Why Real Estate Investors
Should Disregard Most Housing Stats
By: Paul Howard, Florida Landlord Network
Here is A U.S. Market Overview of Housing Dated September 2024:
- Average U.S. home prices: Home prices dropped slightly in Q2 2024 to an average of $501,700, down from $519,700 at the end of Q1. -- Irrelevant to investors
- 30-year interest rates: As of September 16th, 30-year mortgage rates averaged 6.12%, down from 7.29% on the same day last year. -- Likely very relevant to investors
- Median days on market: The median days on the market was 37 days, up six days year over year. Days on market is a good indicator of buyer demand. -- Irrelevant to investors
- Homes sold above list price: In August 2024, 30.1% of homes in the U.S. sold above list price, down 6.1 percentage points year over year. -- Irrelevant to investors
- Average starter home mortgage payment: Monthly housing payments for starter homes sold in July were $1,981, up 4.4% from a year ago. By definition, a starter home is a smaller, more affordable house, typically falling between the 5th and 35th percentiles in sale prices. -- Irrelevant to investors
Overall, the above statistics are about families who buy or sell a personal residence. The buying and selling price of these homes is largely emotional and rarely includes economic calculations. Instead, they are based on comparable sales plus or minus certain "feel good" elements.
Rental investors should never pay attention to comps because investors do not buy buildings; they buy return on investment (ROI).
Thus, in theory, every investor considering a particular piece of property should calculate about the same maximum purchase price based almost entirely on their personal ROI target.
Here is a simple example of an all cash sale:
Asking Price: .....................................................................................................................................................................$400,000
- Number of rental units: ....................................................................................................................................................................................2
- Monthly Gross Rent per unit: .........................................................................................................................................................$1,500
Estimated Income
- Annualized Gross Rent: ..................................................................................................................................................................$36,000
- Estimated vacancy loss: ............................................................................................................................................................................5%
- Annualized vacancy loss: .................................................................................................................................................................$1,800
- Adjusted Gross Income: ................................................................................................................................................................$34,200
Estimated Expenses
- Management Fee (% of Adjusted Gross Income)...........................................................................................................10%
- Dollars: ...............................................................................................................................................................................................$3,420
- Maintenance Rate (% of Adjusted Gross Income)..........................................................................................................5%
- Dollars: ................................................................................................................................................................................................$1,800
- Property Tax (% of Asking Price)......................................................................................................................................................1.8%
- Dollars.................................................................................................................................................................................................$7,200
- Insurance.......................................................................................................................................................................................................$3,000
- HOA Dues (See "Never buy a property if there is an HOA")...............................................................................$500
- Total Expenses........................................................................................................................................................................................$15,920
- Net Income (Adjusted Gross Rent minus Total Expenses)..........................................................................$18,280
- Return on Investment (Net Income divided by Purchase Price).................................................................4.6%
Thus, if the investors’ target ROI is 6%, he/she must reduce the offering price accordingly.
This is why real estate investors are rarely affected by market gyrations. It does not matter what was the selling price of the property next door. The question is how much rent the property will produce.
Many landlords overlook late and partial rent payment. Neither of these practices are good but it could be worse than you think.
Veteran real estate investors almost never sell their rental property. Instead they borrow against the equity, that's tax free cash!
The rules governing security deposits for residential leases are primarily found Chapter 83. Here are the key points:
My Tenant Won’t Let Me Enter the Rental Property What Are My Rights?
There are three federal laws that regulate and define what a service dog is: The Americans with Disabilities Act, the Fair Housing Act and the Air Carrier Access Act. The Americans with Disabilities Act (ADA) defines service dogs as “trained to do work or perform tasks for people with disabilities”. Under the ADA, individuals with a disability include someone with a physical or mental health impairment that limits their life.
Tenants who have a bad rental history or a criminal history need a place to live just like everyone else. These characters know they can’t rent from large, well managed apartment communities because they check references. So, who are they looking for? They are looking for a nice, private landlord who thinks he’s is a good judge of character.
Our eviction business has seen a sizeable increase in the number of squatters moving into empty rental units. The stories are similar. The landlord discovers strangers have taken up residency in their rental home. Naturally, they are angry and worried. Will they become violent? Will they destroy the house? How do I get them out?
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Landlords are prohibited from requiring tenants to pay rent in excess of what is authorized by
HAP contracts. The Landlord may not demand or accept any rent from the tenant in excess of
the contracted.
Tenant Screening is without a doubt, one of the most critical steps in the property management process. A thorough and meticulous screening process can mean the difference between a smooth tenancy and a rental nightmare.
Fair Housing: Persons with Disabilities What are Reasonable Accommodations? Source
Your tenant has moved out. While your priority is to clean and paint and get the unit rented, there are a number of things which good business practice suggests -- and some which State law demands.
Your tenant left your rental apartment trashed, damaged and owing you money! Your tenant lied and took advantage of you. He may have skipped or you may have evicted him. In either case, he damaged your rental and cost you money! What do you do?
Bedbugs are small, reddish-brown blood-sucking, wingless insects. Bedbug bites usually clear up without treatment in a week or two. Bedbugs aren't known to spread disease, but they can cause an allergic reaction or a severe skin reaction in some people.
A Warning To Landlords -- Remember Landlords: You have an obligation to inform rental applicants of their rights regarding consumer reports.
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Is the unit abandoned? Can you take possession of the unit and get it ready for the new tenant? Not if you want to follow the law and protect yourself from liability!
Hoarding is a mental disability you may encounter as you work on a property. People who suffer from hoarding are protected under fair housing law and are entitled to reasonable accommodations in the same way people with other mental or physical disabilities are.
Tenant Screening - Why Use a Telephone Script? Benefits: To stay in control of the conversation. This is a business call. Treat it that way. To make sure everything you say is accurate with no hint of any kind of discrimination. To do a little preliminary tenant screening To send a strong signal that you are a good manager and that you will conduct a through background check before renting. To keep the conversation brief but thorough presenting a professional demeanor. Remember: Callers with a track record of broken leases, evictions, criminal history, etc. carefully listen to every word. They are less likely to call you back if they learn you are a good manager and that you will do a through background check including credit history, rental history, criminal history and demand proof of sufficient income. Also remember : The best tenants are just as fearful they will end up with a bad landlord as you are of a bad tenant. Good tenants like to hear your professional, through, business like tone. They want to hear you say you will conduct a background check. Also remember : The best tenants are just as fearful they will end up with a bad landlord as you are of a bad tenant. Good tenants like to hear your professional, through, business like tone. They want to hear you say you will conduct a background check.
HUD Guidance note that racial disparities in incarcerations rates will result in certain races, like African Americans, being denied housing more often than other races because of criminal screening policies.
Residential Lead-Based Paint Hazard Reduction Act directs HUD and EPA to require the disclosure of known information on lead-based paint and lead-based paint hazards before the sale or lease of most housing built before 1978.
Americans with Disabilities Act. The federal Fair Housing Act prohibits discrimination in housing on the basis of race, color, religion, sex, national origin, familial status, and disability.