Business cash reserves are a basically an emergency savings account. If you treat your rental property as a business, you should be putting a little aside each month for the unknown. You know, like a pandemic. So how much cash reserves are enough for your rental property? We’ll get to that in a moment.
Why Do Landlords Need Cash Reserves?
- Unexpected vacancies or turnover that takes longer than expected.
- To carry a good tenant facing sudden health issues.
- To cover expenses and missed rent in the event of a fire or flood, or God forbid another pandemic.
- For replacement costs for damaged windows, doors, carpet, or appliances like water heaters, air conditioners, or refrigerators.
- Those unexpected repairs to damaged floors, heating systems, or issues caused by mold or pest infestations, or dry rot.
- Costly capital improvements like a new roof, fence, kitchen, bath, or painting the exterior of your rental property.
As you can see from the examples above, capital reserves carry you through many different circumstances. Had we not had a sizable reserve, we would have been in a very different situation during the pandemic.
How much cash reserves do you need for your rental property?
The basic rule of thumb is much like you should have for your personal reserves, six months of income and expenses in the event you are incapacitated and your income stalls. So that would be six months total of:
- Total income earned by your rental property. This includes monthly rent and income derived from any other sources like washer/dryer coins, additional storage income, parking space income, and concierge services offered to tenants.
- PMI: Property taxes, mortgage, and insurance fees.
- Maintenance and Utilities you provide: Water, gas/electric, trash, landscaper, and/or property manager.
- Expenses you run through your business: Car payments, gas allowances, health insurance, employees, etc.
Two approaches on to how to reach your goal reserve:
Additional Notes
Location, location, location, the official mantra of anything real estate. Whether investing, buying, or renting, the importance of that phrase cannot be overstated. Make sure you include facts about the neighborhood when marketing your rental property.
As investment property owners, knowing about your neighborhood is vital when marketing your unit. Prospective tenants want to be close to work, restaurants, shopping, parks and walking trails, good schools, entertainment venues, etc. An ideal location can have a significant impact on your revenue. Often tenants focus on an area that fits the lifestyle they desire for themselves and their family. They may be willing to pay a little more and might overlook some rental unit shortcomings if the property is in a great neighborhood.
When you purchased your investment property, I am sure location played a pivotal factor in moving ahead. Along with cash flow, appreciation, ROI, etc., you probably toured the surrounding neighborhood or looked online to see the proximity of good schools, shopping, and so on.
But to properly market your rental property to prospective tenants, take it a step further and treat the neighborhood as your own. Spend time in the area as if you lived there or become a tourist for a day or two. I had one English teacher who recommended one should “write what you know.” By getting to know your rental property neighborhood, you can better relate to its positive aspects, whether through your marketing ad copy or when answering questions your prospective tenants might have.
Quick Story
A few years ago, my wife and I had some work being done at our apartment complex in midtown Sacramento (2 hours from our home), which required us to spend the night.
The adage, “you only get one chance to make a first impression,” is never truer than when you are trying to get a prospective tenant to view your rental listing. Photos are the first thing someone sees when searching for their next apartment or home. Most people will not even look at an online ad without pictures. Having photos that capture the renter’s interest often can be the difference between them wanting to know more or moving on to the next listing. Here are some tips for taking your best photos of your rental property.
Always remember, if you want great pictures of your listing, the care, time, and diligence you take when photographing your property is crucial.
Lights, camera, action! The director’s traditional call before a film take. Let us look at how these come into play in your rental listing photo shoot.
Lights
You can have the best camera and the most stunning rooms to photograph, but nothing matters without light. Good photos are all about lighting. Without enough lighting, the rooms may appear blurry and gloomy. Light can dramatically impact the feel of a photograph. Natural light, or light from the sun, is best for making your space look bright and inviting. Take photos of your property on a bright sunny day and supplement the natural light by turning on indoor lights and opening blinds or curtains. This can also make your space feel bigger. If there are areas where natural light is unavailable and lighting in the room is not sufficient, you may have to use a flash. I will discuss how best to use a flash in the camera section.
Camera (& Accessories)
When considering equipment, a DSLR camera will give you a more professional look, higher quality, crisper images, and the ability to capture wider angles. However, today’s point and shoot or smartphone cameras can get the job done.
