Even as consumer affairs agencies at the state, local and federal levels crack down on fake online reviews, potential renters are using these evaluations more and more often to make their choices.
That’s one of the numerous key findings in the latest study of renters’ habits by ApartmentRatings and SatisFacts Research. The 2023 Biennial Online Renter Study, now in its 12th year, includes the feedback of more than 28,000 renters nationwide to determine their behaviors and preferences when it comes to apartment living.
That apartment hunters are tuning to online reviews is a notable shift, the study reported, particularly among those ages 18 to 34. Recognizing this “top of tunnel” behavior, where renters look at reviews at the start of their apartment hunt as well as during the decision making process, is “crucial” for landlords – especially those charging higher rents.
Renters are paying attention
Renters who plan to pay at least $1,750 a month are doing the most research when compared to other renters before ever contacting a potential place to live. More than four in five looked at both a property’s website and its online reviews before moving forward, the study found.
Importantly, the study also notes that 70 percent of renters look for negative reviews, an indication, it said, of the “desire for balanced and unbiased information.” Renters, it added, “value a comprehensive view that considers both positive and negative aspects” and are unwilling to trust a review site featuring just positive evaluations.
Renters aren’t naïve, though. They realize that no place is flawless. While they take the time to read the critiques, they also look to see how the property responds “as an example of your commitment to customer service,” according to the renter study.
The SatisFacts and ApartmentRatings study found that people look to see how a property responds to a review, good or bad. Roughly seven in ten respondents think a response is an indication of great customer service and about the same number say a project likely does not have great service if it fails to respond.
Still, there is a healthy skepticism among renters, who are concerned about being manipulated, the study also found. “As deceptive tactics used to create reviews become more sophisticated,” it says, renters are finding it more difficult to distinguish between fake comments and the real thing.
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Transparency matters
To protect renters and other consumers from being duped, the Federal Trade Commission has proposed regulations that would outright ban fake reviews and testimonials. The rule would also prevent anyone from suppressing honest negative reviews and from paying for positive reviews, which deceives consumers looking for real feedback and undercuts honest businesses.
In another key finding, renters want landlords to be more transparent about their mandatory fees. Approximately one in five respondents reported not being informed about all the charges associated with their current lease and four in five said that property managers need to come clean up front rather than hide extra fees.
This finding “cannot be overstated, especially in light of the regulatory focus on junk fees in the rental housing market,” said the report, which calls for more clarity in fee structures.
“The study results indicate that renters appreciate transparency and may be more inclined to consider communities that are clear and open about their pricing structures,” the report says.
Whether it is on a community’s website or its newsletter to residents, potential renters want to see what life would be like should they choose to lease there, the study found. At the same time, save for higher-end renters, the management company’s brand is not usually a primary factor in the rental decision.
In another finding, approximately nine out of ten renters in almost all age groups – from 18 to 65-plus – said they would frown on any company that treats its employees poorly.
Finally, the report said the renters who responded to the online survey indicate they’d do things a bit differently the next time around. More than half said they would visit their next place in person and almost half said they’d do more research into the property management company before pulling the trigger.
Source: Multi-Housing News
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By Meghan Wentland
Because your primary expense on rental properties will be maintenance and repairs, a home warranty can save a lot of time and money—as long as you read the policy thoroughly.
Q: I have both homeowners insurance and a home warranty on my primary residence and require that my tenants carry renters insurance for my rental properties. Does a home warranty for rental property make sense, or is it an unnecessary expense?
A: The security deposit you collected from your tenants and the renters insurance they carry will protect you financially from damage caused to the unit while the tenants are in residence, but just like in your primary home, a home warranty for landlords covers different expenses than homeowners insurance does. Think about why you carry both on your primary home: The homeowners insurance covers damage and loss that result from weather, water, fire, theft, and other covered events, while a home warranty is essentially a service contract that covers repair and replacement of major home systems and appliances that fail due to age or normal wear and tear. Together, they form a kind of security system for your investment and your business. As a landlord, you know that one of the bigger expenses involved in rental properties is maintenance—unless you’re very knowledgeable and managing your rental properties is your only job, the near-constant need for plumbers and electricians for blown circuits, leaky water pipes, and bigger problems such as broken washing machines and HVAC issues can be crushing both financially and in terms of the time it takes to choose and hire qualified technicians. As long as you’re on top of regular maintenance and read your contract carefully, choosing to home warranty rental property you own might save you quite a lot of money, especially if you find yourself wondering “Does renters insurance cover appliances?” and realizing that the answer is no.
