Many of our clients have been asking about the rental forecast for 2013, and what we can expect for single family home rentals in the San Diego area. Here is a summary of what we are seeing in San Diego when it comes to rental homes and how they are performing.
First, rental demand is up. There are a lot of people looking for rental homes in the San Diego, California area. In addition, rental rates are also up. People are paying more to rent single family homes than they were in previous years. To add to the good news, I will also tell you that vacancy is down. Luckily, there are not a lot of empty rental homes sitting on the market with no one to occupy them.
The tenant population has grown and evolved in San Diego. We have noticed that more homeowners are short selling their homes or going through the foreclosure process. This means that we might continue to see many applicants for our rental properties coming from the homeowner sector. This is a huge bonus for the rental property owner. It gives you a larger market to pull potential tenants from. My experience has been that a homeowner tends to invest more in the care of the property they are living in, even when it’s a rental. They know how to take care of home and keep everything functioning and looking nice. This is a good thing and a major benefit for the owner of an investment property looking for a great tenant.
At Walters Home Management, we have seen rental applications increase by 14 percent over the last year. This is great news for our clients. We are looking forward to the rest of 2013, and we expect it will be a strong rental market year. This makes it a great time to be a landlord in San Diego, California.
If you have specific questions about how the rental market is performing, or you would like to develop a rental strategy for the rest of the year, please contact us at Walters Home Management. We would be happy to talk to you and help you work through your plans for investment properties.
Today we are talking about fair housing regulations, and how the laws apply when it comes to screening prospective tenants and interviewing people for your rental property. There is a difference between federal fair housing laws and state fair housing laws, and in San Diego, you have to pay attention to both.
Federal fair housing laws prohibit you from discriminating against any applicant based on race, color, religion, sex, national origin, familial status or disability. Fair housing laws in the state of California prohibit discrimination for all of those reasons as well as the following:
Source of income
That’s a lot of words and phrases to remember, isn’t it? The safest approach to avoiding any fair housing problems is to determine what your qualifying criteria is, and then apply it to all applicants across the board. If you are requiring an income that is three times the monthly rent, you need to require it from everybody who applies.
Here is an example of the type of situation I hear from clients frequently:
“I have a two bedroom condo and I don’t want more than two people living there, especially if they have kids. It’s just too small of a place and, well, you know how kids can be.”
This is a flagrant violation of fair housing laws and an owner putting these kinds of restrictions on their rental property could end up on the other end of a fair housing complaint and even possible fines.
Also, if you have a no-pets policy, remember that policy cannot apply to service animals or companion pets. A landlord is legally unable to refuse to rent a home to a person who needs a service animal.
The bottom line and the safest approach is to seek advice and assistance from a property management professional who knows the law and has received training in fair housing regulations. If you decide you would rather lease your property on your own, my advice would be to train yourself to put blinders on when it comes to putting your property on the rental market. Do not evaluate a tenant based on how they look or their family make-up or how they earn an income. Look strictly at their qualifications and make sure you apply the same criteria to everyone who applies.
At the beginning of every year, many of our clients begin to ask about rent increases for the calendar year, and in 2013, it is no different. My philosophy on rent increases is this: if the market can support it, always increase your rent when you have tenant turnover. Periods of tenant turnover are good opportunities to do some small improvements to your rental property. You can take care of items that do not cost much but add value. Giving your place a bit of a face lift will make it more appealing to prospective residents and will allow you to charge a higher rent.
Increasing rent on a current tenant is a little different. You need to take into consideration the potential cost of vacancy and your turnover expenses. Compare that to what you might gain or lose if you raise the rent too much. A general rule of thumb to remember in today’s market is that it’s always better to maintain a good tenant who pays rent on time and takes care of the property. Keeping that tenant in place is always better than increasing the rent above current market rates, which could leave you in a position where you’re only hoping to find another good tenant relatively quickly.
Make sure you conduct a market survey to see what rental rates are in your property’s location. If you have a current tenant paying $1,850 per month and a quick survey shows properties with similar size, number of rooms and condition are renting for $1875 - $1,895, you should probably consider leaving the rent where it is or a very minimal increase and a renewed lease term. A high quality tenant who is paying slightly less than current market rents will tend to stay longer, which means continuity of cash flow for the owner.
