by Stephen Michael White

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August 13, 2020

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Check out this episode of the RentPrep For Landlords podcast

Show Transcription:

Voice Over: (00:04)

Welcome to the RentPrep for Landlords podcast. Now your host Andrew Schultz.

Andrew Schultz: (00:08)

Hey everyone. Welcome back to another episode of the RentPrep for Landlords podcast. This is episode three 24, and I’m your host, Andrew Schultz. On today’s episode, we’re going to be talking about insurance policies for landlords setting the correct rent price for your rental and being invited to your tenants’ party. We’ll get to all that right after this

Voice Over: (00:28)

Water cooler wisdom expert advice from real estate pros.

Andrew Schultz: (00:36)

Our first topic of the day discusses how to choose insurance policies for your rental properties. This comes to us from Reddit. This is from the landlord subreddit a and this comes out of upstate New York. So right in my backyard, what do most landlords use? If you have multiple houses in your portfolio, currently I’m a small-time landlord with three houses. So I hold separate landlord insurance policies on each one. When does it make sense to have them grouped together? What insurance companies provide? These kinds of policies does grouping them, make it less expensive to have better coverage, such as cash value versus replacement cost. And there were a couple of other questions in here, but I want to just jump in with what we have right now. And this is interesting because insurance is one of those things that you can talk to a variety of different people and get a variety of different answers.

Andrew Schultz: (01:25)

One thing I will mention is that the best person to talk to would be a well-qualified insurance broker who can represent multiple different companies and help you find the solution that best fits your needs. Definitely shop around. You don’t want to look at just what one company has to offer, because you really won’t know until you start looking at other companies, whether that’s a good price, a bad price, good coverage or bad coverage, which is why I recommend finding an insurance broker and working with them directly because they’re going to be able to help you determine what the best possible insurance coverage is for your particular situation. Um, a lot of times you can find a, an insurance broker who works specifically with landlords. I’d recommend talking to other landlords in the area to see who they work with. Um, or perhaps if you have a professional landlord group or an association in your area, you could talk to some people there.

Andrew Schultz: (02:17)

Generally speaking, will find an insurance agent at just about every single one of those meetings, and that person might be able to help you to locate the best policies for what you’re trying to do in terms of when does it make sense to group policies together? That’s going to be a question that will vary depending on the insurance company. I know that there are some insurers that will offer a discount if you have multiple policies with them, but that might not necessarily be the greatest situation in the world. If their policies are expensive, to begin with. So for instance, I’m not going to name any actual insurance company names, but, um, there are some insurers out there that certainly do charge a premium and then charge an additional premium. When you’re talking about a second home, a third home, a non-owner, occupied property, things like that.

Andrew Schultz: (03:04)

So they definitely look to them, increase the premiums on that because they know as well as we do that. There’s more risk when you have a tenant who living in a property versus a homeowner in most circumstance dances, you may also find that different insurance companies are willing to cater to different types of properties. So you may find some insurance companies won’t want to insure anything that is greater than five units, for instance, because at that point it might be considered a commercial policy and they have to look at it from a different perspective. Or you may find some insurance companies are not willing to insure a property that is vacant. Uh, so if you’re doing a rehab on a property, you may need to look at a different type of insurance, because if they discover it’s vacant and under renovate, uh, they may not cover you.

Andrew Schultz: (03:47)

And you might not find that out until you have a claim. So that’s definitely something to keep in mind is making sure, sure you have the right type of insurance for the right situation. One thing I will absolutely recommend is to carry both a personal liability umbrella above and beyond whatever coverage is you’re carrying as well as a commercial liability umbrella to cover your rental properties above and beyond whatever the insurance limits are on the policies that you choose. It’s always good to have more protection than less protection. I tend to be the type that’s a little bit more conservative when it comes to that stuff and would rather over-insure than under-insured just to make sure that I’m covered in the event, something does happen. So that’s also something that can be found with just about every insurance carrier, the blanket, yeah. Liability policies and things like that.

Andrew Schultz: (04:35)

Definitely, something to look at while you’re doing your shopping, moving onto our second bit of it, right for the day this one comes to us from the real estate subreddit instead of the landlording sub-Reddit. Uh, but it reads as follows for those of you who have experience in property management, how do you know that you’re setting the right rent price so that you can getting positive returns? So this starts before you ever occupy an apartment, really it should start before you ever even put in an offer on the property. And that’s where the deal analysis. Yeah. You really need to understand what the market rents are in your neighborhood, as well as what the true expenses are for the property, and put all of that into some kind of a deal analysis software or spreadsheet. You can get one of ours over@ownbuffalo.com, go ahead and submit a contact request.