A home warranty covers appliance and system repairs or replacements—to a certain extent.
Home warranties come in several different packages. Normally home warranty companies offer one package that covers whole-house services, such as electrical, plumbing, heating, and cooling; one package that covers major laundry and kitchen appliances; and one that covers both. If you own a number of rental units that are all about the same age, the ovens, refrigerators, dishwashers, water heaters, clothes washers, and dryers in those units—all of which are your responsibility to keep in good working order—may begin to fail around the same time, from basic hard use. Financially, this could mean that you’ll experience a disastrous sequence of expenses as one appliance after another needs repair and/or replacement, and that in some cases you might pay for a repair and then a replacement of the same appliance. A home warranty purchased for each unit you rent can cover the majority of those repairs and replacements for roughly the cost of one or two repairs or replacements.
The landlord has to purchase the rental home warranty for renters; because they aren’t responsible for the upkeep of the property and don’t own it, the renters can’t opt to purchase a warranty on their own. You’ll pay the cost of the warranty contract, usually for a period of 1 year. Written into that contract will be the appliances and systems covered, the maximum payouts, and the cost of each service call. A plus here is that the service call, while an added expense, will cover the entire cost of the assessment, attempted repair, and if necessary, the replacement of the item. You won’t have to pay a plumber to try to repair the water heater, only to find out the problem is electrical, then pay an electrician to check it out and tell you that the unit needs to be replaced. The service charge will cover the repair or replacement to the extent the contract allows.
One reason some homeowners balk at buying a home warranty is that they’re concerned that they won’t be able to choose the style or quality of the appliance that they prefer and have it covered by the warranty. As a landlord, you’ll certainly want to keep the units modern and up to date, but you might not be as worried about the style or color as you would be in your own home, so the warranty is an even more sensible idea.
If you have a rental unit in the same place as your primary residence that is less than 750 square feet, you can cover it with a Guest Unit add-on to your own home’s warranty.
This can be a great savings for the landlord renting out a part of their home or a small apartment in a separate unit on their home property. If the unit is small (especially if it’s the only one you have), paying full price for a home warranty contract might not be cost-effective. Luckily, if the unit is less than 750 square feet, you can add it to the home warranty policy you carry on your own dwelling as a Guest Unit line item for significantly less cost than purchasing a separate policy just for the unit.
Cost considerations will depend on a number of factors, including the age of the property and its systems.
If the rental unit is older and the mechanics and appliances haven’t been updated recently, a home warranty is a straightforward protection of your investment; these units are more likely to have age-related issues that a an insurance policy won’t cover. But don’t discount the benefits of a home warranty for newer homes as well. While a newer home with more recently installed systems and appliances is less likely to suffer from age-related wear and tear, newer units are often built with computerized control panels, automated systems, and smart-home integration, all of which can fail if a single component fails. These technologically advanced units offer convenience and efficiency, but they can also be extremely expensive to repair and are less likely than older appliances and systems to stand the test of time. You’ll want to weigh the cost of the warranty and service calls against the repair and replacement costs of the units you currently have in place to see what financial benefit the warranty would provide.
A home warranty for a rental unit is tax deductible.
Depending on how you’re registered as a landlord, your entire premium and service charges may be considered an operating expense. These expenses can be claimed on a tax return as a deduction from your total income, thus reducing your tax burden. Especially if you have a large number of rental properties, this total can add up quickly and add to the money you save on repairs and replacement by reducing how much tax you owe. State tax deductions will vary based on where you are registered as a landlord, but it’s likely that you’ll be able to save some extra money through federal and local deductions.
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A home warranty on a rental unit can save you a lot of money on repairs and maintenance.
