What Options Do I Have if My Tenant Needs to Break Their Lease?

What Options Do I Have if My Tenant Needs to Break Their Lease?

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What Options Do I Have if My Tenant Needs to Break Their Lease?

 

Some of the best property management advice you’ll ever receive is simply to plan on bad things happening. No matter how lucky you are, something will inevitably go wrong and cause you to need a backup plan.  It’s how you prepare for these contingencies that will ensure the long-term profitability of your Utah rental property.

 

One of these inevitabilities is when your “perfect tenant” needs to move out early. Unfortunately, this situation is not uncommon, and you need to protect your investment. Here is a list of options available to you:

 

1) Include a lease buy-out clause – One easy solution is to include a lease buy-out clause in your rental agreement. This clause is essentially a dollar amount you set to allow the tenant to exit their current lease with no further obligations. This figure is typically set between one and three months rent. This strategy is a bit risky though, since you are basically wagering that it will not take you very long to re-rent the property. If you end up with a prolonged vacancy however, your buy-out amount may not cover your losses in rental income.

 

2) Allow them to find a replacement tenant – This is where you allow them to find someone else to move in and take over the lease. This can be a good option, but be careful. You must provide them with your rental criteria and inform them anyone they find will be measured against it. Also, be sure to receive a signed lease and deposit from the replacement tenant before allowing your existing renter out of their lease. The upside here is your renter will do much of the work, but make sure they know you are in control.

 

3) Charge your tenant the cost of re-renting – In this option, you can simply charge your tenant the costs you incur while trying to re-rent. These include unpaid rent, marketing expenses, cleaning and labor costs, as well as any damages. However, you must actively try to re-rent your property because you are legally obligated to minimize these expenses to your former tenant.

 

Whichever option you choose is up to you, and there is no “correct” answer. Each option will have its pros and cons, but what’s important is that you have a plan. Planning ahead and remaining flexible will always help you adjust to whatever challenges may be thrown at you.

Why Investors should purchase Multi-Family Homes in Utah?

Why Investors should purchase Multi-Family Homes in Utah?

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If you asked five different investors what the best real estate investment strategy is, I am sure that you would receive 5 different answers (every one being a viable strategy). While some may prefer subdividing land or a fix and flip strategy, I prefer the buy and hold strategy, particularly with multi-family homes.

 

While multi-family home investing is not a “get rich quick” plan, I do feel like it is the best long term solution to building wealth through real estate. You may be asking, “why multi-family properties instead of single family homes?” My answer to this question is simple – risk management. Below are some of the greatest benefits that you will experience by investing in multi-family properties compared to single family homes:

 

  • The cash flow should be greater – Due to the fact that you will have multiple rents coming in for one property, your cash flow should always be greater for a multi-family property compared to a single family home.
  • Risk of vacancy – If you have a tenant that moves out of your single family home, you are receiving no monthly income and are operating at a negative cash flow until another tenant moves into your rental property. If this takes several months, you will have suffered a significant loss that will you will never be able to recoup. On the other hand, if you have one tenant move out of your multi family property, you still have income coming in for the other unit(s) while you fill the vacancy. This will still negatively impact your monthly cash flow until the vacancy is filled, but not nearly as much if you were receiving no monthly income at all.
  • Property management potential – Since your cash flow should be greater on a multi family property, you may now be able to afford a property management company to find great tenants and manage all other day to day aspects of managing your investment. This will allow you to focus your time and energy on finding other potential multi-family properties to invest in.
  • Economies of scale – If you purchased eight single family homes throughout Utah, you would need to manage eight different tenants located in different locations. You would also have the risk of eight different roofs needing to be repaired, eight different air conditioning units that would need to be managed, and eight different yards that would need to be maintained. On the other hand, with an eight-plex you would get the benefit of the eight tenants, but they would all be located at one central location when responding to maintenance issues. You would also only need to maintain one roof and one yard, thus significantly reducing your risk.

Multi family investing can be a very attractive option to an owner that would prefer to hold the property for the long term. If you would like to discuss investing in real estate or would like to have your multi-family property managed, please consider hiring FRE Property Management. We are the premier property management company in Utah and will provide you with the peace of mind knowing that your investment will be taken care of. Contact us today at 801-673-5692.

