The Joys and Pitfalls of Handling Houses For Rent
This includes condos, town houses, VRBO property, AirBnB, your first house for rent or the latest property you have added to your portfolio. When it comes to Boulder rentals, make certain you are protecting your own best interests first and foremost. I hear too many horror stories of perfect tenants turned into nightmare scenarios. Of home owners without even a key to their own property. And most frequently, of good people under renting their house and unsure how to handle the situation. This post will address concerns, FAQ, suggest ideas to improve your position.
The Risk of Under Valuing Boulder Houses for Rent
There is a big risk to landlords/investors when undervaluing a rental property. IMHO, this is a big risk. Perhaps the person will not care for the property in nearly the way you envision. Perhaps, the renter is willing to lose the security deposit and has no personal wealth at risk. That person/family could be very bad for your house, and you would have no financial recourse. Perfect tenants, under paying for Boulder rentals are robbing the owners of their deserved value. If you are going to take the risks involved with being a landlord, you deserve the financial rewards!
Recommendation #1: Research your market and understand the value of your property. I like to view rental sites such as Zillow, Craigslist and the local papers. See what similar Boulder rentals are going for. Maybe even visit some places to see how mine compares. This is a good exercise to complete 3-5 months before your current lease is up for renewal.
Know the value of your rental. If under valued, raise the rents. If dramatically below market, consider terminating your lease and starting over with a new, higher priced lease. Its in your best interests.
When Was The Last Time You Visited Each Of Your Boulder Rental Properties?
If you can answer “recently,” you are doing great. In today’s environment you really want to make certain you are getting inside your Boulder rentals on a regular basis. Why? Well, for starters, it is your investment. So watching over it just makes good sense. If you were trying to lose weight, you would check the calories, stand on a scale, evaluate your successes. Take the time to watch over your property.
Especially with the legalization of marijuana. I’m not asking if you are Pro or Against. Doesn’t matter. You need to know pot and houses are not a good combination. The nature of growing marijuana involves high intensity artificial lighting (by-product is heat), water and confined spaces. Heat, moisture and small spaces is a recipe for mold. And there are some horror stories emerging of fire damage, ruined heating systems and houses made uninhabitable from pot. So, consider visiting your Boulder rentals on a regular basis.
Need an excuse to visit your Boulder rentals? Go in the Spring to check the Air Conditioning and in Fall to inspect the furnace. This is recommendation #2!
BTW, it needn’t be pot. Dogs can destroy backyards – a yard can cost several thousand to replace. An overcrowded home can wear out quickly requiring new paint, carpeting, appliances – another several thousand dollars of your money to re-rent. Visiting is an inexpensive and smart way to keep a handle on your investment.
Pre-Qualify Perspective Rent To Own Tenants Before You Sign
And really, consult an attorney specializing in real estate law. Rent to own is a popular concept. I have a friend asking about that; its something her tenants would love. And it makes sense – the tenants had a bankruptcy and are under renting the house. In their eyes, the landlord is a perfect person to go along with their scheme.
The problem is, because of that bankruptcy, they do not qualify for a mortgage. Why would you want to lock up the future sale of your house to a buyer that cannot perform on the contract? They may say, “we’re working on our credit to buy in the future.” That’s nice, but you the owner will be locked into a sales contract with an unqualified buyer and no guarantee the buyer/renter will really do what’s necessary to improve their purchasing power. What if you had an emergency and really needed to sell? You couldn’t. Rent to own, in a hot market (Boulder/Denver currently) is a really dangerous option for owners of Boulder rentals.
Recommendation#3: Avoid Rent To Own in today’s Sellers market.
But, if you are going down this road, then consult an attorney. The contracts involved can be challenging; protect your best interests. And pre-qualify your tenant buyer. If they don’t qualify to buy now, there is no guarantee they will in the future. Don’t get me wrong – I’m a big fan of renting to folks with a Bankruptcy, foreclosure, whatever. I’ve had very good fortune with this — bad stuff happens; it doesn’t define people necessarily. But when it comes to converting one of my Boulder rentals into a sale, I want to make certain the buyer can really perform.
Increasing Rents and Signing Leases
In today’s Boulder rentals marketplace, the lease is there to protect you, the owner. Not the tenant. Sure, the tenant knows the rental rate won’t increase. But the lease is your protection. So as it comes up for renewal, step one – review what your value is. If you are low, send a notice in advance the rental rate will be increasing. Step two, sign a new lease. For an additional year. Your renter might want a shorter time frame. What this really means is, they want to move. Generally, it is in your best interests to sign for another year or, take the rent up and go month to month. You can bank those extra dollars for the time when your tenant does move out and you need to find a renter.
What if you have the “perfect most excellent tenant.” The rents come in early – usually on the 30th of the prior month. There are rarely complaints, sounds perfect. Except, the house is drastically under rented. My recommendation, # 4 for those keeping count: raise the rents. Your perfect tenant is likely to stay, especially in today’s Boulder housing market. Remember, you, the owner, are taking all the risk. And btw, this hot rental market is not going to last forever.
Huh? Why would the rental market change? Because the Federal Reserve has increased interest rates. With higher home mortgage rates, banks will loosen credit restrictions and more buyers will qualify to own. More buyers = fewer renters. I don’t think this will occur overnight, but gradually over time the hot Boulder rentals market will soften, with rates falling, as more folks become home owners. As my Mom often said, “Make hay while the sun shines.” That is – make your rental profits now while we have this great market.
The Joys Of Owning Boulder Rental Properties
There is some work. Some reason for concern, as I’ve mentioned above. But there are lot of great reasons to get into Boulder rentals. First and foremost, your mortgage will be paid by rents, not by you. Great way to leverage your wealth. And each year, the mortgage will reduce. Starting an investment property now could mean college tuition for your youngest or retirement for yourself in the future. You’ll get to make an impact on someone’s life. Having a place you lease might allow someone to live in this great city. Over the years I’ve received holiday cards and such from tenants appreciative of their housing. And it doesn’t hurt that you can also have some tax savings – consult your CPA – when it comes to holding property.
Know The Rules For Boulder House Rentals
You’ll need a rental license and inspection for your place. Here is a link to some information from the BARHA. And check out the City of Boulder site as well. For more on Rent To Own, visit this Blog I wrote.