By covering repairs, maintenance appointments, and replacement, a home warranty prevents you from having to shell out cash on demand whenever something goes wrong at a property you’re renting out. If you make one or two claims against the warranty, it will have come close to paying for itself (one significant system replacement might more than cover the tab), and when the tax benefit is added to that, you’ll start saving real money.
In addition, though, the warranty will save you time. A landlord is always on call when a tenant’s toilet clogs or bathtub backs up, the AC goes out on a hot summer day, or the dishwasher won’t drain. The tenants might feel bad about calling and potentially disrupting a family birthday party or vacation, but they’ll call, and it’s your responsibility to make the necessary arrangements for a service call and repair, or to go check out the problem yourself before you incur a charge from a professional. The best home warranty companies take care of that for you; either you or the tenant make an initial call, and then the home warranty company takes it from there, arranging for the professional repair person to contact your tenant for scheduling and handling the rest of the repair in exchange for a service fee. If you live far away from your rental properties, this service is even more valuable, potentially saving hours on the phone and making it less likely that you’ll end up hiring a contractor who takes advantage of your distance by doing shoddy work. That peace of mind is provided to you, not to mention the return of potentially full days of coordination and shopping for replacement parts or appliances (or even whole systems). And, you’ll save money.
When choosing a home warranty for a rental property, be sure to read the fine print.
This is a critical point, because failing to read the contract carefully can result in unpleasant surprises at the worst moments—surprises that are often the reason people are suspicious of home warranties in the first place. They don’t cover everything. First, the warranty only covers the systems and appliances listed in the contract, and nothing else. Second, the cost of the service visit is also set in the contract, along with how many individual visits (or what length of time) is included in each visit. Third, every warranty has coverage limits. There are two kinds of limit: a maximum payout per event, usually specific to the system or appliance, and a maximum payout per policy annually. This can cause distress if you haven’t read the policy carefully and are expecting that an entire failed HVAC system will be replaced free of charge, only to discover that the replacement will cost $10,000 and the policy states a maximum payout of $7,000. That’s still $7,000 you don’t have to come up with and very much worth the cost of the home warranty, but the remaining $3,000 due can be upsetting if you’re surprised that it’s not covered. Similarly, some policies will cover insect infestations—but only for certain kinds of insects. It will be a rude awakening when you file a claim for a huge termite infestation and find out that termites are excluded from your warranty—and that it was right there in black and white for you to see.
In addition, most home warranties have requirements that must be met in order to remain valid. If you’re a landlord, you’re probably accustomed to making quick fixes yourself to save the cost of a professional, especially for easy things. Or perhaps you trust that your tenants will take care of common maintenance tasks and cleaning. Unfortunately, those DIY fixes or potentially delayed maintenance can invalidate your warranty and allow the company to deny claims. And perhaps the home you purchased to rent out had been in disrepair for some time; while some home warranty companies have an amnesty program that doesn’t penalize new owners for maintenance failings of previous ones, not all do, so you could find that the years of no maintenance or upkeep before you even owned the property render your claims invalid. Again, these conditions will be clearly spelled out in the contract (and if they are not, you should ask about them to make sure you haven’t missed something).
If, however, you’ve carefully read the contract and are aware of the conditions and limitations, a home warranty can offer financial savings and peace of mind to what many see as the most onerous part of being a landlord: the time and expense of maintenance and repairs.
Provided by bobvila.com
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Should you aim for diversification in your real estate investments? What about your stock investments?
Oddly enough, many real estate investors never bother to ask that question. They just assume that all real estate investments require a lot of money and that each niche requires so much skill that you can only master one.
They’re wrong on both counts, and it adds risk to their investment portfolio.
Warren Buffett’s Take
Berkshire Hathaway CEO Warren Buffett famously said, “We think diversification is—as practiced generally—makes very little sense for anyone that knows what they’re doing…it is a protection against ignorance.”
I disagree.
Don’t get me wrong: I have nothing but respect for the Oracle of Omaha. He’s built an incredible career out of choosing stocks and other investments.
But guess what? You’re not the near-prescient investment analyst that Warren Buffett is, and neither am I. Most of us can’t pick winners with the consistency that he can.
That goes for professional investment managers, too, not just part-time or retail investors. It’s why actively managed mutual funds historically perform worse than passively managed ETFs.