Andrew Schultz: (05:23)

And just say that you’re looking for a copy of our deal analysis spreadsheet. It’s an Excel spreadsheet that I can email over to you free of charge, but it’s what we use to do all of our deal analysis. And if you’re actually looking to watch us do a live deal analysis, you can go over to our YouTube page and catch link for that over@ownbuffalo.com as well. I have several different deal analysis videos. I look at various properties throughout the day, the city of Buffalo using that spreadsheet. And you can really get a feel for what it takes to do a deal analysis on a property and truly understand, uh, whether a property is to be profitable or not before you even go in and make an offer. So there’s a lot to unpack there. I would definitely say start by understanding of the property and the expenses, and then understand what the local rent market is and what kind of rents you can expect for different apartments.

Andrew Schultz: (06:13)

The best way to find out what the rents are in a neighborhood are going to be basically doing your research online. In a lot of instances, you can head on over to Zillow, Trulia on hot pads. Those are all going to have, you know, rental prices and photos of currently available apartments. So you’ll be able to see what your competition is and how you stack up and whether or not you should be charging more or less rent for your apartment than for other apartments that are out there in the marketplace. Zillow, Trulia, and hot pads are probably the best three places to start looking for rental comps. Next, I would maybe look at Facebook marketplace or Craigslist. Those are kind of secondary tier when it comes to trying to find ways to look at properties and see what rentals are and things like that. And I say that because it’s a little bit more difficult to just pull the data out of those with Zillow, Trulia, and hot pads, you basically have a map right in front of you.

Andrew Schultz: (07:08)

You can go and look at, okay, here’s where my property is. Here’s everything that’s available for rent in the surrounding area. And you can really get a good feel at a very quick pace as to, uh, what the rents for a market are going to be. You know, if you’re spending more than 15 minutes trying to determine what rents are for a property, I think you might be getting a little bit too deep into the weeds. I think that for the most part, you can do a rental analysis and determine what market rents are in a neighborhood in a very short time span with the information that you’ll find on those websites. So after you’ve got your market rents, you can then put everything in, as far as your expenses go into a, an analysis spreadsheet. And when you’re doing your analysis, make sure that you’re factoring in for things such as vacancy maintenance management, even if you’re going to self manage, all of those things should be factored in when you add taxes, mortgage utilities, uh, all of those things should factor in when you’re doing a deal analysis to understand what exactly it is.

Andrew Schultz: (08:04)

That’s going to take that property from cashflow negative to cashflow positive. So going back to the original question, how do you know that you’re setting the right rent price so that you’re getting positive returns? It’s one part understanding the rental market and one part understanding your property expenses so that you can make sure that that property will cash flow in a positive fashion. So definitely make sure that you’re not jumping into a property where you have a negative cash flow situation. I know some landlords will do that and they’ll just say, Oh, I’m banking on the appreciation in the future, never bank on future appreciation. I don’t love that strategy at all. It’s one of those situations where, you know, in a smaller, under, you know, under four-unit property banking on appreciation, it’s a risky play in my opinion, depending on the market you’re in, I suppose, but here in Buffalo, I would never do an appreciation play.

Andrew Schultz: (08:55)

I would be looking for the cash flow play in just about every circumstance. One time when you will be looking for a, an appreciation play will be on a larger property, an apartment complex or something like that, where the values aren’t necessarily driven against comparable properties, but actually driven against the revenues and expenses of the property. So the more you can bring in and rent, um, by doing upgrades and, and, you know, keeping rents at market level and things like that. And the more you can do to keep your expenses in check will actually help you to increase the value of your property. That’s another topic for another day. Uh, we can get into that sometime down the road, but in the meantime, definitely know how to analyze a deal. Uh, both from the rental market side and from the investment property side, that’s, what’s going to help you to get those positive returns, to have that positive cash flow that you’re looking for

Voice Over: (09:56)

Forum quorum, where we scour the internet for ridiculous posts from landlords and tenants.

Andrew Schultz: (10:04)

So let’s talk a little bit about blurring the lines between property owner and friend with your tenants. Uh, this forum quorum comes to us from the rent prep for landlords Facebook group, uh, and it reads, uh, one of my tenants is having a party this weekend. They invited me to go, what do you think I should bring to the party? So my first thought was a sarcastic answer of a mask and hand sanitizer. Um, I mean, I don’t know what state this person was in, but I know that in a lot of states where there’s still a ton of restrictions as to, you know, large group gatherings and stuff like that. So I guess it’s up to you whether you would even want to put yourself in that situation. Um, but moving past the immediate sarcastic response that I thought of would be the blurring of the lines between, uh, you as a landlord and you as a friend of the tenant.

