A truly significant trends has been the merging of two households into a single rental. In some areas owners are making minor modifications to their houses to enable two rent payers to occupy a single family house. Let's take a three bedroom, 2 bath house which rents for $400 per month. It might be suitable for 2 childless couples who'd share kitchen accomodations and living/family room areas for a rental of $250 each. Ergo, their rent expense goes down while the owner's income goes up by $100. Naturally, this carries some risks, but profits are high. If you consider that the same house might require $375 in operating expenses and payments, what was formerly a $25 per month cash flow has increased to $125 or 500% PER MONTH!
The same approach has been used to install renters into RVs and trailers place. at the rear of a large residential lot, or to convert garages into separate apartments for rent, or to merely rent the garage to another party for storage thereby supplementing rents. In one instance we encountered a 1200 square foot house which had been especially constructed to house 5 single men as renters. Truckers, they need a place to store their possessions, but spent most of their time on the road. They didn't cook in their rooms. They paid $55 per week each for a sink, office type refrigerator, a bed, table and chair. Each had a separate outside entrance and a door giving access to a common living room for social events. They shared a common bathroom and shower. Each had his own parking spot. Look at the numbers: $1182.50 gross rents per month, $14,190/year for a building which cost $28 per square foot to build including the lot. The widow who owned it was getting a 30% return after expenses cash on cash.
Last year, my rental contract contained a limitation of 10% on any rent increase The Tenants paid me the equivalent of a month's rent for an Option to extend their contract for an additional year at “no more than” 10% increase. This year, I sent 31 of them a note inquiring as to their intentions. I reminded them that they had already purchased an Option to renew and would forfeit the Option consideration if they chose not to. I offered them an extension of their Option for one more year if they paid the increased rent. Thus I avoided any “rent raise” in a recession year. Then I offered to reduce their rent increase by $10 if they'd agree to paint, repair, bring lawns back to life, etc. I was inundated with acceptances. I lost 4 out of 31 and increased overall net cash flows by over $1000 per month. I also delivered over $500 in paint, had tile laid, fences built, and trees trimmed at no cost to me. Giving tenants a chance to work out costs really helps everyone.
Whether we know it or not, each of us has an organization we should use in our management efforts. Less an organization than a federation, it is comprised of other investors and owners or managers in our area. I make it a practice to share ideas, tools, advertising, market insights with others. I've watched their properties when they were
on vacation and they've done the same for me. We lend each other appliances, share repair men. In short, we cooperate to hold down our expenses to remain competitive in the market.
Over and over I hear that one “just daren't raise rents” because the market is too soft. I challenge that unless there has been a major exodus of renters, house sales are on the increase, or depression is too severe in a particular area. Our rental contract ends the rental year for all tenants on the same date. When I send out the rent raise letters, I don't invite negotiation although rent increases are based upon costs and my own cash flow requirements. My rents are usually low market because my costs are low. When all tenants are thrown into the market looking for essentially similar housing, it CREATES A STRONG RENTAL MARKET as each perceives a shortage of that type of housing. They renew early as a rule to assure their own housing availability. I sent out my letters this year at a time when I had 5 vacancies. The market I had created immediately filled my vacancies at a time when I was increasing my rents. Soft markets are similarly created by owners who won't test the market. As a result they lose money and cash while others gain. In any business, increased profit margins allow one to pull ahead of competitors. As a landlord or landlady, you have to keep increasing your cash flows to become financially independent.
