The 4 Secrets To Estimating An Accurate ARV

So, you have completed your comparative market analysis and research and finally decided on a location in which you would like to purchase your rental property.Image courtesy of SellingUp.com You have decided on the amount that you can afford, and arranged provisional financing – and now the fun begins!

It is time to go shopping for your investment property. You can search using online real estate sites, such as realtor.com and zillow.com. Sites such as these allow you to search hundreds of properties in your chosen area and also set up alerts, which let you know the minute a property which meets your criteria comes onto the market.

It also makes sense to meet some real estate agents in person, as they have a wealth of knowledge that can prove invaluable. They may also have access to exclusive properties that have not been shared online. The best tactic is to widen your search using as many angles as possible, to give you the greatest chance of finding a bargain.

Looking at properties is a case of checking your wish list against the reality that exists beyond every front door. Perhaps your research has shown that the majority of renters in the area are families with 2 school-aged children, which means three bedrooms is ideal. Maybe the demographic leans more towards young professional couples, which means two bedrooms is plenty, but the living space should be open for entertaining friends at dinner parties.

Plus, the bottom line for most successful rental properties is that the decor is fresh and neutral, with a modern and attractive bathroom and kitchen fitted.

No property will be perfect, and that will mean that you will need to make numerous changes and upgrades in order to achieve the overall outcome and renter appeal that you have hoped for and banked on.

Keeping all of this in mind while you are visiting potential new properties can be difficult. The asking price for a property has to be coupled with the cost of repairs and upgrades. Of course, the upgrades should add value to the property, which will hopefully exceed the cost of the work. This equation provides a figure known as the ARV, or after repair value.

ARV – The value that the property is worth after you have completed repairs and upgrades.

It goes without saying that it is vital to estimate this figure as accurately as possible, as it is one of the most important determinants of the profit you will make with your investment. Fortunately, you don’t have to come up with this figure blindly. We are sharing the 4 top secrets to estimating an accurate after repair value, which will help you to choose your investment wisely.

Secret 1 – Make The Realtor Your BFF

Image courtesy of cache2.asset-cache.netThe first secret to estimating an accurate ARV is to build a good relationship with your realtor. Always be honest with them about your motives and goals with investing in a rental property, and they will be more than happy to share their thoughts on the value of a property, as well as expected value increases based on their experience. They will be able to tell you specifics on other properties that appeal to renters, whether a new kitchen will be a better investment than upgrading the double glazing, for example.

They will also know of comparable properties currently on the market that may already be closer to the ideal that you are looking for.

Secret 2 – Find Three Good Contractors

Once you have shortlisted a couple of potential investment properties, it is wise to invite three contractors to take a look inside and provide you with a written estimate for completing the work that you would like to have done.

Three contractors will offer you a broad enough idea of what the average cost of the work should be, plus you will be able to see immediately if one is considerablyImage courtesy of CasaandCompany.com higher or lower than the others. The written estimates will enable you to compare the quotes fairly, so that you can be sure that they are like for like.

Be honest with the contractors that you are obtaining three quotations, and explain that you are trying to estimate an accurate ARV at this stage. Building a good relationship will pay dividends in the future. Any reputable contractor expects to spend some time providing quotes in this way, and even offering advice on upgrades that may be more cost effective in their opinion.

You can also take your efforts a step further and research the costs of supplies and parts that you will need to complete your upgrade from local hardware and building depots. While contractors will usually receive a discount when purchasing these items, it is useful to have an idea of the figures that you should expect to pay.

Secret 3 – Research The Market

Image courtesy of NCSL.orgOnce you have compiled the quotations from your ‘team’ of realtors and contractors, you should have a good idea of what you will be paying out in total, and what other similar ‘fixed-up’ properties are selling for. This is the time to brush up on your knowledge of what is selling and renting well in the area.