Whatever the camera you choose, I highly recommend using a tripod where you need your scene to be as sharp as possible, especially in low light conditions. The one I use supports both my DSLR and iPhone and comes with a Bluetooth remote. To check it out click here. 
Even with well-lighted rooms, using a tripod eliminates the chance of blurry or less than clear, sharp images. If the interior has less than ideal lighting conditions, it is even more crucial to use a tripod.
In some cases, a flash may be required. Most flashes are quite intense and can make your interiors look flat, unnatural, or over-exposed. With a DSLR camera, you can attach an on-camera external flash (compared to a built-in flash which is integrated into many point & shoot and phone cameras). You can then aim your flash up and “bounce” it off the ceiling to illuminate the room much better.
When taking photos of the rooms inside of your rental property, it is vital to have the right angles. Photos generally look better when your camera sits lower than eye level. In kitchens and bathrooms, shoot just above the top of the counters. Try to position your camera below shoulder height and adjust until the walls are vertical and straight. (This is another reason to invest in a tripod, to keep your photos consistently at the right level.)
Make sure the camera is shooting level. Use the grid feature on your camera or iPhone display to make sure your frame is parallel. Avoid strange angles and do not aim the camera too high or too low, leading to converging lines or a distorted image. With a DSLR, it is advantageous to use a wide-angle lens but be careful when going beyond 22mm or using an ultra-wide lens that can distort the room. With a smartphone (I use an iPhone 12Pro) , you can experiment with the panoramic or wide angle feature to get a fuller shot of the interiors, but the same caution applies – do not make it look like a funhouse! Take your photos from different angles and positions to see what best shows off the unit. Taking photos from corners of rooms opens them up, but also try taking some shots straight on.
Action
Taking the best photos of your rental property starts before you even pick up your camera, as the first order of business is making sure the property is prepared. This means both the interior and exterior. When shooting outside, consider the time of day. You do not want the property dark and hidden in the shadows. Make sure the yard is tidy and freshly landscaped. Consider shooting during the time of year that shows off your property at its best.
An example is one of our apartment buildings that has a couple of beautiful trees out front. While they are green and full in the summer, providing plenty of needed shade, they block out most of the building when taking a photo of the front. Taking that same photo in the spring or fall, with fewer leaves, allows a much better image of the property.
The same goes for any other exterior shot. If there is a pool, shoot during a bright sunny day, so your future tenants can better imagine enjoying themselves. Make sure any furniture is clean and that the area is swept. If you have outdoor lighting or a fire pit that you want your renters to enjoy in the evening, consider shooting in the late afternoon or around dusk to show off that ambiance.
The same is true of the interior.
Make sure the unit is clean and rent ready. Please do not take photos during rehab or before it is prepared to show. Notice the photos of these similar kitchens, which could you imagine yourself living in? You would not schedule a showing with dishes in the sink, a broom and bucket in the corner, or counter tops full of cleaning supplies. It is the same when taking your photos. Think of your photos as your first showing.
Plan out your photo shoot. Walk into each room and see what the best direction/angle is to shoot the room. Ideally there are multiple good choices. Write these down in a notebook so when you are ready to shoot, you remember your earlier walk through and check the shots off as you go.
Make sure you take photos of closets along with extra storage areas. Get shots of appliances, washer & dryer, and any other amenities your property might have.
It is better to have a few too many photos than not enough. But you do not want to snap away endlessly, so you are overwhelmed in post-processing. It can be frustrating feeling you missed some crucial shots. This is where it is nice to have notes, as I mentioned earlier, that keep you aware of what you still must shoot and what you have already photographed.
Be sure to take advantage of photo editing apps and software (a lot of them are free!). I use Adobe Lightroom which offers simple to complex editing options, access from my laptop, phone, or web, storage and photo organization features (click here for a free trial). Brightness, contrast, saturation, shadows, even some alignment issues are just some of what can be adjusted to improve your photos. Take the extra time to make your photos the best they can be, but be careful not to overdo it. You want to show your rental property at its best, but you also want to be truthful.
As in most projects, proper planning and preparation are vital to their success. I hope these tips help you get ready to start taking great photos of your rental property. A little extra time and care in photographing your rental property will pay dividends in the future.
