We recently switched our homeowner’s insurance from Allstate to Geico. During the switch there was some mix up with the paperwork going from Geico to Wells Fargo, the company that holds our first mortgage.

Wells Fargo sent us a letter telling us that they didn’t have insurance information and they were going to purchase it on our behalf. They even included details of the new plan they were purchasing from American Security Insurance Company:

• $3,245.00 annual premium for $338,000 of dwelling coverage only.
• optional $210.00 annual premium for $40,000 of personal property coverage and $25,000 of personal liability coverage.

Contrast this to the plan we actually signed with Geico, which provides $325,000 in dwelling, $500,000 in personal liability, and over $100,000 in personal property insurance for just over $1000 annually.

Will a Mortgage Company Let You Cancel the Policy?

Obviously, the answer is yes. But, just like Wells Fargo, most mortgage companies will purchase insurance on your behalf at a cost 2-3x more than what you can purchase on the market. Also, the mortgage company will buy only coverage for their secured asset (the dwelling) — none of your goods inside will be covered.

And, you’ll still be paying for the coverage, by way of increased monthly payments due to an increased draw on your escrow account. If you fail to make the payments, the mortgage company will foreclose your loan.

Are you Required to Carry Homeowner’s Insurance?

If you have a mortgage, then yes, you are. When you signed the loan documents at closing, they included a requirement for you to maintain adequate coverage on the dwelling — the minimum being the loan balance due to the lender. If you fail to maintain coverage, the lender can foreclose on your property even without buying the coverage for you. But, they usually won’t – because they’d rather you make the payments.

You do have a right, however, to pick whatever reputable insurance company you want to provide coverage on your property.

If you don’t have a loan, there’s no requirement for you to have homeowner’s insurance — but it would be foolish not to given the relatively low cost.

Let Your Lender Know of the Switch

The easiest way to avoid the headache of a mix-up is to call your lender as soon as you make the switch and give them the new policy # and details. Wells Fargo was great in that when we provided insurance information to them and showed them that no gap existed between the two policies, they didn’t charge us any fee for the ‘temporary’ policy they had purchased on our behalf.

(photo: David Hillowitz)

I’ve always wanted to say that

But seriously, we did just switch all of our policies over to Geico from Allstate.

We’ve been in the “good hands” for about 6 years. Turns out that those hands are also expensive.

And they’re not as good as they used to be…

I wrote last year about Allstate’s new tropical cyclone deductible, which would make a homeowner pay a 3% deductible before covering any damages caused by a named storm. And by 3%, I mean 3% of the value of the house, not 3% of the damages. That would make our deductible more than $10,000 before Allstate chipped in a dime for a disaster like that.

So I’ve been meaning to switch our coverage since that notice came out, but like so many things it slipped by. Since all of our policies renew on April 15, I decided it was a good time to look around and see if we could do better.

I’ll bet every one of our American readers has heard at least a dozen Geico insurance commercials. They’re everywhere; they’re catchy, and they make bold claims… 15 minutes could save us 15% or more on our car insurance by switching. I’ll be honest, I didn’t really buy it.

But, when I Googled for “home insurance quotes”, I discovered Geico offers homeowners and landlord insurance. I figured I’d give the 15 minute claim a test. (I learned later that Geico Homeowner’s insurance and Landlord’s insurance is underwritten by Travelers).

The phone call took a lot more than 15 minutes… It actually took about an hour to get everything squared away.

I won’t bore you with all the details, but here’s how the numbers panned out…

Auto Insurance Comparison

We have a 2003 Toyota Corolla and a 2006 Dodge Grand Caravan. We live in a busy suburb of Maryland.

• Allstate: $978 / 6 months
• Geico: $567 / 6 months

–> Geico is $822 cheaper for 12 months.

Homeowner’s Insurance Comparison

For $400,000 of coverage on the structure with good coverages for other aspects.

• Allstate: $1216 / 12 months
• Geico: $1176 / 12 months

–> Geico is $40 cheaper for 12 months.

Landlord Insurance Comparison

For $175,000 coverage on the structure with good coverages for other aspects.

• Allstate: $482 / 12 months
• Geico: $605 / 12 months

–> Geico is $123 more expensive for 12 months.

Umbrella Insurance Comparison

For $1,000,000 in additional liability protection.

• Allstate: $355 / 12 months
• Geico: $182 / 12 months

–> Geico is $173 cheaper for 12 months.

Total Savings Switching to Geico

All told, Geico came out $912 less than Allstate for identical coverage, or about 25% less. We actually reduced some of our structure coverages because Geico advised us that we simply didn’t need as much as we were carrying, for an additional savings of about $200.