Rental Advertising Tips for your Utah Rental

Rental Advertising Tips for your Utah Rental

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Rental Advertising Tips for your Utah Rental

 

Nothing puts a landlord on edge quite like a vacant unit. With no one to pay rent and expenses piling up, most want nothing more than a phone call from a qualified prospect to put their mind at ease. Sometimes renting your property is as simple as combining well written ad copy and strong sales skills. Use these tips when marketing your vacant properties.

 

Start with the basics – Good copywriting is certainly an acquired skill, but you’d be surprised how often even basic information is missing from Utah rental property listings. Always include the rental amount, property address, and property specifics like bed/bath and square footage.

 

Highlight features and benefits – Even the least desirable unit has some benefits and it’s your job to discover and highlight these. Top floor units typically have views, ground floor units are easily accessible without stairs, and homes on a busy street are closer to bus lines and freeway entrances. Every property has something that makes it unique and attractive.

 

Provide lots of information – The more details you provide, the more a prospect knows if your unit is the right fit for them. Items you should provide include detailed photos, lease terms and deposits, application process details, etc. Being this specific may limit your total number of showings, but you’ll find that the prospects who do contact you are much more qualified.

 

Sell to your audience – When showing your vacancies, try to point out features that will be important to each individual prospect. If you are showing the home to parents with young children, point out safety features like a fenced in yard. If your prospect is a student, highlight how close the unit is to public transportation that goes by the university. By tailoring your presentation to each individual tenant, you will be much more likely to fill your vacant unit.

 

Having unoccupied rental units can be very stressful for landlords, but there are some simple things you can do to help fill them quickly. Follow these tips next time you post your vacancy and watch how quickly it gets filled.

 

Why Investment Property Owners in Utah should consider refinancing through HARP?

Why Investment Property Owners in Utah should consider refinancing through HARP?

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Why Investment Property Owners in Utah should consider refinancing through HARP?

As most lenders continue to tighten mortgage requirements for investment properties, it has made it impossible for many owners to take advantage of historically low interest rates. As an investor myself, it pained me to continue to pay the mortgage on my rental property each month at a 6.5% interest rate knowing that interest rates were currently  being offered for 4%. I don’t know any investor that couldn’t benefit from the increased cash flow by reducing the interest rate on his/her property by 1.5%. I continually tried to refinance, but due to the fact that I had purchased this property in 2007 and was underwater, no lender would even entertain refinancing my mortgage.  Lucky for me a colleague of mine mentioned the possibility of refinancing through HARP.

As a property owner in Utah, you may be eligible for HARP, or the Home Affordable Refinance Plan. This was enacted in 2009 by the US government in order to allow home owners to refinance his/her rate in order to continue paying the mortgage each month and avoiding foreclosure. This was the perfect option for me, as it does not require the home to be owner-occupied and does not require an appraisal. Earlier this month, I was able to refinance my rental property from a 6.5% interest rate to 4% with closing costs totaling $500. In turn, the cash flow on my rental property went from break-even each month to $250 positive cash flow.

So what is required to qualify for HARP? First of all, your current loan must be backed by either Fannie Mae or Freddie Mac. Second of all, your current mortgage must have a securitization date prior to June 1, 2009. If these two criteria are met, you may be eligible to refinance your current mortgage through the HARP plan. Unfortunately, if your current mortgage is FHA or a jumbo loan, you will not be eligible for HARP.

So I am eligible for HAP, what do I do now? The first thing I would do is reach out to your current mortgage servicer and inquire as to the interest rate you would be eligible for with this program and the procedure to initiating this refinance. I would also reach to a few local mortgage brokers in order to determine if the interest rates they can secure are lower than the rate offered by my current mortgage servicer. It is also wise to determine the closing costs offered by each in order to determine your break-even point. Once you decide, be prepared for the process to take a significant amount of time. Lenders are receiving as many as 1,000 application per month with prospective owners wanting to participate in this program. From the time your application is submitted, the process may take 3-6 months. I will tell you though, that the savings can be well worth the wait.

If you would like more information regarding the HARP program or would like to have your rental property managed, please consider hiring FRE Property Management. We are the premier property management company in Utah and will provide you the peace of mind knowing that your investment will be taken care of. Contact us today at 673-5692.