And don’t tell me about how different real estate investing is from stock investing or how the same principles don’t apply to you. Most novice real estate investors lose thousands of dollars on their first few deals. It’s tuition to learn the ropes. Even after getting some expertise under your belt, real estate investors still end up making costly mistakes sometimes, or have market conditions fall out beneath their feet.
Real Estate Lends Itself to Narrow and Deep
Real estate is expensive. If you buy a property by yourself, you’ll likely need $50,000 to $100,000 between the down payment, closing costs, cash reserves, and possibly the initial repair costs. And if you invest passively in real estate syndications, you usually need a similar amount for the minimum investment. That makes it hard to diversify when each individual asset requires so much capital.
Likewise, active real estate investing requires niche expertise. If you invest in Section 8 properties, mobile home parks, self-storage facilities, or in any other niche for that matter, you need to master the skills and knowledge required to succeed in that niche. That, too, makes it hard to diversify—you can’t just learn a new niche overnight and expect success buying up luxury retail properties in primary markets.
Andrew Helling of Helling Homebuyers sums up the consensus argument:
“Diversification limits your ability to understand specific market niches and often causes you to miss out on opportunities that come with a concentrated investment strategy. While it’s riskier, I prefer to go all-in on local deals that I really understand. These are easier to manage, quicker to visit, and require less work, since I know the local market very well.”
You can see why real estate investors typically opt for a handful of similar properties in a few markets. In other words: narrow and deep, as opposed to wide and shallow.
Contrarian Take: Why I Go Wide and Shallow
Markets are unpredictable, and my crystal ball is no clearer than anyone else’s. In fact, every time I’ve tried to get clever with investments, the universe has served me up a big slice of humble pie.
I’ve seen real estate deals go south after all the numbers on paper looked great. I’ve seen syndicators fall apart after many people I respect recommended I invest with them. And I’ve seen white-hot housing markets collapse in value after nothing but positive buzz from pundits and investors alike.
So, I invest $5,000 in a new passive real estate investment every month as one of hundreds of members of SparkRental’s Co-Investing Club. In the last year, I’ve invested in multifamily properties, mobile home parks, retail, storage, industrial, and more—all with different syndicators and investors in different markets across the U.S. Most of the deals we review each month are real estate syndications, but some are funds or notes.
“Spreading investments amongst various property types can protect your return when certain sectors retract or underperform,” explains Ryan Martinson of WhatsMyPayment.com. “When a particular segment booms, diverse investors participate in the upside.”
Risk Mitigation Strategies
Specifically, my diversification strategy protects me from risk in the following ways.
Markets
You might scoff now, but in 2006, big real estate players from New York and Washington, D.C., were plowing huge amounts of money into Baltimore real estate. The city had a renewed sense of optimism at the time, with crime rates slowly but steadily decreasing and lots of money pouring into low-income neighborhoods.
As a Baltimore native and a naïve young real estate investor, I, too, jumped on the bandwagon. Then I got my butt handed to me in 2008.
All that outside money disappeared virtually overnight. Up-and-coming neighborhoods slipped back into decay. And a few years later, in the wake of riots, crime rates increased again.
The details differ as you look at other real estate markets around the country, but the lesson is the same: Sometimes, markets reverse course unexpectedly. I lived in San Francisco briefly in 2009 and loved it (even if it already flashed warning signs for sociopolitical issues by then). Everyone speculated on San Francisco properties for two decades—only to see values crumble over the last few years.
Austin, Texas, and Boise, Idaho, were white-hot a few years ago and then had a terrible 2023. In the ‘90s and ‘00s, people had written off Rust Belt cities in the Midwest, only to have them resurge later.
The bottom line: You can’t always predict where a market will turn next. So don’t put all your eggs in one basket.
Property types
After the Great Recession, everyone said self-storage was the ultimate risk-free real estate investment. In a recession, people downsize and need storage, right?
Until you overbuild them and the fundamentals of supply and demand catch up with you.
As an aside, it actually turns out that while self-storage isn’t very correlated with home prices or unemployment, it is heavily correlated with home sale volume. People rent storage units when they move, and in the near-record-low transaction volume of the last year, storage has suffered.