Of course, Geico doesn’t have the tropical cyclone deductible–at least not in Maryland–which is a huge plus.

Now, we’re not wed to Geico. If another reputable company can best their offer, we’re game. In fact, companies like 2Insure4Less will send you quotes from multiple insurance companies by e-mail.

But we will stick with them for the next 6 months at least, since we spent their time getting signed up. And I will ride the ’savings high’ for a little while…

Goodbye good hands. Hello, gecko!

One of my favorite parts of the book deals with whether real estate agents garner higher sale prices for their clients than if the client were to simply sell the house on their own. In order to tease out the answer, Levitt and Dubner look at a variety of sales data in a particular locale and examine the average sales price differences between agents’ selling their own homes vs. other people’s homes. They also looked at how long a property was on the market in each situation.

What did they find?

As you might expect, they found that, on average, a real estate agent’s home sold for more money, and stayed on the market longer than a typical property. They also found that, on average, homes sold with the assistance of an agent didn’t sell for any higher than those homeowners who sold on their own.

What Levitt and Dubner found didn’t really surprise me… it all comes down to incentives.

Realtors Are Motivated to Sell Properties Fast, Not at a High Price

Most real estate agents in today’s market charge 5-6% of the sales price of the house for their services. Of that amount, half is usually provided as an incentive for the buyer’s agent, making the selling agent’s take only about 3%. But, that 3% is usually split 50/50 with the agent’s company, which means that the agent is likely to get about 1.5% of the sales price.

Let’s say you have a house that’s worth $250,000. With some effort and marketing, a real estate agent can get you full price. But, with less effort and marketing, they can get $240,000. To you, the difference between $250,000 and $240,000 is a whopping $10,000 – more than 2 months pay for most Americans.

But what’s the difference in the agent’s take? 1.5% of $250,000 is $3,750, while 1.5% of $240,000 is $3600, a difference of only $150!

If selling the property for $250,000 takes 20 more hours of work (e.g., additional showings, open houses, etc.), you can see that it just doesn’t make sense. The Realtor would only be working for about $7.00 / hour for those hours.

A Better Way to Pay A Real Estate Agent

So if straight commission isn’t a good way to pay, what’s the better alternative?

Levitt and Dubner don’t get into this… but I think the best way is to set a basic fee for listing the house, and then pay a large incentive above a certain sales price.

For instance, you might pay $1000 for standard listing services, and then 50% of the price above some base price. In our example, perhaps we would pay $1000 for basic listing and settlement services, and 50% of the sales price above $250,000. In this model, our agent is highly motivated to exceed the target sales price of $240,000 by as much as possible, since his take is highly dependent on sales price.

Of course, this relies on homeowners knowing approximately what their home is worth and being willing to negotiate with the agent. Unfortunately, since real estate agents are the ‘experts’, they normally dictate the compensation model. Most people buy and sell houses only a few times in their whole lives, and aren’t really ready to negotiate these terms. In most cases, they also wouldn’t know what is ‘fair’ for the base price, and being off by even $10,000 in this attribute could lead to paying an inordinate fee to the agent.

What do you think about Real Estate Agents?

I’m really curious what you think about real estate agents.

Are they worth the price? Is there a better way to motivate them to get the highest price available? How do you make sure your not getting ‘taken’?

P.S. Freakonomics started as a NY Times blog. If you like examining the other side of everything, you can follow it at that link. The link for the first book is at the top of the article. There’s also a sequel called Super Freakonomics, if you haven’t gotten enough

Unfortunately our house, which had dropped $55,000 in value the last time we refinanced, has dropped a whopping $35,000 more in the last 7 months.

Why? because a few foreclosures and distressed sales in our neighborhood have tanked prices. In fact, not a single non-distressed single family sale has taken place in the last 6 months within one mile of our home.

We got the news on Wednesday of last week and were taken back by the sheer magnitude of the drop. I discussed options with our lender and he suggested we verify the appraisal accurately reflected our house’s worth. If we thought it didn’t, we’d have the ability to ask the appraiser to reconsider his valuation.

Now, this is generally a long-shot. Most appraisers do a reasonably thorough job evaluating a house, and any appeal must be firmly rooted in facts the appraiser either did not consider or incorrectly considered. Of course, appraisers are human and can make mistakes, so diligence is important.

If you’re in this situation, here’s the steps you can take to challenge your appraisal. We made it through Step 4 and determined that the appraisal accurately reflected the value of the house, so we decided to look into other options, and then ultimately cancel the refinance altogether.

