11th January 2009

The Economy’s Effect On Rental Property

posted in Real Estate Investing |

First off I’d like to wish everyone a Happy New Year for 2009. May it be the economic turnaround year that we’re all looking out for.

So the other day as I was preparing the spreadsheet I use to track income and expenses for my rental properties in 2009. After finishing that task, I had a chance to look back at the spreadsheet for 2008 and noticed a few things.

  • The constant expenses incurred by the properties (property tax & insurance) are lower than they were last year. This is a good thing since rents are ridiculously low due to the downward pressure exerted by a glut of housing units available for rent.
  • I had large gaps in rental income last year due to needed repairs and thanks to irresponsible tenants. Read a good example of that here.
  • Due to the number of new renters coming into the rental market, some with not-so-good credit, it’s now possible to ask for first month’s rent, last month’s rent AND a security deposit. Here in Melbourne, Florida for the longest time, tenants only were asked for first month’s rent and a security deposit. I’m not sure why this is but it seems the be the done thing here.

Seeing that there’s nothing that, I personally, can do about the ailing economy, here’s what I can and will control during the upcoming year:

  • Every time an insurance policy comes up for renewal, I will do some checking for alternative pricing. No more “automatic renewals” for insurance policies. Sorry insurance agents, you guys have had it WAY too easy for too long.
  • Regular property inspections: At least once a quarter, I will inspect each property to make sure that tenants are upholding their end of the agreement. (i.e.- they break it, they fix it) Too many times, I’ve had tenants bail on a lease and leave me with the repairs.
  • All tenants will continue to pay late fees. No exceptions. The other day, I had a tenant call me to say that they “mis-budgeted” due to Christmas (whatever) and could they pay late. “Sure,” I said “as long as you include the late fees.” I could tell that the tenant was hoping I would say “Sure and don’t worry about the late fees.”

So there you have it, dear readers, the Landlord-Success.com New Year ResolutionsTM for 2009!

There are currently 2 responses to “The Economy’s Effect On Rental Property”

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  1. 1 On January 11th, 2009, Boomer said:

    Good tips, all. Interesting about the depressed rents in FL. Here in the Seattle area we’re experiencing high demand for rentals but the demand here is chasing fewer units; we (thankfully) haven’t experienced the RE downturn to the extent of other areas of the country.

  2. 2 On January 25th, 2009, andy said:

    Remember the IRS rule on last months rent? If you require a “Last Month’s Rent” you must consider it as “Advanced Rent” and claim it as income in the year it was recieved. Don’t forget it!! the penalities could get out of hand. In addition, if you allow any tenant to use their security deposit as their last months rent, you must also cosider the security deposit as advanced rent and claim it as income the year it was received. A security deposit is just that, and dont get caught up in using it as a cash flow tool. During recent refinancing and a new rental purchase, the mortgage company was very interested in the deposits requiring a seperate checking or saving account for that money or counting it against me as a debt or unfunded liability even when our checking account balance was very high due in part to property taxes we pay outside of escrow. So put your deposits and other funded liabilities (such as prorated monthly property taxes) in a seperate account these days because it makes these underwriting programs function much easier when you go for financing of any kind.

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