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Who Is Actually Managing Your Property?

When choosing a property management company, it would make perfect sense to interview the actual person that will be managing the property, right?  Many investors make the mistake of not interviewing the actual property manager.  Property management companies value prospective clients and will have the owner of the company, or a trusted employee speak with the new prospect to try and earn their business.  The investor will like what the company has to offer and hire that company to manage their property.  What happens next is the property is handed off to Merv, who lives in a van down by the river.  Had they interviewed Merv directly and realized that maybe he wasn’t the most qualified, would they have hired this company?  Probably not.  How do you know a property manager is capable, experienced, and willing to properly care for the investment if you don’t interview them?  This would be like having a surgery and choosing a hospital, but never giving consideration to whom the doctor might be.  I’m sorry, but for me the doc is far more important than the hospital.  A management company might have the best software, the best phone systems, the best office location, best price, etc.  All of that will not matter if you don’t have a good manager.  A bad property manager can cost you thousands over a very short period of time.  A great company is definitely important, but the actual person caring for your property will have the greatest impact on the success of your investment.

 

 

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Aggressive Move In Deals For Apartment Style Units

“How much is it going to cost for me to move in?”

When it comes to apartment style units, this is the question most frequently asked and usually has the biggest impact on the decision to rent the unit or not.  You might ask, “Even more than the monthly rent amount?”  The answer is yes.  The reason is because apartment renters are typically not looking for a place to rent for the next 5 years.  They will complete their contract and keep their options open.  With shorter term thinking, the move-in cost plays a bigger role in their decision.

The logic behind move-in specials is to get your vacancy filled as soon as possible in order to maximize income.  Minimizing your down time and doing whatever it takes is crucial to your long term success.

The hardest part of this concept to grasp is many investors want to collect a large deposit to protect themselves against damages.  My response to this is to know your market, know what your direct competition is charging, and set your rates accordingly.  If there are free move-in deals on an apartment complex next door, you might want to consider that or you could sit vacant a long time.  There are more 2 bedroom units for rent than any other type of dwelling, creating a very competitive market.  In a good market, move-in specials are not always necessary and the market will dictate that.  In a soft market, aggressive move-in deals are the only way to stay relevant and fill vacancies.

Another common concern is “If I have too good of a move-in deal, we will only attract bad tenants.”  Are you kidding me?  Do you honestly think that good tenants don’t like to save money too?  Every successful person I know likes a good deal.  Sure, you will get some interest from people without jobs looking for a cheap place to move into, but as long as your property manager is thoroughly screening your prospects, this should be a non issue.  This is ludicrous logic and not simply not valid.

Having the right property manager will help put you in the best position possible to succeed.  I have taken over properties from previous management companies because the owner was not happy with vacancies.  Almost without fail, the previous management company was not up to date with current market trends and conditions, therefore they were getting out competed.  Having market knowledge and adjusting rents and rates accordingly, is key to any investor’s success.

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When To Replace An Old A/C

If there is one bit of advice I can give an investor, it is to ‘think big picture.’  Too many times an investor makes their decisions based on short term thinking, inevitably costing them thousands of dollars in the long run.  This way of thinking really applies to air conditioning units.

Here is how owners cost themselves thousands based on short term thinking:

1.  I manage several rentals that have 10+ year old A/C units.  Through out the summer months it is not uncommon to get 1-3 repair calls on any older unit.  A given repair can cost anywhere from $75-$400 depending on the problem.  My advice when you get to this point, is to stop putting good money into a bad, old system.  If you battle this year after year and keep putting money into it, you will eventually have paid for a new unit, which you will end up doing regardless at some point.

2.  Every summer I get tenants that come into my office and show me their high electric bill and ask that we fix their A/C unit.  The truth is, there is nothing wrong with it.  The unit is just old and not nearly as energy efficient as the new models.  When I replaced the A/C on my own home, I instantly saved 30-40% on my electric bill.  That is big money!  It is difficult to keep a long term tenant when their electric bill in August is almost as much as their rent on an 800 square foot apartment.  In the long run, this can cost an investor thousands due to the constant turnover expense and loss of rent.

When I call and present an investor with, “Would you rather spend $250 and fix your 15 year old A/C, or spend $3500 and install a new unit?”  The natural response is to spend the $250!  But I challenge you to think differently.  Instead of basing your decision on “what will it cost me today?”, ask yourself “what will net me most money over the next 5 or even 10 years?”.  If we base our decisions on the long term, we will make better decisions for our properties.  I have said it before and I will say it again, the secret to owning successful investment property is minimizing your vacancy and turnover.  Don’t give your tenants a reason to move because of the 15 year old A/C unit that breaks down 3 times a year and cost them a small fortune in electric bills.  When the time comes, replace it!  You will end up doing it anyways.  You might as well do it sooner than later and reap the financial rewards of happier tenants.

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Arizona and Air Conditioning

Well it is starting to heat up in Arizona and that means one thing for any Arizona investor: Air conditioning expense.

When I bought my first home my Dad was my realtor.  I had found a house I really liked and wanted to put an offer on it.  The first thing my Dad brought to my attention was the age of the air conditioning unit.  Even growing up here in the desert, that had not crossed my mind.  He pointed out that the A/C unit was nearly 20 years old and that I should plan on replacing it within the next few years.  I purchased the home and sure enough, I had to replace that unit within 2 years.  Now because my Dad had brought that to my attention and educated me, when the time came to drop several thousands on a new A/C system, I was okay with it because I knew the day would come and I was prepared for it.