Steps to Appeal a Real Estate Appraisal

Step 1: Verify the appraisal contains an accurate representation of your home. Check things like square footage, number of bedrooms and bathrooms, whether your house has a deck, lot size, etc. Make sure that every aspect of the description of your home is correct.

Step 2: Verify that the comparative properties (called comps) used for valuation basis are accurately described. For instance, make sure that a house that claims to have a deck actually has a deck. This can be done by examining tax records and driving or walking by the property. If a house claims to have a deck but actually doesn’t, the appraiser may have made an incorrect adjustment to your valuation based on that information.

(Steps 3-on will likely require the assistance of a real estate professional, such as a Realtor)

Step 3: Verify that the comps chosen are the best possible compartive properties to your home. Remember that recency of sales is going to be one of the most important factors. Real estate agents will have access to multiple listing services that can show all the properties that closed within the last 6 months, and will be able to search the database by region. While appraisers will consider active listings for informational purposes, they are a last resort when it comes to property valuation. Just because your neighbors house is listed 10% above the last sale doesn’t mean the values in the neighborhood have increased proportionately.

Step 4: Verify that the comps chosen were not sold under distress. Distressed sales will likely bring a lower value than a traditional market sale. Even if the appraiser chose foreclosures, however, if the overwhelming number of recent sales in your area were foreclosures, he may use that as a basis for accepting the lower indicated value.

Step 5: Prepare a written challenge. In the challenge you will be writing back directly to the appraiser, so respect, clarity, and brevity are key. If you found deficiencies or errors in the report, create a list of those items you would like taken into consideration that should affect the value. Call the appraiser and ask him for the best way to send over the information — it could be as simple as sending an e-mail.

Under new regulations, lenders are required to select the appraiser for a  purchase or refinance to eliminate potential bias in the appraisal. This can have the affect of the lender selecting an appraiser who is not familiar with the territory. This can lead to poor choices in comps or failure to consider all aspects of the property. It is always worth examining the appraisal and ensuring it is built on a solid foundation before resigning yourself to the lower amount.

What do you think? Have you ever challenged an appraisal? Were you successful? Tell us about it!

(photo credit: omaromar)

Unlike traditional home insurance that is paid annually–usually by a mortgage company out of an escrow account–perpetual home insurance requires a single up front payment and covers your property perpetually. When you don’t need the coverage anymore, your deposit is returned to you.

How Much Does Perpetual Insurance Cost?

In the simplest terms, you could say perpetual insurance is free. You make a one-time payment (called a deposit premium), and when you no longer need the coverage, the deposit premium is returned to you.

But the simplest terms really don’t capture the essence of the proposition.

The deposit required for perpetual insurance is usually 15-20 times the annual cost of traditional insurance. The perpetual insurance company invests the deposit and uses the proceeds of investment (e.g., interest and dividends) to cover claims, administrative costs, and of course, profits. Since the insurance company has your deposit, you lose the ability to invest it in alternatives, like stocks, bonds, savings accounts, or CDs.

For example, if an annual insurance policy costs $1000/year, a perpetual insurance equivalent would probably require a ~$16,000 deposit.

Why Choose a Perpetual Homeowner’s Insurance Plan?

The best reason to choose a perpetual homeowner’s plan is for the tax benefits.

Payments for traditional homeowner’s insurance are not tax deductible. That is to say, if you pay $1000 / year for insurance and you are in a 25% marginal tax bracket, you must earn $1,333 dollars to pay the insurance plan. (25% of $1,333 is $333 – the portion that is taken by the Government).

The non-cash insurance benefit from a perpetual insurance company, however, is not taxed as income to the recipient.

All things being equal, a perpetual insurance company offers the opportunity to pay for your homeowner’s insurance tax-free.

Another reason to choose perpetual insurance is the fixed rate/$1000 of insurance that often accompanies a perpetual insurance policy. This allows you to purchase additional insurance as your property value increases at a pre-defined purchase rate.

What Are the Risks?

While it may at first seem that the $15,000 deposit premium is the most significant component of the risk, it is not. As with any insurance decision, the most important question is whether the company is prepared to pay in the event of a substantial claim.

This is a question that should be asked of all insurance companies, both traditional and perpetual. It would serve a purchaser well to investigate the company and its financial performance before signing up.

Fortunately, in the United States there are considerable capital retention regulations placed on most insurance companies that provide additional guarantees to the insured.

That said, the $15,000 deposit is still at risk with the company. Unlike with traditional insurance companies where you are only risk is in the event of a claim, with a perpetual company you constantly have the deposit premium at risk.

Essentially, you are gaining the tax and fixed purchase-rate benefits at the expense of increased risk.