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For the longest time, we did not require renter’s insurance. Although we had a disclosure within the lease where we recommended coverage, we did not require it. Nevertheless, now we are explaining our change of heart and why every landlord should require rental insurance from their tenants.
Why didn’t we require renter’s insurance on the units we owned? Unfortunately, we thought it was only to cover the tenant’s personal property in a fire or flood (think broken water pipe) event. Recently, we sat down with our insurance specialist, Michael Bravo of The Bravo Agency, to learn more about why landlords should require renter’s insurance.
Liability, Liability, Liability
Yes, I know, liability is the main reason to hold any insurance policy. Keep in mind, you do not have a controlling interest in your tenant’s insurance policy. What you do get as a landlord is peace of mind as it covers tenant caused damages which take place on YOUR property.
Standard policies cover:
- Personal Property Loss
- Temporary housing and living expenses if their unit is found uninhabitable
- Liability in the event a guest gets injured while visiting a tenant’s unit
Personal Property Loss (Benefits Tenant)
Here are several examples of how your tenant’s personal property is covered in the event of damage or theft:
- Tenant in the unit above overflows their bathtub, the water comes through the ceiling, and damages another tenant’s electronics.
- Theft of a tenant’s bike from property grounds.
- There is a fire in the building, and all personal property is damaged from water or smoke.
- A tenant’s personal laptop is stolen from their car.
- Water pipes break, and water damages all contents within a unit.
Additional Living Expenses
If your tenant’s unit is deemed uninhabitable, their renter’s insurance should cover the cost of temporary housing, food, dry cleaning, etc. Additionally, it may even cover the cost of a moving company. In most cases, your commercial property insurance coverage usually does not provide this for tenants.
Extended Liability
This portion of the policy will cover such instances as a visiting guest who gets injured within the unit or has damages caused by one of your tenants. For example, the tenant drops a bottle on their foot and breaks a toe). Moreover, it also might cover dogs in the event their dog bites you, a guest, or neighbor. Note: Make sure tenants confirm pets are included in their coverage. Many policies do not cover dogs or have limitations on weight and size.
Furthermore, should there be a lawsuit from bodily harm or injury, the insurance likely will cover a portion of medical and legal fees as well.
Why do these instances affect you? To demonstrate, let’s say you rent to a tenant who owns a dog and said dog bites a passerby. On the whole, you can be liable to that victim by allowing the tenant to have the dog on your property. Also, another example would be a delivery person who trips and gets injured on a toy or hose the tenant left in the walkway. Keep in mind, if you as a landlord do not require the tenant have rental insurance, the liability can fall to you, as the property owner.
It should be noted that a separate rider for natural flood and earthquake damages may be required. As a practice, standard policies do not typically cover them.
Cost of a Policy
In general, the cost of an insurance policy is usually very low per month. Tenants pay in the range of $20 – $30 depending on the amount of coverage and where they reside. Interestingly, for an additional few dollars more per month, the tenant can secure $300,000 – $500,000 of coverage. Depending on the property, we require a minimum liability coverage of $100,000.
Why is the amount of coverage necessary for you? Damages caused by a tenant allows your liability insurance to subrogate funds from the renter’s insurance policy. This helps with the payout to cover damages not being all out of their pocket. For instance, if you own a duplex and one unit has an extensive kitchen fire, $100,000 is not likely enough to pay for all the damages where $500,000 might be. Therefore, your insurance company would be able to recoup all or most of the liability they had to pay out for damages.
Despite damages which you are found responsible, the tenant’s rental insurance will replace their belongings and pay for temporary housing. Commonly, these two items are not typically covered under a landlord’s commercial liability policy.
In Conclusion
As you can see, being a landlord requiring rental insurance for your tenants is a huge plus for peace of mind. Adding the task of monitoring each tenant’s policy to your task list is a small price to pay. Make sure your lease clearly notes that:
- You require renters insurance.
- The minimum coverage you require.
- When they need to have the policy in place by. For timeframe, some landlords require proof prior to signing the lease, others are a little more lenient and ask it be fulfilled within 14 days of signing or entry to the unit.
- You or your legal entity are noted as an additional insured.
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