When it comes to minimizing the amount of money lost due to vacancy at rental properties, many procedures might appear self-evident to you, such as carrying out thorough tenant inspections and doing routine inspections.

There is, however, one issue in specific that might be the deciding factor in whether or not you are required to return the security deposit that your renter paid to you. It may also help you decide whether or not you have the right to sue your tenant to recover the turnover expenses incurred as a result of damage or neglect.

When you consider strategies to prevent turnover expenses, that specific issue probably isn’t the first thing that comes to mind for you.

When renting a home or apartment to new occupants, it is important to do a move-in check to ensure that everything is in working order. But how much time and consideration do you put into the move-in inspections that you perform? I can almost ensure that you are doing the move-in inspection inappropriately, which may cost you thousands of dollars at your next turnover.

If you believe I’m exaggerating when I say that a poorly performed move-in inspection might cost you several thousand dollars, please allow me to share the unfortunate story of how I understand this to be true.

The Real-World Effects of an Insufficient Move-In Inspection

Since most of my rental properties are based in other states, I must depend on third-party managers to take care of them. In my perspective, property managers are unique creatures, and it’s not uncommon for a once-excellent manager to deteriorate to the point that I need to terminate them and find a replacement.

My go-to property manager went through a rough patch a few years ago, and I had no choice but to find someone else to take his place. A tenant in one of my rental houses stopped paying rent and moved out not long after a new property manager was hired to manage my portfolio of rental properties. After the previous renter moved out, the property manager came to the rental unit to begin the changeover process. This was done to rent the unit again as soon as feasible.

She was conscious that we were dealing with an issue before she set foot on the premises as the property manager. Most of the tenant’s things were found strewn throughout the front yard. Based on this information, one can only speculate about what is behind the front door.

There were major scratches on the walls, pieces of the carpet were ripped up, damaged kitchen equipment, and missing lamp covers. The property was simply in a generally less desirable state overall. It may have been in poorer shape, but there was sufficient damage to trigger an increased turnover cost headed my way. I was going to have to pay for it.

It seems sensible that the management company and I would conclude that we should withhold her repayment of the security deposit. Furthermore, we were getting ready to bring a decision against her regarding the additional costs.

However, we were brought to a halt in our tracks. In response to the letter that informed her that a portion of the security deposit would be taken, the renter said, “Everything was the same way when I moved in.” A quick and easy reaction, but one that packs a lot of punch. Because if that were, in fact, the case, we wouldn’t be allowed to keep the damage deposit that she gave us, and we definitely couldn’t sue her for the costs associated with the damages.

I began searching through my files for the move-in inspection report from when she moved in. I had reason to believe that she was being unethical because the premises were in excellent shape when she first moved in. When she was a renter, I had moved property managers, so the new property manager did not have this information easily on file when she took over. When I went searching for the report, I couldn’t help but feel anxious since I knew it would be my only chance of being able to sue her for the costs that I was now having to bear.

I was holding my breath until I unexpectedly came upon the inspection. At that point, I could finally breathe again. When I saw the file name pop up on my computer screen, I breathed relief and praised my blessings. As I reviewed the paper, I had the distinct impression that we could now demonstrate beyond a reasonable doubt that the renter had been lying.

However, I could not breathe for another moment when I read the text. All I could see was a barebones inventory of rooms, with just a single tick for the rest of the room if it was in “acceptable” shape, and three of the tiniest and blurriest photographs that had ever been shot since the invention of the camera.

Uh oh.

Indeed, no evidence could be used to support our suspicions that the renter was lying. We had the option of continuing to argue with her over the return of the security deposit, but we were conscious that if she brought us to court over the matter, we would be unable to demonstrate that she was lying. In the end, we were only allowed to charge her $250 for the trash on the property, and we were required to pay her the remaining amount.

I was completely defeated. Because I did not have an appropriate move-in assessment report, we could not keep the security deposit and proceed through the process of filing a lawsuit against her. This was all because I did not have a move-in audit report that would have shown she was lying.

If you’re curious, the renter who moved out got away scot-free even though the turnover paid me over $14,000 in damages. 

The Advantages and Disadvantages of Move-In Checks

It should come as no surprise that failing to conduct a move-in inspection is the most common and serious error made by investors in rental properties. However, if you are competent enough to conduct the move-in inspection, should you do it in a certain manner, and if not, is there a bad way to do it?