Evaluating Perpetual Insurance Investment Performance

If we assume perpetual insurance costs 16 times an annual insurance policy, that means an average tax-free return of 6.25%. If you’re in the 25% tax bracket, this is equivalent to an 8.31% return.

You can then compare this with other taxed and tax-free options (like municipal bonds), to determine whether the investment makes sense.

Of course, the 16x assumption is important. If the number rises, to say, 25X, it may be better to invest in something else and simply buy the traditional, annual option.

Perpetual Insurance vs. Traditional Insurance

Given that you are investing a sizable lump sum of money into a single company, we think perpetual insurance makes sense only for those people who have:

• More than $100,000 in non-home, non-retirement investment assets.
• Are in a tax bracket at least 25% (the higher your bracket, the bigger the advantage).
• View their perpetual policy as a component of an overall, coordinated investment strategy.
• Have no high-interest credit card or other debt.
• Are willing to put in the effort to evaluate the insurance company.

For everyone else, we think it doesn’t make sense to tie up such a large portion of investable assets into a single investment vehicle.

What do you think? Do you have perpetual insurance? Would you consider it for your home?

(photo: powi)

When I was ready to advertise our townhouse most recently, I found that I was most objective when I kept the cost of an empty rental in the forefront of my mind, even as I researched how much we could possibly charge.  Sure, I was proud of our house, the work we had done; and I DID believe it was in a great neighborhood in a great location.  But my pride and joy could not over-rule my common sense when it came to pricing it.

$$$

Keeping up with the Joneses … or at Least the Complexes

Since our rental is a two-bedroom townhome with a fenced backyard, a finished basement, community amenities, and totally-new upgrades, I started my research with the local apartment complexes.  Our house should command more than a two-bedroom apartment in one of them, for sure.

Once I established that baseline (in my case a minimum rent of $1285), I went onto Craigslist and perused the other rental ads, looking for comparable houses in the area.  What I found was three or four other two-bedroom and three-bedroom places, ranging in rent from $1300 to $1500.   Those in the higher range had been listed longer, while the one for $1300 disappeared after a couple of days, and I assumed it was filled.  But pride aside, our place looked nicer than that one and had the fenced yard, so we aimed just slightly higher at $1375 and decided right away that we would charge a pet fee of $25/month per pet (and an additional security deposit – we learned THAT lesson last time!).

We ended up with two roommates, one of whom has a dog, so – voila! – $1400/month it is!

What’s the Bottom Line?

We achieved immediate occupancy; the tenants took keys less than a week after my first ad ran.  With that fast a turnaround, I was tempted to wonder whether we could have asked a little more.  However, I reminded myself that if we had posted the rent just $50 higher, while we might have gotten it, we would have knocked ourselves out of some of our prospective tenants’ price-ranges.   Including those who actually became our new tenants.  And with even one month’s delay in occupancy, we would actually have netted $850 less for the next 12-month period:

$1400 x 12 = $16,800

$1450 x 11 = $15,950

It was worth it to us to rent right away instead of targeting a higher per-month rate and missing out on getting to choose  our renters from a pool of good people, rather than waiting around for somebody, anybody to please come rent.  It’s the fine balance between greed and practicality. 

Those other Empty-Rental Costs…

Aside from just the dollar figure, there are other costs we had to consider when we named our price:

1. Property Maintenance – as long as our house sits empty, guess who’s mowing the lawn, checking the mailbox, dusting, and whatever else?  Yep, us.  And we have our own place we can barely keep up with, thank you very much.
2. (Un)natural Disasters – if a pipe starts leaking, a tree branch falls, or a neighbor’s cigarette starts a mulch fire next door, we don’t want to find out about it days after the problem starts.  We want to know right away.  And (good) tenants are there to tell you about that sort of thing, so you can address issues while they’re still small and not have a huge, preventable mess to clean up.
3. Vandalism & Break-ins - Our rental townhouse used to be my house.  I lived there alone when I was single, and I felt quite comfortable in the neighborhood.  However, even in the nicest of areas, there are ”those people” (whoever they are) who scope out vacant properties to damage (or sometimes inhabit!).  Maybe it’s fun to be destructive; maybe “they” have anger that needs to be channeled somewhere.  Whatever the motive, we don’t want our place to be the one that gets hit.  We actually did keep that in mind when we advertised.  The house had already been vacant for two months while we renovated, and we knew all the neighbors were quite aware of that (it’s hard to miss a petite white girl hanging out the second-story while replacing windows, as it turns out).  Once the work was done, we wanted people – good people, for sure, but PEOPLE – in there as soon as reasonably possible. 
4. There Goes the Neighborhood – this last item was less of a consideration for us this time, but it IS a consideration.  If a community has multiple rentals in it, and more than a few are sitting empty for any noticeable period of time, that neighborhood starts to feel like it’s in decline, even if it really isn’t.  And once it has felt like a declining neighborhood for a while, it actually becomes one.  Because prospective tenants don’t want to dodge tumbleweed or hear only the echoes of their own voices.  They want to see an active and vibrant community – even if they only plan to stay for a year.  So being a responsible landlord and getting your place filled benefits everybody, not just your own bank account.