At Walters Home Management, we evaluate rent values for our clients on a property by property basis. We make our recommendations for rent increases based on the current market rents, how long the tenant has been in the property and when the last rent increase occurred. Taking all of these factors into consideration will give you a clearer path on what the best decision is for your property.
If you have any questions about rent or how to decide whether to raise your rent, please contact us at Walters Home Management.
Adequate management, with proper response times, requires systems, staff and resources to be in place. An absentee landlord wants the confidence that their management team will be able to respond quickly and appropriately. For example, if there is a flood on a Friday night, you do not want your property management company to be spread so thin that the staff cannot get to it right away. It’s all about managing your risk.
Consider the philosophy of the management company you are considering, and the benefits to you as the owner as well as your tenant. Make sure the philosophy matches your goals as the investment owner. You also want their attitude towards tenants to be such that it contributes to a successful relationship which results in a long term tenancy.
Another option for the investment property owner who is more hands-on and doesn’t mind monitoring the property during the tenancy is a tenant placement service or what some companies call a Lease-Up. This is where a management company handles only the finding, screening and placement of your tenants. I do not typically recommend this type of program for investment owners who do not live in the same area as their property. If you are managing the property yourself and you live in San Francisco while your property is in San Diego, it can be problematic if you have a delinquent tenant or a maintenance emergency to deal with. This type of program does work well for the local owner who is familiar with maintenance issues and can manage residential rentals with experience.
At Walters Home Management, more than 90 percent of our clients elect full service management. They feel more confident having a real estate professional manage the process and – most importantly, the risk. Think of hiring a professional property manager as part of your entire investment strategy, not just an added expense. The fees associated with property management services can be considered an insurance policy of sorts. You are paying a fee to your property manager not only for what they do each month on your behalf, but what they might have to do at any moment and at any time. When a water pipe breaks at 1:00 a.m. on a Saturday, you know your property manager will be on top of it.
I see myself as part of my client’s risk management team. We combine our knowledge, expertise and experience to create effective outcomes. If you have questions about property management or the fees that come with it, please contact us at Walters Home Management.
When it comes to determining how much you are willing to pay in property management fees, you have to evaluate the price against the service you expect. First, determine what your goal is. You might be looking for the lowest price, the most experience, the best reputation and other things that will drive your expectations. If you are looking for a company with a great reputation, who is able to rent properties quickly, you might be more inclined to pay a higher fee for that level of service.
A good analogy to use when considering fees is what you would pay for other important services. Most people shopping for a great financial advisor are not going to make their decision based on the fees charged, but on the results the person has delivered to other clients. Likewise, when you or someone you love needs critical surgery, one of the questions is typically not going to be “how much do you charge?” You’re more interested in getting the problem resolved successfully.
Comparing property management services is similar. When you determine what kind of results you’re looking for, you look for the person or company you believe can consistently accomplish your goals. I recommend that clients focus on results and not get distracted by paying one or two percent more in management fees. Unless, of course, the lowest fee is the most important thing you value in a property manager. The key is in setting your expectations. The company charging the lowest fees may not have the resources to show your vacant property immediately which, in turn, costs you money in lost rents. Lost rents on a vacant property can quickly surpass any savings you may realize on a slightly lower management fee.
Consider what the property management fee includes. It will typically include rent collection, the supervision of maintenance and repairs, payment of bills associated with the property, inspections, and lease renewals. Be careful about whether these things are included in your management fee or if additional fees are charged for these services. One management company may charge a 10 percent management fee that is all inclusive while another management company charges an 8 percent management fee but then tacks on additional administrative or processing fees that when added up can be much higher than 10 percent. Make sure you look at all of the details, and not just the management fee.
If you are looking for a professional property management company, please give us a call. Contact us at Walters Home Management for information on what we provide to our tenants, and how you can get the most from a relationship with a great property manager.
Most property owners want to minimize the amount of time their rental properties are vacant. The best way to fill your vacancy in San Diego faster is with curb appeal, curb appeal, and curb appeal. Make sure your landscape looks sharp. If you have a winter grass, it is likely to cost less than $50 to over seed with rye grass. This will really give your property a pick me up in the winter, and it will provide an appealing look for prospective tenants.