When I first got into property management 7 years ago, about 90% of my clients were from California.  I was absolutely shocked at how many of them did not fully understand what they were up against as far as the extreme heat that we deal with here in Arizona.  Apparently their real estate agent forgot to mention that it gets so hot here you can cook an egg on the hood of your car.

The absolute worst call that I have to make as a property manager is informing an owner that their A/C unit needs to be replaced.  I dread it.  I would rather pay a visit to the dentist than make that call.  The reason is because I never know the response I am going to get.  Due to my profession and education, I know that the owner does not have a choice, yet so many think they do.  I have had responses like “no, I don’t have the money” or “can you give me a couple of days to think about it?”  The answer is, no, I can’t.  You are legally obligated to handle it quickly.  Arizona law protects tenants and actually considers it an emergency when air conditioning is down due to the fact that it impacts the health, safety, and welfare of the tenant.  Now most of my clients do handle it professionally and quickly, and that is always a huge relief to me!

Whether you are purchasing or currently own rental property in Arizona, it is important understand the law.  It is also vital to know the age and condition of your A/C units.  As stated in my previous blog post, be prepared.  If you have an A/C unit that is over 10 years old, be ready for the day it needs to be replaced.  A $3000-$4000 dollar expense is so much easier to deal with when you see it coming.

 

 

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Being A Prepared Investor

Being a real estate investor definitely has its ups and downs.  I have seen investors have bad days, bad months, even bad years.  I even had one client, who had purchased a very tough property, actually break down into tears during a phone conversation!

So what causes such turmoil with rental property?  Vacancy, turnover expense, eviction, replacing air conditioning units, etc.  The list can go on and on.  But it always comes back to one commonality: MONEY.  When there is more money going out than coming in, this can be very stressful on an investor.

The only remedy I know is to simply be PREPARED.  This applies to almost any aspect of life.  When we are prepared for misfortune, we can get through it much easier than when it blindsides us.  The same goes for rental property.  Investors need to understand that not everything will go perfect.  There will be problems and challenges that arise.  When you are prepared for them, you will get through them easily and move on.

Building up a healthy cash reserve is the best preparation one can take.  Those that have cash set aside for their properties have less stress and get much more enjoyment out of their property.  In the long run, there is less deferred maintenance and more proactive improvements.  Property owners that have cash available have better properties, better tenants, and generate more income over time because they have the ability to take care of their property as needs arise.  There is a reason they are called Investment properties. They require the Investor to Invest in the property.  So if you don’t have a reserve set up for your rental property, do it!  You will be better investor, have a better experience, and be happier for doing so.

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How To Rent Your Property Quickly

As a property manager I am quite frequently asked “How long will it take to rent my property?”  Most of the time they want an actual date, just short of a guarantee!  We all know that the longer a property sits vacant, the more loss of rent the investor incurs and ultimately hurts their return on investment.  The successful investors understands that minimizing turnover and vacancies nets them more money in the long run.  Although I can’t give an exact date or guarantee, I will share 3 key factors on how to rent quickly.

 1.  Location

Where your property is located has a direct impact on the ability to find a renter quickly.  For example, if your home is located on the corner of a street that generates a lot of drive by traffic, you will inevitably get a lot of interest as a result of the amount of people that are being exposed to your product.  If your home is located at a dead end, you will be lucky to get a few cars driving by each day.  The more people see your property, the better chance you will have to rent it fast.  

2.  Quality

To rent quickly, your property must show well.  What does this mean?  It means when your tenant moves out; paint it, clean it, replace the $30 broken blinds, replace the 10 year old carpet, update your property when it is needed, etc.  You get the point.  If you would not want to live in a place with worn out carpet, what makes you think a renter would?  If your property is undesirable, it won’t rent.  During showings, you want prospective tenants to walk in and say “I want this house!”  Remember, your property is not the only one on the market, there is competition.  Make sure your property is updated and current and not only will you rent quicker, you will be promoting long term tenancy.

3.  Price

In the end, price will play the biggest roll in filling your vacancy quickly.  A good price can overcome Location and Quality.  Plain and simple, if you are priced too high your property will sit vacant.  People aren’t stupid, they will find the deals.  If you want to have as little down time as possible and fill your vacancy, you need to be at or below market rent.  The lower you go, the bigger the window of opportunity you will have.  This is simple logic, but it is proven and it works.

Without fail, any property that I have had sit vacant for an extended period of time was due to one of these 3 key factors being out of line.  You can’t control location at this point, but take it into consideration when it comes to Quality and Price.  These 3 factors work together and balance each other out.  You can’t go back and make up lost rent.  Put yourself in a position to succeed from the onset and get that vacancy filled fast!

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2012 Market Prediction

The most frequent question I am asked from clients and investors that I represent is “How is the market?”  I read an informative article about a possible housing shortage in the Valley which will inevitably drive property values up.  Another interesting point is the prediction of a substantial increase in new home sales.  This will consequently create many construction jobs and have a direct impact on the rental market.  When the construction industry is strong, it is my experience that vacancy rates are lower which should create, at a minimum, a modest increase in rental rates.  This is good news for investors who have seized the opportunity and picked up properties at historic low prices or for the investor who weathered the storm and is ready for things to trend in the right direction.  The only downside is for those of us who would love to continue to pick up these bargain properties.  The best buyers market we have ever seen might soon be coming to an end.

http://eastvalleytribune.com/local/mesa/article_b7ed8380-4164-11e1-9ac3-0019bb2963f4.html

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Client Reviews

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