The Old Way to Advertise

Five and a half years ago, when we found THEM, we went the Pennysaver, two-county’s-newspapers, and one major newspaper (for us, The Baltimore Sun) route.  It worked; our renters were great, and they stayed five years!  But it cost us several hundred dollars to run the ads over the course of the 3 months we were looking.  And as Fred mentioned in a prior post, we discovered by trial and error that it’s very hard to find good renters in the dead of winter.   So I actually stopped advertising for a while, let the house sit for a few weeks, and then paid for more ads closer to Spring.

And the New Way…

Flash forward to this summer.  NOW we have Craigslist!  It’s free, everyone knows about it, we were able to include MUCH more information about what we required of tenants, and we posted pictures!

But we thought we could go one better.  Craigslist only allows space for 4 pictures and we had done a lot of work and wanted prospective tenants to see ALL the great features of the house.  So Fred set up a separate single-page website (he linked here to OPC because we could; but any well-done page would’ve been just as good).

The fact that I had the hotlink in my Craigslist ad made our property stand out among the many others also out there.  And the details about the property and our expectations weeded out people who weren’t the right match.  It’s a small townhouse, but not one person walking through made that remark.  They already knew what they were coming to see, so it was just a matter of whether the location, timing, and cost were right for them.

And our new renters signed the lease with me 5 1/2 days after my first post on Craigslist! So, yes, it worked quite well.

Rental Advertising Tips

1. Price Logically – I perused the existing Craigslist lineup before we ever posted.  I wanted to get as much as was fair in the market while still remaining price-competitive.  At our price point, we had the best rental available.  Most of the rest were condos or condo-townhomes without basements owned by major rental companies.  Not nearly as nicely renovated.
2. The Cost of an Empty Rental – Might we have been able to eek out a little more rent if we’d advertised a higher rate?  Possibly.  But we had to consider at what cost.  For every month we don’t have it rented, we lose that money and we have a house sitting empty.
3. Include Pictures – I was amazed at how many people don’t do this!  If you want your ad to stand out, let people SEE the place!  (And if it’s in shameful shape and you’re embarrassed to post a pic, that’s your cue that it’s time to do some work before re-renting.)
4. Think Like a Tenant – include as much information as you can so you help them make an informed decision before they come out to the property.  There should be no “bad surprises” when they arrive; that’s no way to start a landlord-tenant relationship.  Don’t forget to list things like laundry facilities, the dishwasher, whether the property has a yard (and a fence), major roads nearby, and any perks that come with renting.  These things take your ad beyond the standard “3 bedrooms/ 2 baths” ads that are all around yours.
5. List Your Requirements Up-Front – for us, good credit and references were a must.  We also ran a criminal background check just to make sure we weren’t bringing violent offenders into the neighborhood.  We do want to maintain a good relationship with the neighbors all around that property, too!  And for the first couple of days, I got a flood of calls about housing vouchers and Section 8 housing – for which we were not approved – so I tacked that note at the end of the ad.  (Another perk to Craigslist – you can edit your post anytime!)
6. Refresh Your Listing – Craigslist in our area allows you to re-post an ad (thus bringing you back to Page 1 of the search results) every 48 hours.  They just ask that you delete the old ad, which I happily did.   And I didn’t have to re-post it a 3rd time; we snagged our renters on the second run!
7. Consider standing up a temporary web page – for the small time commitment, we got a big pay-off.  The web page is much more attractive than the Craigslist ad and allowed us to load it with pictures.
8. Include a Cell Phone Number – I had one person email me.  Everyone else called my cell.  Because they had questions, wanted to schedule a showing as soon as possible, or wanted to get a feel for how I’d be as a landlord.  Trying to do all that through email (even though it does give you more anonymity and privacy) takes much longer.

I can’t believe how much easier it has gotten to lease a property, just in the last five years!  It was so easy, in fact, that Fred and I were out again this week looking at potential new rentals to buy.  Cooler heads prevailed, fortunately, and we’re just sticking with the one for now.  But I’m sure we’ll add more in the future.