Keep the interior of the home super clean. There should be no distractions. As much as we love all of our children’s report cards and art projects on the front of the refrigerator, they can be a distraction to the people viewing your property. Make everything look streamlined and clean. Give special attention to the kitchen and bathrooms. Window tracks should be clean and functional, switch plates and door casings should be free from hand and finger prints. Remember that you want the property to say “RENT ME!” Create a sense of urgency by making sure all the repairs and maintenance are done before you show the property. You want to give prospective residents a reason to give you a deposit. You don’t want to send them off with a list of things that are going to be done later.
Write a descriptive ad and include great pictures. With today’s technology, if you don’t have pictures attached, you might as well not place an ad. No one is going to bother viewing your ad if pictures are not included. I know that sounds like a broad statement, but in today’s environment, it’s true. An ad without pictures will immediately make a potential tenant wonder what is wrong with the property that pictures would not be shown. You want to make sure your pictures match your description. I recently saw an ad that said “gorgeous remodel, completely redone.” But the pictures in the ad showed a worn down exterior with no landscape, only empty patches of dirt. It may have been gorgeous on the inside and the owner was waiting to finish the exterior, but the pictures turned me off. Show off your property highlights with great pictures. Make sure all the lights are on and windows are open to let natural light come in as well.
Research competing properties. You want to make sure your property is priced right so your listing gets a lot of attention. Once you place an ad, the clock starts ticking. If you don’t get the activity you were hoping for, you’re either priced too high or the pictures you’ve posted aren’t generating enough interest. If it’s the price, a quick search of the area will let you know. When I have a client who wants to test the market for a higher rent than I’ve recommended, I always prepare them to adjust the price in no later than seven days if the activity is slow or non-existent. Vacancy will always cost you more if you leave a price too high for too long. You can lose any advantage to a higher price by a property sitting on the market, vacant. If you can rent it faster at a slightly lower rate, you’re generally in a better position.
Have open houses on the weekend or in the summer time after work. When you make your property easy to see, it will rent faster. Have a few showings at the same time, especially if the property is vacant. People can freely walk around the property and if it’s clean and ready to go, you’ll create a sense of urgency between the people viewing it. The concern that someone else might rent it first will help potential tenants fill out applications and leave you with deposits.
All in all, the property that is clean, smells fresh and has good curb appeal will always rent faster than the one that is still in the process of being made ready. A little elbow grease and sprucing up goes a long way towards minimizing vacancies.
If you have any questions on how to rent your San Diego property faster, please contact us at Walters Home Management.
Today, we are talking about security deposit requirements that San Diego landlords must remember when renting out a home. As a landlord, it is critical you have the confidence you are operating within landlord tenant laws as it pertains to security deposits. Many owners I meet with are often surprised to learn there is a limit to the amount of security deposit you can require on a residential rental.
When you rent out a furnished property, you can only collect three times the monthly rental for a security deposit. When you rent a property unfurnished, you are limited to twice the monthly rent. In addition, remember that setting your security deposit too high will become an objection for applicants when you’re marketing the property. Make sure to keep that in perspective. If you’re properly screening your tenants and making sure to get landlord references from their current and previous landlords, an amount close to the monthly rent will typically be sufficient to cover most repairs beyond ordinary wear and tear.
The days of collecting first month’s rent, last month’s rent and a security deposit are long gone. A property renting for $1,800 per month would require move-in funds of $5,400 under that scenario. This is cost prohibitive for the average tenant looking to rent. First month’s rent and a security deposit equal to or slightly above the monthly rent is what we recommend to our clients.
I also recommend adding $500 to the security deposit when a pet is approved. Do not, however, name that $500 a “pet deposit”. Simply increase the total deposit. If you separate out a pet deposit from a security deposit, you are limited to using that pet deposit exclusively to damage caused by the pet. For example, it cannot be used to repair a bathroom towel bar or replace a broken light fixture. It’s best to simply increase the total amount collected as a security deposit.
When a tenant moves out of your property in California, the landlord has 21 days to prepare and provide an accounting of how the security deposit was used. You must also provide proper documentation to the tenant. This is another area that many landlords find confusing and there are legal requirements to consider. In California, if a landlord withholds $125 or more from the tenant’s security deposit, the tenant must be provided with a copy of all invoices substantiating the expense together with the accounting, which is the detail of the charges. This accounting is referred to as a disposition.
Make sure you do not exceed the 21 day time frame that the law requires. Failure to have it postmarked within that period can result in the tenant getting awarded the return of the full security deposit, regardless of any repairs or damage.