During a move-in check, ninety-nine-point one percent of investors write down and photograph everything that is broken or damaged in the property.

The proper way to do a move-in examination does not look like this at all.

When existing faults or problems with a rental home are recorded when a tenant moves in, the only person who benefits from this is the renter. This serves to safeguard the tenant. Because there is evidence that these problems were already there when the renter moved into the property, the owner will not be able to compensate the tenant for any faults or damages that may have occurred after the tenant has moved out of the rental unit.

Instead of worrying about broken or damaged things after a tenant comes in, a landlord should focus on ensuring everything is in great condition before the renter arrives. In other words, the paperwork for the property should place more emphasis on the positive aspects of the property than the negative aspects of property. Documenting what’s completely mistaken with the house is still possible, of course, but doing so will only protect the renter from being overcharged; it will do nothing to prevent the owner from having to pay for expenditures caused by problems the tenant created.

The ideal method to complete a move-in check is to include specific information about the property’s current state, with an emphasis on the aspects of the home that are in satisfactory or perfect shape at the time of the move.

Documentation in written form is beneficial and should be included, but pictures documenting everything in satisfactory condition are the essential component of a move-in inspection. Textual descriptions may well be challenged, but pictures, if challenged at all, are far more difficult to do so successfully.

Take this into consideration to produce the most rock-solid report possible on the move-in check of a rental property, which will provide the highest possibility of fighting against unnecessary costs caused by tenant damage to a rental unit:

• When making a record of the aspects of the satisfactory and unsatisfactory property, the major emphasis should be placed on the aspects of the satisfactory rather than on those unsatisfactory.
• It is recommended that photographs serve as the main form of documentation instead of written explanations.
• Take photographs of practically everything you can, emphasising documenting the aspects of the property that are in good shape rather than those that need improvement.

The best ways to prevent high turnover costs

It should come as no surprise that the move-in check is one of the most important efforts, if not the most important effort, to assist in minimizing high turnover costs. The following are some more things that you may do to cut down on the costs associated with tenant turnover:

• Careful and detailed tenant verification
• Inspections of the rental property regularly throughout all leases
• Installation of more durable materials that tenants are less likely to be able to readily damage

It doesn’t matter how carefully you manage your properties; you’ll never be able to completely prevent the high turnover expenses with renters who don’t care for them. As an owner, all you can do is your best to minimize vacancy rates and associated expenses by taking all the precautionary measures.

Rental Property Lenders

Every experienced real estate investor has a rental property lender in their back pocket in order to ensure smooth and expedient rental property loan and refinance transactions. With over 10 years New City Financial provides investment property mortgage lending and Rental Property Financing as well refinance programs to help expedite your transactions. Click here if your looking for a Investment Property Mortgage Financing or Commercial Property Refinance. You can also call them at (855) 848-2862.

Do you have any idea how the worth of your property will increase? Before you decide to purchase, ask yourself the following questions.

When purchasing an investment property, buyers sometimes do so without understanding precisely how or if the property will return a profit. To be honest, none of us was given guidebooks when we began learning how to invest; it is understandable that so many people go in without fully knowing the basics of evaluating whether a property would become valuable or not.

It is difficult to succeed with a property because we do not have a user guide and do not understand what it is that we do not know, further complicating the difficulty.

You’re lucky because, even though the information may seem vague, there are simple things you can learn that will help you a lot if you want to invest in a house.

It doesn’t matter whether you’re purchasing a house to rent out, flipping it, or investing in a commercial building; regardless of the technique you’re using, there are three questions you should ask yourself that can significantly alter the outcome of your investment.

First, I’ll explain why you should use this checklist, and then I’ll show you the three questions:

1. With the help of your investing plan in real estate
2. Taking into consideration each property’s ownership

As you work towards developing an investment plan, it will be helpful for you if you have answers to each of the following three questions. You will be in a much stronger position to more effectively understand what property to focus on and how to handle your whole investment experience in such a manner that you ensure your possibility of success with it. This will be because you will have acquired this knowledge. Therefore, when you start looking for homes, ask each of these questions to ensure that the property will do all in its power to contribute to your success.

Now is the moment to be ready to write notes and keep these questions convenient so you can use them whenever you commit to an investment.