It is not uncommon for people to pose as tenants in order to visit rental properties and speak to existing landlords about what is offered. This kind of investigation provides insider knowledge that could make your investment a real success, showing you exactly what other landlords are offering, and the amount of rent that they expect in return. It could give you the edge in offering extra value to your potential tenants, ensuring that you will never be left with an empty rental property.

Secret 4 – The Word On The Street

The final secret is to take a close look at comparable sales in the area, with a comparative market analysis. This is the actual sales value of homes in the local area, Image courtesy of BoomerBenefits.comand is usually limited to sales within the last 90 days, as fluctuations over a longer period of time can make the figures useless. The radius to use in order to compare sales prices would be around 1/4 to 1/2 a mile from the property that you are considering.

When looking at comparable sales, it is important to look at properties with a similar square footage, which are a similar age and in a similar condition. If you can find a property to meet these requirements, it will give you a very accurate idea of what you should expect to pay – and this will help to make your overall ARV more accurate. Your real estate agent should have access to this information and will help you to make sense of the specifics.

Knowledge is Power

Once you have these 4 secrets covered, you will have a wealth of information at your fingertips with which to make a measured decision about whether a property will be a useful investment for you. An accurate ARV can make or break the profitability of a rental property venture.

However, even with your figures compiled so carefully, it is still wise to be conservative and work with the worst-case scenario. Markets change quickly with little or no warning, and it is always best to give yourself a margin to work within. If you find that you are unable to make a worthwhile profit with anything but the most optimistic ARV, then it may be wise to let a property pass, no matter how much you have fallen in love with it.

Finally, do listen to the team that you build around you. It is true that they will make money from your decision to purchase, but they have experience that money can’t buy. If you trust your real estate agent and contractors, then be grateful for their expert advice. After all, they have no emotional investment in your decision and the ARV can make all of the difference to your final figures.

Why Landlords Should Require Renter’s Insurance Policies

Renter’s insurance. You have probably heard about it, but what does it have to do with you as a landlord? Why should it concern you whether or not your tenants take the time to protect their property?

Image courtesy of orixinsurance.comAt first glance, it is clear to see why many landlords do little more than suggest that tenants take out adequate renter’s insurance, but once you understand the benefits of such a policy, to both the tenant and also to you as the landlord, you may start to think differently about it

Renter’s insurance can be extremely valuable when it comes to protecting your investment. By ensuring the cost of damages to property within the leased property are covered, it protects your tenant’s wealth, allowing them to continue affording rent payments, even in times of crisis.

What Is Renter’s Insurance?

Renter’s insurance is a form of property insurance that covers the possessions and liability of a tenant within a rental property. It does not cover the dwelling itself or the structure.

What Does Renter’s Insurance Cover?

In general, renter’s insurance provides coverage for the tenant’s property in case of theft, fire and stormwater, providing replacements and in some cases alternative living arrangements if necessary. It can also protect a renter’s personal liability in situations where their actions (for example, flooding from a bathtub) have caused accidental damage to a neighbor’s property and possessions, especially when they are subject to a lawsuit for such damage. The amount of coverage depends, to some extent, on the value of their belongings which is often underestimated by individuals.

“Many renters underestimate the value of their possessions and would be surprised by how much it would cost to replace the items they have accumulated,” says Emily Lyons, a Liberty Mutual property insurance expert.

“It can be helpful to suggest that your tenants walk from room to room and take a full inventory of their possessions. It may come as a surprise when they add it all up. A typical renter’s insurance policy will cover up to $15,000 in property damage and $100,000 in liability coverage.”

It is important to be very clear with your tenant from the start that your landlord’s insurance does not cover their possessions at all and is simply there to cover the building structure. You can also mention that certain situations are unlikely to be covered by their renter’s insurance policy. This may include earthquakes and flooding in areas prone to such scenarios.

How Much Does Renter’s Insurance Cost?