Andrew Schultz: (10:56)

So this is one of those circumstances where I prefer to keep my business and my personal life. Very, very separate. I don’t hang out with tenants outside of work, because I feel like it creates a very nasty precedent when something goes wrong. Suddenly that tenant might be looking at you as, you know, a friend, as opposed to a person they have a business contract with, and that can create some real tension in your landlord-tenant relationship. If it gets to that level. I don’t know as though I really have a lot more to say on this particular topic. I don’t think that there’s really a lot that needs set on this. I would just be very, very cautious of any time you’re getting into a, you know, a friendship type relationship with a tenant. You understand that it could create a headache for you down the road when you have to enforce a policy that, that tenant doesn’t like, uh, or something breaks. And it takes some time to get it fixed, whatever the case may be. You, you are creating a situation where you’re blurring the lines there a little bit, if that’s you’re comfortable with then. So be it. Um, but I would probably pass on going to that party,

Voice Over: (12:01)

Feet on the street, real stories from real property managers. So what are you doing?

Andrew Schultz: (12:11)

When you have a tenant that comes to you with a complaint and wants a rather expensive repair. This week’s feet on the street segment comes to us from the RentPrep for Landlord’s Facebook group. This is actually a complaint from a tenant that was relayed to their landlord. And the landlord’s looking for a little bit of advice. When we talked about electric in the house, you said that it wasn’t so bad. Well, it’s running $200 a month. I have noticed that the AC unit doesn’t keep up and the house drops two degrees. If a door is opened quickly to enter the house and that it takes several hours to drop down, I’ve changed the air filter and cleaned the coils. I was informed it struggles because of no insulation in the attic, any chance we can look into insulating the attic. So before you even start thinking about attic insulation, there’s a few different things that you should look into first to make sure that everything is working as it should.

Andrew Schultz: (12:59)

Uh, the first thing I would do is have a licensed HVAC technician come out and actually check the air conditioning unit to make sure that it is working the way that it’s supposed to. You may find that you have a small coolant leak and there’s not enough coolant in the system. You may find that there’s a blockage in the line set, running from the condenser into the interior. There’s a variety of things that could be causing issues with this air conditioner that would prevent it from working to its full capacity. It could just be that it’s an old air conditioner and is not efficient enough to keep up. It could be that your air conditioner is trying to cool a, you know, a difference of 100 outside to 70 inside. And it’s never going to do that air conditioning units simply aren’t built to cover that kind of a spread.

Andrew Schultz: (13:43)

Typically 20 degrees is about the maximum you’re going to see. So it might be a situation where if you’re in an incredibly hot climate, that the air, conditioner’s just not capable of keeping up because it’s not designed to keep up. So there’s a few different things to look at there before you actually start addressing the issue of insulating the attic to prevent the cool air from escaping. One thing that’s not in the question here, but would definitely warrant asking is what temperature is the tenant keeping that thermostat at that might be the problem right there. If they’re trying to keep the place cooler than what the air conditioner can physically do, um, that might resolve the issue right there just by telling them you’re never going to get to that stage. There’s also some context missing here in the question where it says, you know, it’s running the electric is running $200 a month, but we don’t really know what the size of the apartment is or the home is that is trying to be cooled if you’re talking $200 a month, but you have a four-bedroom, 2200 square foot home that you’re trying to cool.

Andrew Schultz: (14:44)

That’s not bad at all. I mean, realistically speaking, when you’re talking about trying to cool that much space, $200 a month, assuming running the air conditioner pretty frequently is not that high of an electric bill. Um, I’ve definitely seen much, much higher. So addressing the root question here, which is the insulation in the attic, it really would boil down in my opinion to whether or not that is a reasonable accommodation, and that would really boil down even further into, you know, what’s the issue with the air conditioner. Um, and what is the temperature that the home is being kept at when the air conditioner is running? If you’re in a situation where that air conditioner is not cooling the home under 90 degrees, depending on your state laws, you may have to do something to mitigate that. Uh, I know that in the state of New York, we don’t necessarily have a law that says that, um, we have to air-condition, a property to, you know, between X and Y temperatures, uh, during the summer months.

Andrew Schultz: (15:38)

But we certainly have the inverse where we have to keep a home at a certain temperature during the winter months. So that’s something to keep in mind, if you’re in a hot weather climate, you might have a state or a local requirement that says that you have to provide air conditioning to a certain level. If you don’t have a set of circumstances like that, you might find that this is just an unreasonable accommodation that you don’t need to go any further with, but you definitely want to make sure that you are in compliance with any regulations and codes that you have to take care of just to make sure that you’re staying legal as a housing provider. That pretty much wraps things up for this week, but there’s always more to check out if you’re looking to find me head on over to ownbuffalo.com for links to all of our social media, our YouTube and Facebook pages are where we post the majority of our content. If you’re looking for tenant screening services, head on over to rent-prep and check out all the various options available to you over there. And don’t forget to check out the best free landlording resource on the internet, the RentPrep for Landlords Facebook group. That’s a private group for landlords and property managers coming in at almost 12,000 members strong. You can find that over at facebook.com/groups/rentprep. Thank you all so much for listening. We really do appreciate it until next week. I’m Andrew Schultz with own Buffalo for rent-prep, and we’ll see you next week.

How To Set Your Property’s Rent Price (Podcast #324)

Can you do us a solid?

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