• Question #1: What steps will I take to generate a profit?
• Question #2: Which particular risks are there to worry about?
• Question #3:  What practical actions can I take to minimize my risk exposure?

I’ll assist you in comprehending each question and how to address it now that you’ve noted it.

Question #1: What steps will I take to generate a profit?

 It is normal for new buyers to struggle in this particular area. People make investments without having a detailed plan for how they plan to make money from the investment, a situation I see far too often.

On the tactical side, it is simple to have a basic knowledge of the procedure; nevertheless, when it comes to the specifics of a process, a lack of comprehension might leave some cracks in the road to achievement.

Imagine you’re interested in BRRRR investing. The name of the strategy outlines the steps involved in the process, which are as follows: Buy – Rehab – Rent – Refinance – Repeat. That is not too difficult to understand. BRRRR is shorthand for BRRRR. But how can you ensure that each of these processes is carried out in a way that will result in a profit?

Consider the above scenario, and ask yourself what differentiates a BRRRR that is effective from one that is not successful. To make an investment that will give you a return instead of a loss, you need to know exactly what needs to happen or be done at each step.

Likewise, while researching possible characteristics to include in your strategy, you need to know the finer points and the big picture.

Consider the case when you are interested in purchasing a property that can be used for room rental. Investing in rental properties is a simple process that involves buying a property, making tenants pay rent, keeping what’s left over after expenses are taken out, and seeing the value of the property rise over time.

In most cases, it is the main source of income for a rental property. But what specific information is required at each step to guarantee success? 

• At what minimum cost must home be purchased to be considered an investment that will generate a profit?
• Can you guide me through the steps you used to calculate the cash flow?
• When should you anticipate benefiting from appreciation, and how big of an increase should you predict? What if there is no expression of appreciation? Do you think you can maintain your current level of profitability?
• How can you determine whether or not you are receiving a decent deal?

If you plan to understand how to make revenue from a rental property, you will need to have a more in-depth level of information, such as the examples given above.

Consider the task of explaining how you intend to benefit from a certain real estate investment strategy or from a particular property that fits into that plan as if you are aiming to convince someone else that it would be worthwhile. This will help you prepare to describe how you anticipate profiting. When you need to persuade someone of anything, you improve your argument by using more educated and solid facts to support your position. When it comes to financial issues, pretend that you are one of those individuals who still need to be convinced about the investment. Then, provide all the answers yourself.

Question #2: Which particular risks are there to worry about?

All the calculations and analysis in the community won’t save you if a highly risky aspect is involved and completely negates the profit you were expecting to make on an investment.

Consider the scenario in which you want to sell a house quickly. You’ve done all the research and calculations, and now you’re ready to buy the house. The next step is to have the builders start the renovation work. Unexpectedly, there is a problem with the foundations that must be repaired, and doing so will cost an extra $30,000 (and the problem is so severe that you can’t avoid correcting it). You may have only expected to make a profit of $20,000 after flipping the property, but now you’ve gone $30,000 over your budget. You will be $10,000 worse off than before when all is said and done. Whoops!

The real estate industry is famous for many instances of renovation cost overruns. You can’t just act like they don’t happen because if you do that, you can find yourself again in the same situation you are in now.

Any and every method of investing in real estate comes with its own unique set of dangers, and the same is true of each piece of property.

To provide you with an understanding of the types of things you should search for, here are some examples of key risk factors that are associated with rental properties and flipping methods. This list is incomplete, but it will give you a general idea of the property things you should look for:

Rental property risk factors

• Unanticipated maintenance and fixes
• Rude occupants
• Prolonged unemployment
• The value has been decreasing as a result of outside influences (i.e., the local market or neighborhood)

Flipping risk factors

• Overages in rehabilitation
• Rehabilitation Delays
• Real estate that does not evaluate for the projected value after repairs (ARV)
• A sluggishness or fall in the market that causes a significant decline in the ARV

In order to better comprehend the risks associated with particular properties, I will use rental homes as an example. The following is a list of risks that might have an adverse effect on the investment’s bottom line:

• Few prospective tenancies could lead to longer vacancies and a need to lower rent.
• The likelihood of having problematic renters is increased when the area surrounding is of lower quality.
• Poor property condition, which necessitates excessive amounts of money to be spent on repairs and maintenance
• The cash flow metrics are low, which indicates that there is a greater dependence on the appreciation.

