep score of my "financial freedom," is based on how close the net income of my passive investments is to the profit I earn from my management company. My goal is for my passive income to outpace the earnings from my company, and at that point I'll feel I'll have "earned," that freedom. This definitely varies for everyone and depends entirely on the goals you set for yourself. For me I intend to always have my company in addition to growing my portfolio.

As far as becoming a "full time landlord," I think the best way, and quickest way to do this is to go out and start your own property management company. It's much easier to finance properties with conventional loans if you have a strong source of income. If you're only managing your own properties it will take you much longer for your income from real estate to replace your current salary/wage, and it's much harder to scale. 

Here are the bullet points I followed to start my management company:

Learn the trade.

1.Get a job with a management company, learn as much as you can about their showing, application, lease process. Learn everything you can about how their accounting is set up. Buy "Every Landlord's Legal Guide," put out by NOLO, they have a great collection of resources.

2.Take every opportunity to learn skilled trades (electrical, carpentry, plumbing, etc.) I worked construction for a year out of college and held many maintenance positions throughout college to gain these skills. Youtube is an amazing resource to learn these skills. 

3. READ. You will be amazed by how much you can learn from a good book, I have learned many creative strategies that have lead me to incredibly valuable deals just from reading. 

Time to start your own company.

1. Once I was confident I could do the job for other people I reached out to every property owner I could to let them know I could provide better service at a better rate. Researched all of the apartment complexes in your city, found out who the owners of the property are and ask them for a meeting. Rates depend on the property, for my largest clients I manage for 5% of gross, for my smallest clients its 10%. Target properties with 50-100 units to start. 

2. Hire a team. With 50-100 units you can afford to hire help. I usually hire one maintenance technician for every 50-75 units. Do as much as you can yourself, but hire your weaknesses. For our 750 units we have 12 employees. Two office staff, 8 maintenance techs, and 2 part time cleaners.

3. Property Management Software. We spend 10s of thousands on software and its worth every penny.  

4. Network - Build relationships with the best contractors, this is vital. 

Buy you own investments.

Some of my best investments have been off market deals I've purchased from my clients directly.

Hope this helps!

Client Expectations & Value Add Opportunities

As promised from the closing of my last post, my topic for this post is establishing expectations for clients and recognizing and using value add opportunities.. I’ll touch on how I structure my management agreement to allow and budget for upkeep and improvement. As I mentioned last time, working with a client that won’t reinvest in his or her property is a complete waste of time. The management fee you receive won’t be worth the low quality tenants, and high volume of complaints associated with the lack of upkeep. It’s always important to remember your properties are your brand. The better all of your properties show the higher service you can deliver to all of your clients and tenants.

A word of caution to managers and investors, do not bend over backward to please a potential client, and do not work with a manager who is willing to bend to your every whim! I know this may sound counter intuitive, but as the old adage goes, “if it seems too good to be true, it must be.” There is probably a reason that your prospective manager is so willing to please you, and a large part of it is probably due to a lack of experience, structure, or over zealous ambition that is causing them to forgo their best interest in pursuit of growth.

Every manager should have a solid structure that they adhere to, and that they hold all of their properties to. Our company performs showings by checking keys out for vacant units in exchange for a drivers license or credit card as collateral. I’ve discussed our policies and practices with potential clients that were used to the traditional showings in which a leasing agent or a maintenance technician takes prospective tenants through the units. This particular client made that a sticking point where he wanted his properties to still be shown in the traditional way, which simply did not work with the way we operated, so we did not initially come to agreement and went our separate ways. As a manager you need to hold to your practices because otherwise you will end up in a situation with no organization and no structure.

Share your expectations, and establish boundaries and understandings at first contact. Remain confident in your practice, however always be receptive to new ideas, do not refuse your potential client the time they desire and deserve to discuss their viewpoints and opinions.

Intro to Blog

In today’s economy there are thousands of ways to invest and save, and yet real estate investment continues to be one of the most popular and effective ways to build wealth. This blog will be focused on my experience in real estate investment and property management, and will hopefully serve as a source of knowledge, insight and experience for anyone who is either currently investing in real estate, or has played with the idea of putting some money into property.

My strengths lie in rental apartment communities, though I am always trying new things in hopes of expanding my own expertise and knowledge. I will share details of my trials and tribulations, as well as my successes. I also plan to share details on specific products we use as we update and upgrade our properties.

I hope this will be a great tool and resource for professional property managers, their clients, and any independent investors going it alone. Stay tuned , I have many great plans for this platform!