If there is a time issue because extensive repairs are necessary, make sure you send out – at a minimum – an estimated accounting of the security deposit, noting what invoices you are waiting for. Provide the name, address and telephone number of the contractor or company you are using to complete the repairs. Once you receive those invoices, provide a final accounting to the tenant within 14 days of your receipt of those invoices.
The most important things to remember are that you are limited to two times the monthly rent when you are renting an unfurnished property, and it is absolutely important to keep within the 21 day timeframe when your tenant moves out. If you have any questions about how to establish your security deposit requirements, please contact us at Walters Home Management.
Many property owners are unsure about how to handle tenants who are delinquent in paying rent. It’s important to know how to handle a tenant that may not be able to pay their rent on time. Some owners take a hard line right away and start posting notices immediately. Other owners are reluctant to be so aggressive and end up a few months later with a seriously overdue tenant. There are a few things to consider if you find yourself with a tenant who is more than a few days late with their rent.
First, communicate. Contact your tenant to find out why the rent is late. I recommend a telephone call instead of texting or emailing. A personal conversation goes a long way towards finding out what is really going on and it will prevent your tenant from evading your questions. When you talk to the person, you can really hear what is going on both by what they say and how they say it. You’ll react much differently to a tenant who responds with a nonchalant attitude than a tenant who is clearly stressed about their delinquency and wanting to get rent paid as soon as possible.
Find out what is causing the delay. You are going to need to know if this is an isolated situation, or whether this will be an ongoing problem. If it’s ongoing, it will help you decide on a plan of action.
If this is a long term tenant who is otherwise on time with their payment patterns, it’s okay to be flexible. Just get a firm date on when they will pay the rent. I do not recommend allowing the non-payment to go beyond two weeks. Find out if they can make a partial payment. If the answer is no, this might be a red flag for you. If you find yourself with a tenant that is more than a month behind, consider running a credit report. This will help you find out if they are behind in their other obligations as well. Just make sure your lease and your application, signed by the tenants, give you permission to do this.
Suggest that your tenant borrow rent money from family. This is a good response if they tell you they cannot pay you until they get paid again, which is seven days from now. A family member is much more likely to lend the tenant some money and get repaid than you, the landlord waiting for payment.
Regardless of the scenario or the reason, always post a 3 Day Notice to Pay or Quit. First, it will shorten the waiting period for you if you do need to file an eviction, and it also sends a clear and formal message to the tenant that rent is due and it needs to be paid now. If you are choosing to give a tenant several days to pay their rent you can simply explain that the service of the notice is precautionary and necessary in the event they do not keep to their commitment. If their intention to pay is sincere a tenant will understand why this notice needs to be served.
I often get calls from owners who manage their own properties and find themselves with a tenant who is one or two, sometimes even three months late in rent. Unfortunately, a tenant who is more than two months late is not likely to get caught up. The owner will be looking at an eviction at that point. It’s too overwhelming for the tenant to try and come up with that much money as well as deal with whatever stress is causing the late rent.
Here are a few suggestions to owners who find themselves in that situation:
Offer to let them out of the lease. If they can move within two to three weeks, everyone will be happy.
Pay them to leave. I get a lot of raised eyebrows when I say that, but it can be less expensive to give the tenant an incentive to move. It will eliminate your need to pay for an eviction, which can cost between $800 and $1,200, and you will not have to endure the nonpayment of rent while you go through the process. Overall, it’s a good remedy to consider.
At Walters Home Management, we have had positive experiences by relying on open communication with our tenants. We exercise discretion and compassion when appropriate. We find this leads to a better result in the long run. We understand late rent payments can be stressful. If you would like to talk about your options, please contact us, we’ll help you find some peace of mind.
Many landlords in San Diego wonder what should be included in a residential lease document. There are many elements that must be included, and you want to make sure you have everything in writing.
Start with the term of the lease. State whether it is a month to month agreement or a longer term. Your lease should have a beginning and ending date. Make sure all occupants over the age of 18 sign the lease agreement. They should sign jointly and severally, meaning if one tenant cannot pay the full amount, you have the right to collect that from the other tenant or tenants. This is an especially important provision in a lease when you are renting to roommates who will all be contributing to the rent.