Compared to the massive benefits derived from renter’s insurance, the cost of a renter’s insurance policy is minimal – around $200 per year – and is equivalent to the average price of a pizza delivery for a month’s policy. In some cases, tenants can even receive discounts for holding multiple policies with one firm, such as renter’s insurance and vehicle insurance.

How Does Renter’s Insurance Benefit You as a Landlord?

As a landlord, you will already have insurance in place to cover your investment on the rental property, so you can be forgiven for thinking that renter’s insurance is not something you need to worry about. While it is true that the main benefits are for the tenant, you will be extremely grateful in the event of accidental damage to your property by the tenant if such insurance is in place.

Numerous rental insurances will cover the cost of cleaning up a property after it has been damaged by fire or water, for example, as well as replacing destroyed items. This Image courtesy of urgentatlanta.commeans covering the cost of removing and disposing of damaged furniture and appliances … something that could be time-consuming and costly for you.

The costs involved in even a small fire can add up quickly, so it’s a relief to know that renter’s insurance is activated in these instances. “Soot and odors from a household fire can penetrate many areas and damage paint, carpet, upholstery, drapes, clothing and other belongings. Even a small stovetop blaze can cause smoke and soot damage far beyond the actual burned area, and this damage can be hard to remove. Soot is oily and easily stains household textiles, while smoke penetrates deeply, even into the spaces inside walls. If not properly deodorized, smoke odors can reoccur.”

If renter’s insurance is not in place, it is likely that the tenant will expect the landlord to deal with the cleanup. In some scenarios, tenants may feel it is easier to simply move out and leave the whole problem to the landlord to deal with. This is a real headache, especially in conjunction with losing the income stream from rent.

It is very difficult to protect yourself as the landlord if this occurs. Looking for legal support to force the tenant to pay will cause further delays in getting your property back to a livable condition, and that has to be your main priority.

Protecting Yourself from Lawsuits

Image courtesy of viralnovelty.netUninsured renters can find themselves in great financial difficulty following unexpected damage to their property, or subject to lawsuits themselves if they have caused damage to a neighboring property, for example. In instances such as these, the obvious place for tenants to turn for assistance is their landlord. Sadly, past evidence has shown that tenants are more likely to bring a lawsuit against a landlord if they are unable to replace property or pay for the cost of repairs.

No matter how thorough your screening process, don’t think this would never happen in your situation. Cases involving tenants suing their landlords are becoming increasingly common. Finding themselves in a dire financial situation could be all the motivation needed for a tenant to blame negligence on your part for the damage that was caused.

Enforcing a clause stating that renter’s insurance must be in place will protect you from such desperate measures on their part and, of course, protect you from costly, stressful and time-consuming legal issues.

Protecting Your Investment

Even if your tenant does not actively come after you with a lawsuit following loss or damage to their possessions, you may find that unexpected emergencies cause financial loss to you. Replacing expensive property can amount to far more than most people expect, negatively impacting your tenant’s cash flow.

Image courtesy of homeinsuranceratequote.comRemembering that renting your investment property is a business, you must always keep in mind that receiving timely rent payments is essential to a successful strategy. Anything that renders your tenants unable to pay rent is a sizeable problem for you. For many landlords with one or two properties, the monthly cash flow is all that is available to cover mortgage payments. Delays can be a huge concern, jeopardizing your ability to pay the loan on your investment property and leading to issues with the lender. Your credit rating may even be affected, negatively impacting your ability to grow your business by investing in future investment property.

So, protecting the wealth of the tenant is another way that renter’s insurance can help landlords to protect their own wealth! Nothing affects your return on investment (ROI) more dramatically than fixing up your investment property after your tenant caused accidental damage and ran away.

Summary

By now it should be evident to you why renter’s insurance is so valuable to you as a landlord. While your tenant’s liability is protected, as well as their possessions, you are also more likely to experience less stress as well as a reduced financial strain in the case of an emergency.