You shouldn’t go ahead with an investment plan or a particular property unless you have a decent understanding of the elements that contribute to the risks associated with that strategy or property. If you have no clue what may be lurking in the darkness around the next bend in the road, you won’t be able to notice it approaching until it’s too late, and you won’t be able to recover from the loss that it causes, either. However, if you are aware of the factors that may go wrong, you will be better equipped to take the necessary precautions to assist avoid the loss to the maximum extent possible. 

Question #3: What practical actions can I take to minimize my risk exposure?

Regrettably, no one hundred percent secure method will guarantee that a property investment will be safe from all potential threats. The best we can do is implement as many risk-reduction strategies as are physically feasible to reduce the likelihood of negative outcomes as much as possible.

For example, if one of the most significant threats to rental properties is having undesirable renters who are responsible for a considerable deal of damage, don’t pay their rent, and drive-up eviction expenses, one simple way to reduce this threat is to work toward improving our possibilities of recruiting higher-quality tenants. What are some of the options that we have? Invest your money in better homes that are located in better communities. Even though it is still possible that a better property in a better location could have a bad tenant, the chances of this happening are much lower.

Does the fact that this happened in one of the most dangerous areas in the country suggest that we should never invest in real estate there? Absolutely not! Several investors primarily focus on purchasing real estate located in high-crime or otherwise hazardous locations. The key is to go back through all of these questions we’ve been discussing, find out how to help minimize the risks particular to high-risk properties, and then go back through all of these questions again.

For example, one of the most successful methods to deal with problematic renters is to handle them appropriately, whether done by the investor or a property manager. Numerous property management businesses focus on managing properties in undesirable districts. They have set up systems that work well when dealing with hard-to-please tenants, and they use those systems to reduce the risk of having to keep spending money.

You should first examine your plan and do a property analysis to better understand the dangers. After that, you need to ensure enough protection against potential dangers. Even though risk mitigations might not solve all possible problems, their main goal is to make it less likely that you will have to pay extra costs as much as possible.

Implementing the Questions into Your Investment Strategy

There is no “wrong” way to choose an investing strategy, just the need to dig deeply into the procedures and qualities required to make that plan succeed. There is no need to spend a lot of time diving deep. You will be much ahead of the competition if you explain your strategy for making money, identify the risks associated with your endeavor, and determine the most effective means of minimizing those dangers.

It is important to keep in mind that there is no assurance that your investment will not be adversely impacted by anything in the future, even if you successfully identify every risk and implement every risk mitigation measure under your control. The unexpected is always possible, and dealing with it is simply part of the game. Therefore, as a successful real estate investor, you must acquire the skills necessary to effectively handle obstacles and make the required changes to get back on track toward achieving financial success. Being an investor in real estate requires a lot of hands-on experience, which may be challenging at times but is important for success in the industry.

Structuring the Right Partnerships for Success

No matter the state of the economy, a commercial real estate investor, whether experienced or a beginner, should align himself with knowledgeable and reliable Investment Property Lenders. The likes of  New City Financial, where you can get a quick rate quote for a Commercial Property Refinance or Investment Property Purchase. Call 855-848-2862 for more information or click here to get a Rate Quote.

Nowadays, economic cycles, especially recessions, are receiving a significant amount of attention in discussions. It has come to my attention that many people have the fixed idea that when there is a downturn in the economy, the real estate market would be negatively affected to the same level as the overall economy and other asset classes.

Most people are under the wrong idea that there is a strong link between real estate and the overall economy. While it is true that the real estate market can be negatively affected by recessions sometimes, there is a much weaker connection between the two.

In fact, throughout more than half of the previous 34 recessions over the last 150 years, real estate has either not been impacted at all or hasn’t been affected nearly as badly as other asset classes like equities. This statistic can be found by looking back throughout the previous 34 recessions.

Why is real estate not affected to the same level as other industries?

Here are a few explanations

There are various types of investments, but real estate is not one of them. Because real estate assets come with their own objective value, they are often less vulnerable to the influence of economic factors.

In general, economic downturns follow prolonged periods of rising inflation. Where do you recommend individuals keep their money in an inflationary environment? Real estate. Real estate is a fantastic hedge against inflation because of the value of the underlying asset and the debt that could be related to it.