List where to pay the rent and instructions on how to pay. You must include an address and a telephone number. Include any pet requirements as well. Name the pets and include the breed and weight. It helps to be specific about what is required at the termination of the tenancy. If you will require that the property be treated for fleas when the tenant leaves, put that in the lease. Your lease should always include a provision that a tenant’s pet cannot be a nuisance or disturb the peace and enjoyment of neighbors. This is particularly important with dogs. There is nothing more annoying to neighbors than a continually barking dog.
Include any landscape requirements. Spell out who maintains the landscaping and what will happen if flowers or bushes die during the tenancy. Most leases refer to adequate irrigation. Mention the utilities as well and stipulate who will pay for what. Be specific.
If your property is in a community association, make sure to include a provision that the tenant acknowledges receiving a copy of the Rules and Regulations and agrees to follow them. You have to clearly state that any violations by the tenant which results in a fine by the HOA will be the tenant’s responsibility.
In California, standard disclosures in your lease will include Megan’s Law, a mold addendum, lead based paint and satellite dishes. Consider adding addendums if your property has a swimming pool or is on a golf course.
If there are non-built in appliances such as a washer and a dryer or a refrigerator, establish who maintains them. Some owners have their lease state that the washer/dryer and the refrigerator are the property of the owner, left for the use and convenience of tenants but the owner does not intend to repair or replace them. Without this clause, it could be implied that everything in the home is included in the rent when a tenant takes occupancy and will be maintained.
Explain what will happen if the tenant breaks the lease. It should be clearly addressed what the tenant’s responsibilities are in the event of early lease termination. Mention any fees they are responsible for paying such as rental commissions to secure a new tenant.
The bottom line is that everything must be in writing to eliminate any confusion. All tenancies start off with everyone happy, getting along and being in agreement. A well written lease will give you peace of mind when a challenge or difficult situation comes up. The lease will cover it. As a rental property owner, you may want to consider consulting with a professional property manager who specializes in residential leases. This will ensure you are protected.
When we discuss how landlords manage their pet policies in the San Diego area, the most important thing to consider is your ultimate goal. For most landlords and property owners, the primary goal is to keep your property occupied and maintained. In order to reach this goal, you have to consider that more than 60 percent of renters have at least one pet. This might be a dog, a cat or maybe one of each. If you decide to enforce a “no-pets” policy with your rental property, it means you are limiting your rental pool of potential tenants to 40 percent of the available population. This could result in a longer vacancy for your property.
Since your rental property is an investment, it is important to evaluate the risk and return of maintaining a no-pets policy, especially if it will result in a longer vacancy. If you rent out your property for $2,000 per month, and you have two weeks of additional vacancy because you cannot find a good tenant without a pet, it will cost you $1,000 in lost rent. You really have to think about whether that loss is worth a no-pets policy. What is the likelihood that a well screened applicant with a good pet, properly referenced of course, will result in more than $1,000 of damage caused by the pet? It’s not a high probability that the pet would ever cause as much damage as your lost rent.
When you do allow pets on your property, just make sure your tenants have renters insurance with additional liability if a dog is approved. At Walters Home Management, we require a minimum of $500,000 in liability insurance for dog owners. Remember that you have the right to deny dangerous breeds. We tend to disallow breeds such as Rottweilers, Pit Bulls, German Shepherds and the like. They are probably lovely dogs of those breeds that make good pets, but we evaluate the risk of having animals like that on our properties. Also, check your homeowners insurance policy. There may be specific breed restrictions included in your policy.
Consider meeting the pet yourself before you make a decision on the tenant and the animal. When someone considers filling out an application, invite that potential tenant back with the dog or cat. This might help alleviate some of your concerns and make you feel more comfortable about having a pet on your property.
Include a provision in your lease agreement that addresses the tenant’s responsibility for ensuring the pet is not a nuisance to the neighbors. This is especially important when it comes to barking dogs. Make sure your tenants understand that the landscaping must be kept in good order as well. This is especially important if you have a gardener who takes care of your lawn and landscaping. Make sure the tenants pick up after their pets on the day the gardener comes. You’ll have a much happier gardener!
At Walters Home Management, we have a specific program to help owners work through their concerns about having a pet in their rental homes. We call it a Preferred Pet Program and basically it requires a tenant to agree to an inspection every six months. This helps us and our owners make sure there is no damage to the property.