The Craigslist Ad

Here’s the text from my Craigslist ad:

$1375 / 2br – Townhome w/fenced yard, newly renovated

2 Bedroom / 1 1/2 bath Townhouse in Parkview Trails Community. Available immediately, upon approval of application!

All appliances new within the past 4 years, stainless kitchen, laundry room in the basement. Plenty of storage, large closets in both bedrooms, wood flooring on half of the main level, new flooring in the full bath, brand new carpet everywhere else. Central A/C. Freshly painted throughout. Fenced back yard w/brick patio and new landscaping. New roof, windows, patio slider and water heater all added this summer to make this place as energy-efficient as we can get it, so utility bills are low! Home Owners Association fees covered by landlord and include pool, tennis courts, and more.

Pets welcome (some restrictions apply), and kid-friendly home and yard. Also great for working professionals.

Security deposit based on credit score. (Looking for a minimum of 650 from at least one tenant.) $30 application fee covers our cost of tenant screening w/credit check. Non-smoking in the house (back- or front-yard ok).

Convenient to Ellicott City, Catonsville, 695, Rt. 29, I-95, Rt. 40, I-70.

We (landlords) live just a few minutes’ drive away, so we guarantee quick responses to maintenance issues or any other items that could arise during your stay. We want you to enjoy living here!

For more information, check our web page: http://www.oneprojectcloser.com/for-rent-2br15ba-townhome-great-neighborhood-1375mo/ or call Kim at (XXX) XXX-XXXX.

*not approved for Section 8 or housing vouchers*

When’s the best time to rent an apartment?  It depends on whether you’re the Landlord or the prospective tenant.  Rental activity is highest in the Spring and Summer months.  Activity falls off dramatically in September and continues to decline through the Winter months, until February when things start back up to a peak in the July-August timeframe.  There is some variation to this trend depending on your geography (weather plays a big part)… but in general, it is a reliable cycle.

Landlords: The Best Time to Rent is the Summer

For landlords, the best time to rent a place out is between June and August.  School’s out, and the nicer weather encourages people to get out and look for a new place.  Plus, thanks to the 12-month term on most leases, many people are vacating other rentals in the Summer months to find a new place without incurring any lease-break penalties. With a good rental advertising campaign (including some terrific pictures and a fair price), you’ll likely see many people stopping by your place.  It puts you on better terms for negotiating and so you’re less likely to cave on price or terms (e.g., taking a lower credit score for an applicant even though you know you shouldn’t).

What if you aren’t getting applicants during peak season?

If you aren’t getting applicants, there’s one of two things wrong: (1) the price/quality/situation of the home; (2) an inadequate marketing campaign.  For both, you need to do your research.  Check other listings on Craigslist and in the paper to see what others are charging in your area.  Make sure you’ve listed every feature and shown great pictures of your property to prospective tenants.

Renters: The Best Time to Rent is the Winter

Despite the lower inventory, Landlords will probably be pulling their hair out to get a place rented in December.  As such, they’re much more likely to negotiate the terms of a lease (especially the most important term… the price).  Remember: every month a property sits vacant for a Landlord is an entire month without rent.  If a landlord has to keep the place heated while vacant, they could be losing as much as 10% of their annual income each much the place is vacant… That puts you in an excellent position to negotiate a 10% discount on rent.

Plus, if you have some negative marks on your credit, or your income in close, indepedent landlords are more likely to cave on stricter requirements in the Winter months… even though we would recommend to them against it.

(photo credit: cincyproject)

This May, our renters of 5 years bought a house of their own.  We knew it would happen sooner or later because they were fresh out of college when we first met them but are both go-getters and really needed more room for their expanding family (only in pets so far, but no doubt actual kids will follow).

Coinciding with their leaving, the house turned 20 years old this year, so aside from in-between-renters work, it also needed those items that wear out in that time: new roof, new water heater, new range and range-hood.  Turns out new gutters and downspouts (the front ones fell off this spring) and new windows and a new patio sliding door also joined that list.

Aside from those items, we needed to eliminate pet and smoking odor, recarpet, repaint, update fixtures and finishes, de-clutter, re-landscape and just generally scrub everything till it shone.  Turns out it was worth the effort because I was able to SIGN THE LEASE with new renters just five and a half days after I posted the property as available!  So, SO glad to be done for a while, especially with homeschooling starting back up later this month.

But as we went along, I took tons of pictures so that I could show you all what we did.  I enlisted the help of a handyman friend, and then Fred pitched in as he was able to on Saturdays or occasional week nights.  I was there almost every day for the whole two months, though, so I told him he wasn’t allowed to write this post.  Point of pride.    And here it is: MY summer “Before & After.”   