Some investors seek property investment to protect their money if the share market or other types of assets are experiencing a downturn. In contrast to investments in a number of other asset types, real estate value rarely goes to zero or even gets close.

Due to these factors, the real estate market often demonstrates performance that is anti-cyclical in comparison to that of the overall economy.

What Economists are saying

An American economist by the name of Henry George published a paper in the late 19th century explaining why our economy fluctuates in waves at regular intervals (remember, this was before the Federal Reserve existed). In contrast to modern economists who think that fluctuations in interest rates and inflation cause cycles, George argued that the primary factor underlying these cycles was an investment in land prices.

The following is George’s view on how the boom-and-bust cycle that we observe in the economy was produced by land speculation:

First, we must acknowledge that the available land area is limited and cannot be increased in any way. This phenomenon is referred to as inelastic supply in economics. When the supply of a good or service is inelastic and demand for that good or service grows, the cost of that good or service also increases. The value of land goes up in direct proportion to the level of market demand for it.

Next, we are going to assume that real estate developers, overall, buy property to develop it right now and then resell it in the not-too-distant future. The costs developers are prepared to pay for raw land indicate how much they believe they will be able to sell the building in a year or two if they begin developing the site right away. However, when the economy is booming, investors (people like you and me) will continue to acquire land on speculation. This means that they won’t develop the property right away; rather, they will keep it as an investment with the expectation that the price will rise in the future. Because of these speculative acquisitions, land prices have increased, so developers can no longer generate a profit. As a result, developers have been forced to cease purchasing property.

History of Real Estate During Economic Downturns

When real estate developers stop purchasing land, they also stop constructing buildings. And when they stop constructing, this generates an economic wave that spreads across the economy, impacting businesses such as construction, production of heavy machinery, and manufacturing of building materials. This leads to a decline in economic activity, particularly in those sectors of the economy.

Ultimately, land speculators realize that they will not be able to earn a profit from their property acquisitions. As a result, they begin selling off their inventory at discounted rates, which stimulates the activity of land developers once again. The process starts again with developers developing and manufacturers selling, then goes through the whole cycle again.

In the past 160 years, this real estate market cycle has behaved in a highly reliable way. This cycle has its unique timeline and happens less often than the overall economic cycle, commonly referred to as the “business cycle.” Throughout history, it has happened on average once every 18 years. This 18-year cycle has been surprisingly continuous, creating real estate market downturns irrespective of the larger economic downturns that are often discussed. The only exception to this remarkable consistency came during the few decades that followed the Great Depression.

Final Remarks

Generally, I am of the viewpoint that both the economic and real estate cycles exist and that they are influenced by distinct economic factors, although they are frequently connected.

I believe that the depth of the Great Recession in 2008 was compounded by the fact that the economic and property investment cycles both entered a downturn at the same time. The downfall of the real estate market occurred precisely as predicted, approximately 18 years after the beginning of the previous significant real estate crisis in 1989, which resulted in a correction of more than 25 percent in several areas. In addition, we were around six years into the economic cycle following the 2001 downturns, which is the average amount of time between business cycles over the last 150 years. Therefore, 2008 might not have been essential; yet, for those who pay attention to cycles, the date wasn’t all that shocking.

While I won’t pretend to have any strong understanding regarding whether or not the real estate market will be affected by the impending recession or, if it is, to what extent it will be affected, I will clarify that I don’t believe it won’t be affected at all. Anyone who assumes that the real estate market will inevitably experience a recession as severe as the general economy or other asset classes should be wary of making that assumption. The real estate market could take a knock. However, if previous experience indicates, it’s unlikely that anything substantial is on the horizon.

If you have confidence in the historical patterns of cycles, you need to be more concerned about the status of the real estate market in 2026, which will be 18 years after the most recent significant fall in the real estate market.

Real Estate Opportunities During Slowing Economies

When the economy dips so do real estate values presenting opportunities for the savvy investor as well as new real estate investors. What’s more important is having a real estate investment property lender that can quickly deliver the right financing amounts and terms to make it more the worthwhile to invest in such recessive markets.

New City Financial has over 20 years of real estate funding experience funding from as little as $75,000 to over $50 Million in real estate investments. Get a quick real estate investment financing or refinance quote here: or call 855-848-2862.