Image courtesy of rcps.ieThe great news is that you can actually make renter’s insurance a requirement within your lease agreement, providing both you and your tenant with protection and peace of mind. You can even include additional terms requiring the landlord to be named as “additionally insured” on the policy. Many landlords report that a clause regarding renter’s insurance has kept their relationship with their tenants strong and healthy despite difficult circumstances. Communication tends to remain open when neither party is forced to blame the other.

In brief, renter’s insurance offers fantastic, affordable benefits for your tenants. Additionally, you as the landlord also reap the rewards. Renter’s insurance translates to reduced risk, fewer worries and less time wasted. You must agree, that is priceless! It is certainly worth the effort to make renter’s insurance part of your tenancy agreement in order to maximize your profits and protect your rental income in the long run … no matter what issues arise along the way.

Is Your Landlord Insurance Worth the Monthly Premium?

Landlords, we know you have a great deal to contend with. Maintaining a property, paying the mortgage, keeping the tenant happy … these are just three items on a very long list. Most landlords have a career and even family responsibilities to handle, too. So, when it comes to landlord insurance, it might be tempting to simply find a well-priced deal and sign on the dotted line.

We are here to tell you that by spending even a brief amount of time researching the particulars of the insurance policy, is an absolute must. Don’t be fooled into thinking that all policies are the same.

Many people don’t realize that landlord insurance is completely different compared to standard homeowner policies, where the policyholder actually lives on the property, but rentals are considered to be a greater risk for insurance companies. It’s simple: Tenants are not invested in a home in the same way the owner is; therefore, they may not treat it with as much respect.

Oftentimes homeowners have been caught when they fail to notify their insurers that they have moved out of home and are now renting it. The problem is, if you fail to distinguish your insured home as a rental property, the policy may not pay out when you may need it to. So, be sure to protect your investment and know that you are covered with adequate insurance.

To save you unnecessary headaches and cost, we have compiled a list of the five critical clauses that your rental insurance absolutely must cover.

Dwelling Coverage

Image courtesy of architectureartdesigns.com/Dwelling coverage, sometimes called “dwelling insurance,” is the part of your homeowners insurance policy that helps to pay for the rebuilding or the repair of the physical structure of your home if it’s damaged by a covered hazard.”

This is the main purpose of your housing insurance, and protects you in the case of structural issues, major plumbing problems and acts of nature (including hurricanes, earthquakes, riots, fire, break in, vandalism). The specifics will depend on your policy, so take the time to determine exactly what is covered. Various locations may exclude coverage during certain strong weather situations, for example.

The key point to look for here is whether you are receiving a guaranteed replacement cost, or GRC. GRC means that your property would be replaced and rebuilt in the event of structural damage, as opposed to you only receiving the depreciated value of bricks and labor, for example.

You should also be aware of the terms DP1 (basic), DP2 (broad) or DP3 (special), which identify the level of dwelling and fire coverage that a policy offers.

The DP1 is a “named perils only” policy which only insures those limited perils specifically named in the policy. Unfortunately, a covered perils list that only includes fire, lightning and internal explosion is not much of a policy at all. To broaden the list, the DP1 allows an insured to add an Extended Coverage (EC) perils endorsement to increase the number of covered perils to a total of 12. These nine additional EC perils include Riot, Civil Commotion, Explosion (external), Vehicles, Smoke, Aircraft, Hail, Windstorm and Volcanic Eruption.

The Broad DP2 form, like the DP1, is a “named perils only” policy and contains all the perils provided under the Basic form. The additional protection you will find on the DP2 form include coverage for damage from Burglary, Weight of Ice and Snow, Collapse of Building, Falling Objects, Freezing, Artificially Generated Electrical Current, Glass breakage, Accidental Discharge of Water and Steam,  and damage from Sudden and Accidental Tearing, Cracking, Burning or Bulging of steam or water systems.