EXTERIOR WORK:

IN FRONT: New roof (trust me, it’s up there) and new windows. [We had just replaced the front door in late 2008, so that's basically new, too].  Color scheme change: we replaced the gutters and downspouts with white ones, changed much of the wood trim to white PVC board (including the frieze board just above the upstairs windows), painted any remaining trim white instead of beige, and painted the shutters navy blue.  We’re hoping the HOA doesn’t mind but chose to go the “better to ask forgiveness than permission” route; we’ll let you know how that one ends up. :)  Finishing touches: we powerwashed the siding and sidewalk and replaced the numbers above the front door with new reflective ones that make them easier to read at night.

IN BACK: More new windows, new PVC trim and a new patio slider and screen door.  We replaced the rickety steps and handrail to the patio with much sturdier ones with posts set in concrete.

LANDSCAPING:

Most of our landscaping work happened in the backyard, although I did add one small euonymous and mulch the front beds.  The backyard was a whole other matter.  Over the years, our tenants’ dogs had either dug up or killed our plants and grass.  So first I re-seeded the bare patches, and then my “Handy Andy” friend and I resealed the fence.  That done, I spent one very long Saturday replanting and remulching the beds and finally powerwashing the patio.

THROUGHOUT THE INTERIOR:

Inside the house, we recarpeted the basement family room, the LR/DR area on the main floor (pictured below; the rest of that level had hardwood already), two sets of stairs, and the two bedrooms and hallway on the second floor.  We replaced all the switches, receptacles and faceplates with white ones, replaced any trim that was damaged by the animals, and painted everything.  All the ceilings and trim are now true white, and the walls throughout are a neutral tan.  I also purchased coordinating hardware, so now every light fixture, cabinet knob, towel bar, doorstop etc. is brushed nickel (selected for it’s cost-effectiveness versus the antique bronze that is our personal favorite but which would have cost us much more).

Prior to the recarpeting work, we had to get the pet stains and odors out of the subfloors, so Andy cleaned them all with an enzyme cleaner I found at Petsmart and then coated them with latex sealer.

Prior to painting in the two bedrooms, he primed with Kilz on all the walls and the ceiling, since one of the prior tenants smoked in those two places (but not in the rest of the house, thank goodness!).

The end result is a clean, uniform look to the whole house.  Since it’s a small place (about 1300 squ. ft. of living space on all 3 floors), it needs the lighter tones and the whole-house coordination to keep from seeming small and broken-up.

IN THE BEDROOMS:

Since we had replaced the windows, we took the opportunity to update the treatments as well and installed brushed nickel double rods and sheers.  Our new tenants can select whatever drapes they want to go over the sheers and install them on the unused front rod.

We still have the original tall metal bi-fold doors on the bedroom closets, and for this reno- we needed to keep them since they still work.  So we painted them white (they were gray) and changed the knobs to make them look newer.

In the master bedroom, we flipped the fan blades, so the lighter wood tone faces down.  Just that small change makes the ceiling appear slightly higher!

FULL BATHROOM

The house has only one full bath, and it was the room that was in the roughest shape; but we managed to turn it around at minimal cost by replacing the vinyl flooring, removing the doors on the tub/shower and replacing them with a rod and curtain, and replacing the fixtures.  We will go back “someday” and actually gut and re-do the bathroom, but we were able to stretch this one with a lot of scrubbing and some new caulk.

THE ALL-IMPORTANT KITCHEN:

Over the past 4 years, we used replacement appliances as one of our incentives for our renters to re-sign another years’ lease.  Not only did it serve as a good tenant-retention mechanism, it also made this summer’s kitchen work fairly minimal.  Andy took out our old ceiling fixtures and replaced them with recessed lights, and Fred and I replaced the range and range hood with “Clean-Steel (TM)” to go with the fridge, microwave and dishwasher that had already been upgraded.  We plan to replace the cabinets, laminate countertop, and sink and faucet at some future date, but for now I found that a good cleaning with orange oil brought back the cabinets’ lustre, and the countertop, sink and faucet are still in great shape (albeit out-dated).  So for now, they remain.