Again, I can’t predict what will happen in a specific industry or for a specific property type. To be frank, I actually just recently learned about how dependent storage is on home sale volume. But it goes to show you that even the big Wall Street institutional funds, which have poured money into storage over the past few years, often get it wrong.
And if they often get it wrong, you better believe you will sometimes, too, and probably more often.
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General partners/syndicators
When we first launched our Co-Investing Club, I asked a lot of experienced real estate investors, both active and passive, about the sponsors (syndicators) they recommended. I heard a lot of names, but two names kept coming up again and again. These two big names had an immaculate reputation and plenty of experience and deal volume.
Guess what? They’ve been by far the two worst-performing syndicators we invested with in our investment club. In fact, they’re the only two that have given me any cause for concern.
You can look at an investor’s track record and ask others in the industry about them. But you just can’t predict how a general partner will perform when market conditions change. And spoiler alert: They always change sooner or later.
Today, the rule of thumb we try to follow in the Co-Investing Club is a one-year “probation period” after our first investment with a sponsor. We want to see how well they communicate, how they handle hiccups, whether they start distributions on time, and so on. We don’t mind investing again with a sponsor we know, like, and trust, but we try to space them out because diversification spreads out risk.
The wisdom of crowds
I’m no longer so arrogant as to think that I can spot winners every time or even most times. This means I rely on the wisdom of thousands of other investors.
Before investing with a new sponsor, I ask about other passive investors’ experiences with them on the Left Field Investors or BiggerPockets forums. Then my cofounder from SparkRental and I get on a “pre-screening” call with them. If we still feel good about them, we invite them in front of our Co-Investing Club so we can all grill them together.
Every time we vet a deal from a sponsor, we collectively ask better questions. We focus more on risk and how many ways the sponsor is mitigating it than on the potential returns.
In one deal, a member happened to live five minutes away from the apartment complex in question. She gave us a local perspective on the neighborhood and the demand for this type of housing there.
In another deal, a member who works in the insurance industry pointed out just how badly the sponsor had underestimated insurance costs.
Lean on others as you diversify. Through group investments with others, I get to benefit from their expertise, not just my own.
Dollar-Cost Averaging vs. Timing the Market
I practice dollar-cost averaging in both my stock investments and my real estate investments. Every week, my roboadvisor pulls money out of my checking account to invest in a broad portfolio of ETFs. And every month, I invest $5,000 in a new passive real estate deal.
I don’t have to worry about timing the market. When other investors ask me if now is a good time to invest, I basically reply that they’re asking the wrong question.
I can’t predict the stock market or the real estate market. Either could collapse tomorrow or shoot for the stars. But by continuing to invest month in and month out, I make sure I maximize my time in the market rather than timing the market.
Plus, I enjoy cash flow in the meantime, rather than sitting with a ton of cash on the sidelines waiting around for a dip that may take years to appear.
A Numbers Game and The Law of Averages
Last year, our investment club invested in 13 deals, in line with our goal of around one a month. One or two of these investments will likely underperform or lose money. Others will overperform and exceed expectations (some already are). Most will fall in a bell curve in between and average out to strong annualized returns in the long term.
At the end of the year, I didn’t wring my hands and worry about how this or that deal was doing. They just added up to numbers on a page, all averaging each other out.
But if I had invested all of my funds in a single property or deal, you better believe I’d be thinking about that one deal all the time—especially if it was losing money or underperforming.
“By abiding by the law of averages, investors are typically able to lower the risk of downturns in fluctuating markets,” explains Nate Johnson of NeighborWho. “Instead of an ‘all or nothing’ approach, diversifying helps give investors a financial safety net while helping to ensure a consistent trajectory towards financial growth.”
And hey, even Warren Buffett can’t pick winners every time. For all his talk about how diversification is for investors who don’t know any better, Berkshire Hathaway owns stakes in over 60 businesses.
By spreading smaller amounts across many property types, in many markets, with many syndicators, I can sleep at night knowing that the law of averages will protect me. Call me an ignorant investor if you like, but I feel pretty good about a bell curve of returns on my many investments.
Provided by Bigger Pockets
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