Special form or DP3 has the same “named perils” coverage as on the DP2 form for personal contents but adds open perils coverage on the dwelling and other structures. Open perils means that coverage will be provided, unless it is specifically excluded in the wording of the policy. This significantly expands coverage on the real property compared to the DP2 and, coupled with losses paid on a “replacement cost basis,” makes the DP3 policy the most comprehensive of the three dwelling forms.

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2. Water DamageImage courtesy of architectureartdesigns.com

Research the level of coverage you are offered for water damage, beyond that of the pipes and heating system. Excess water can cause catastrophic damage to your home, so this is something that should be carefully considered. Flood water, heavy rains and even backed up sewage may not be covered by your base policy … find out how to add this to your insurance depending on your location.

All it takes is a few inches of water to cause major damage to your home and its contents. This interactive tool shows you what a flood to your home could cost, inch by inch.”

3. Legal Liability

Image courtesy of careerjunction.co.zaIt can be easy to overlook just how vulnerable you are as a landlord when it comes to the law. Your agreement with your tenant means that you have certain legal responsibilities for their safety, as described by NOLO below.

Under most state and local laws, landlords must offer and maintain housing that satisfies basic habitability requirements, such as adequate weatherproofing, available heat, water, and electricity, and clean, sanitary, and structurally safe premises.

Local building or housing codes typically set specific standards, such as the minimum requirements for light, ventilation, and electrical wiring. Many cities require the installation of smoke detectors in residential units and specify security measures involving locks and keys. Your local building or housing authority and health or fire department, can provide information on local housing codes and penalties for violations.

If a tenant feels that you have failed to meet any of these responsibilities, they may choose to sue you, which can be a very costly experience. Therefore, it’s wise to check, in advance, that your landlord insurance covers you in these instances, with legal fees, settlements and even medical costs.

4. Fair Rental Income Protection

Image courtesy of i.forbesimg.comFair rental income protection is something that you can choose to add to your basic landlord insurance. This will cover the cost of lost rental, in the event of repairs or an emergency. This does not protect rental income in situations such as eviction or non paying tenants, however.

If you can’t rent out your property because it’s damaged, you’re losing valuable rental income. With Fair Rental Income protection, if your property becomes uninhabitable because of a covered loss, you’ll receive compensation for the rental income you would have received. This covers the time required to either repair or replace the rental unit — up to a maximum of 12 months.Allstate.com

While this is a very useful safety net, it is important to balance the increase in premium against the potential benefit you will receive from this.

5. Personal Property Protection

Image courtesy of howtofurnish.comPersonal property protection is a great addition to your landlord insurance if you are renting a furnished property. The majority of landlords rent empty units, but it is still useful to consider if you are supplying carpets and curtains, as these are covered in addition to any furniture. Again, it is wise to examine how much this clause will add to your monthly premium before you make any firm decision.

If the tenants are renting the property unfurnished, it is advisable for them to take out tenant insurance to cover their property, as well as any protecting their liability for any damage that they may accidentally cause to your property. The National Fire Protection Association found the average loss from a house fire was $19,500, which could drive your tenant into significant debt, rendering them unable to continue paying rent, even after the property is habitable again.NFPA.org

Tenant insurance is so useful to landlords, that many include it as a condition in their tenancy agreement, as there is no legal requirement for tenants to have this insurance otherwise.

Summary

When it comes to insuring your rental property, it’s best to take the time to ensure you are sufficiently covered. The amount of time, energy and, of course, money that you have dedicated to this investment must be protected in the case of accident or emergency. Here we have covered five key areas in your coverage to be aware of, and as policies are not created equal, it is prudent to dig further than the headline when you are choosing a policy. Levels of insurance coverage vary, as explained regarding the differences between DP1, DP2 and DP3, for example.

Determine whether you will receive the cash value or replacement value for any damage. It’s vital you understand the finer details of any policy in which you are enrolling, before disaster strikes. The average cost for landlord insurance on a small unit is only $500 per year, and this may be classed as a business expense. It is a small price to pay to protect your investment, and the right insurance could prevent the kind of loss that damages your financial future.