THE BASEMENT (or “Why we’re better than an apartment“)

When I purchased this house, the very loud tile pictured below was the only “finish” in the space.  I added the accent wall (hey, at the time it seemed very cool to have a red wall!) and covered over the tile with berber carpet I purchased on-the-cheap.  But then the aforementioned rental pets destroyed the carpet completely.  So this time we recarpeted with the same carpet we used throughout the upper floors, painted this room to match the rest of the house, and then installed valances over the windows to give the basement a much warmer feel. [The area not pictured includes the laundry and utility room and two storage spaces.]  For the dozen or so people walking through, the basement family room was the bonus they were not expecting.  It made up for the squeeze of a Living Room/Dining Room combo upstairs and also compensated for the fact that the house “only” has two bedrooms.  Of all the rooms in the house, this one got the most compliments, which is funny since it’s just a big empty room!  We are very glad we gave it the attention we did.

…AND FOR THE SUMMARY AND BOTTOM LINES:

All told, since we did as much of the work ourselves as we could, this renovation cost us about $17, 500.  Not bad, considering that includes two contracted jobs – the roof/gutter job (about $3K) and the carpet & vinyl tile ($2600).  Andy was definitely our other secret weapon.  We did pay him, but he gave us a bargain on his per-hour labor cost at $15.00.  Hurrah for good friends!

And how long will it take us to make up the cost?  12-1/2 months.  Yep, we’ve rented it for $1400/mo. to a pair of roommates who came very highly recommended by all their references.  Oh, and they only have one dog (as opposed to the three, plus two cats who just moved out) and we’re going to be as strict as anyone’s ever heard of about no smoking in the house (they’re non-smokers, so this should be easy).

There was a fleeting evening when we had just wrapped up the work and thought, “What a shame that this could get messed up again.  Maybe we should sell!”  But now is a horrible time to sell if you don’t have to, so we banished that thought and I listed the rental on a Tuesday night.  Our new renters showed up that Friday, applied, and I screened them (credit check, criminal background, employment verification & references) over the weekend.  The following Monday morning, they signed their lease (we modified the free lease agreement available on our site), gave me their security deposit and first month’s rent, and I handed over the keys.  It was an amazingly fast turn-around!  So even though I had to dedicate a lot of time, and our kids were starting to post their own ads for a new, much-more-fun-to-hang-out-with Mama, we’re done, the income has resumed, and we shouldn’t have to do much to this place for years to come.

So yes, it was worth it.  But, no, I don’t want to tackle another job like it for a while! 

There’s lots of great material inside an appraisal document that gives insight into how an appraiser (and presumably, a typical buyer) values a home.  Since we’ve been doing a lot of work on our garage recently, I thought I’d check out how our garage impacts the total value of our property.

Note that these values are only really valuable to us (unless, of course, you happen to live close to Baltimore County, MD).  To find out values in your area, you need to contact an appraiser and ask about average costs in your area.  They’ll likely tell you for free.

Here’s how things shaped up for us…

Garage Value from a Cost Basis

The appraiser used two methods to value the home: cost basis (the replacement cost of the home new, less depreciation), and comparative sales basis (price based on the sales of other homes in the community). Here’s the cost basis side first:

In our area, unfinished garage space costs about $20/sq. ft. to build new, according to the appraisal.  Our 528 sq. ft. garage yields us a total value of $10,560, or $5,255 per garage.  Depreciation on the entire house was taken at 20%, so that puts us at about $4200 per garage after depreciation.

Using this method, the key is to know about how much a builder would charge to add a garage to a home on a square foot basis, and how large the garage will be.

Garage Value from a Comparative Sales Basis

In the comparative sales section of the document, the appraiser uses an estimated value of $4000 / garage when adjusting the value of our home relative to other’s homes.  

This tells us that our garages are about average size (since the comparative value basis is near our build cost basis), and that the average value differences in house values across our region, when adjusting for all other factors, yields about a $4000 per garage final difference.

Ultimately, comparative sales was the method of choice for valuing our home, as it gives the best indication of how recent buyers have behaved in our market, and is the best indicator for purchasers in the near term.

Should We Convert the Garage to Living Space?

To answer this question, the appraisal can really come in handy…

According to the appraisal, living space in our area goes for about $90 / sq. ft.  Given 20% depreciation, that’s about $72 / sq. ft — or $55 / sq. ft. more than the value of the garage.  At 525 sq. ft., it would seem like we stand to make $28,875.  We could probably finish the space nicely for well under $15,000 after windows, doors and electric, for a net increase of $14K in value.

Will we do it?  Probably not.  First, most homes in our community have garages, so we think we’d be at much more of a disadvantage than the appraisal indicates.  Its one thing not to have a garage.  It’s quite another if you’re the only one in the neighborhood who doesn’t have one. Second, we really (really!) want to park the cars in the garage once we get the basement finished, so there’s no way we’re converting!

What do you think? Would you convert your garage to living space for a 14K value improvement?  Do you think a conversion would be worth it?