There’s a recent study from the Federal Reserve bank of Atlanta showing that the three counties we love to work in are “affordable.” Interest rates have risen since the January report and we are seeing strong appreciation in prices yet demand for rentals makes these areas good buys as median income incomes can buy a median income house. We expect to see this trend continue due to location and population growth. As an added bonus we will happily manage your rental investments too
What is a CAP rate and why is it useful?
The Capitalization Rate (CAP) is the ratio of a property’s net income to its purchase price. It is used by investors to gauge a property’s income rental potential. It’s calculated by figuring out the total annual rent and total annual expenses and divide the net income by the purchase price. For example, if you rent a property for $2000 a month and the monthly expenses are $600 a month ($7200 a year) and you pay $350,000 for the home the CAP rate is 4.8%. This figure is useful because it removes the variability of a loan and different loan terms and allows one to fairly compare the CAP rate from one investment to other investment properties CAP rates. All things being equal a property with 7.5% CAP rate is a better investment than a property with a 4.8% CAP rate.
But all things aren’t equal and any purchase requires more due diligence and acute attention to detail. CAP rates are a rule of thumb and should be treated as such. A CAP rate in general does not take closing costs, vacancy rates, appreciation potential, etc. into consideration. In many areas a higher CAP rate means more risk (rehab properties, higher vacancy rates, etc.) so that needs to be factored in also.
In Northwest Atlanta we are currently seeing CAP rates of about 6% – much better than most parts of the country. We just closed in mid-April on a property in Cartersville on a new construction 4 bedroom 3 bath 2200 square foot home with a 18,000 square foot lot for $367,900 and a CAP rate of 6.04%. When factoring in appreciation the counties we service becomes one of the most sought after investment areas.
The CAP rate is a simple tool that is a good first step but we recommend using a great agent who understands how to use it and then factor in the other considerations so that you make for a wise purchase decision.
If you have any questions or comment give us a call or email at 770-726-1256 or mike.stott@mac.com
Real Estate Stats and Thoughts
Our primary areas of service are below, and it continues to be an unusually strong sellers’ market. Average appreciation is now at 23.4% year over year, an increasing rate more than we’ve seen in the past three months. Don’t expect it to last as the interest rates have increased substantially. Cartersville, Canton, and Alpharetta led the way with 28%+ appreciation year over year in March.
Active listings are at historic lows of February inventory at 1248 Active Listings – we had 8743 listings 10 years ago. In every other year except this year and last year we added listings in March – Prices will continue to rise.
National Appreciation Chart
Highlighted City Again: Cartersville
Was featured recently in Atlanta eats. Donna and Mike Stott just closed on the first of two investments homes there are anxious to try these eateries out! There’s still a few new builds available.
Video from with attractions in and near Cartersville!
Place to Eat Largos
Property Management:
Why The Tenant Screening Process Is Critical
Long-term good tenants in your rental properties is the ultimate goal. It can be very difficult to meet someone and decide if they will be a good or bad without a thorough tenant screening process. Tenant screening can help you identify risk factors and the quality tenants from the terrible tenants. Some landlords aren’t sure what questions to ask or how to effectively screen a tenant. Here are some basics of tenant screening so you can ensure only the best tenants occupy your rentals.
What is Tenant Screening?
Tenant screening is a process used by landlords and property managers to determine whether or not a tenant is qualified to live in a rental property. Typically, a tenant screening will reveal a renter’s history and current financial status. Additionally, a screening report can tell you whether the tenant has been in legal trouble or has a criminal history on their record.
If you have more than one applicant asking a few questions and looking into their rental history is sometimes necessary to decide who the better candidate is. After all, you wouldn’t allow someone who’s been evicted twice to live in your rental property.
Things to Look For in A New Tenant
There are several things to look for to find tenants that meet your criteria. Some of the most prevalent factors include:
- Proof of Income
- Creditworthiness
- Eviction History
- Solid References
Proof of Income
Proof of income is one of the most critical factors in deciding whether or not to rent to them. Landlords will want to see that a tenant makes equal to or greater than three times the monthly rent. If a potential renter can’t prove their income or employment status, it could be a significant red flag. In addition, you want to have a tenant that can pay their rent in full and on time each month.
Creditworthiness
Another factor in choosing a quality tenant is looking at their credit history. Although a high credit score is sought after, a good credit score doesn’t always equal a good credit history. Make sure to check for late payment history, large debts, or any accounts sent to collections. If any of these issues pop up, it could indicate that your tenant may fall behind on rent payments. Oftentimes there are reasons (divorce, hospital bills) that can be “forgiven” if the tenant can come up with additional security deposit. In Georgia (unlike some states) there is no limit on the amount of deposit you can request.
Eviction History
If an applicant has a history of evictions or lease violations, it’s a huge red flag for landlords. Nobody wants to house a tenant that will violate the lease or get evicted for nonpayment of rent, damages, or illegal conduct. Ensuring that the tenant has no prior evictions or lease violations is a good start in finding a quality tenant. If they have prior evictions or lease violations, you may want to start looking through other applicants.
Solid References
Finally, if a tenant can give you at least one to three solid references, that’s a great sign. Take the time to ask their previous or current landlord a few questions about their tenancy. The bst is “would you rent to them again?” If their references are insignificant or don’t have anything good to say, it’s another red flag. We also recommend checking the prospective tenants out on linked-in, FaceBook, and Instagram. It is surprising what you’ll learn.
Common Questions to Ask During a Tenant Screening
Although you may have done research on a rental applicant, you’ll still want to meet with them in person before signing a lease agreement with them.
- What is Your Desired Move-in Date?
- Can You Commit to a One-Year Lease?
- Do You Own Any Pets?
- Why Are You Looking to Move?
- How Many Occupants Will Live Here?
- Do You Smoke?
When Do YOU want to Move-in?
One factor that all landlords should know is when the tenant wants to or plans to move in. Typically, a landlord will advertise a property before the current tenant leaves to reduce vacancy time. If the prospective renter needs to move before the property is available, there’s no need to continue the application process. Additionally, if the property is available immediately and the prospective renter doesn’t plan on moving for a few months, it costs landlords.
Can You Commit to a One-Year or Longer Lease?
Most leases are at least one year long. However, not all tenants want to be tied down to a year-long agreement. By laying out this standard immediately, landlords can weed out applicants who aren’t interested in a 12-month lease and focus on those that are.
Do You Have Pets?
Not all landlords are open to housing pets along with tenants. However, sometimes it depends on the type of pet. That said, even if you do allow pets on the property, it’s a good idea to ask a few questions, such as:
- How many pets do you have?
- What type of pet(s)?
- Pet size and weight
Knowing this background information about a pet can help landlords decide whether or not they can live on the property. Then, you can come up with a pet deposit or an additional pet rent if you are concerned about damages.
Remember that service animals are not considered pets, and landlords cannot refuse a service animal, even if the property is not pet-friendly.
Why Are You Looking to Move?
Asking your prospective renter why they are looking to move can give you a better idea of their current living situation and how they handle it. The reasons for moving could be anything. For example, maybe the tenant just got married, is relocating for school or work, or simply wants a change of pace in a new town. No matter the reason, it can give landlords a better idea of what their potential tenant is looking for.
How Many Occupants Will Live Here?
Before you go through the screening process with a rental applicant, check your local occupancy limits. Then, ask the tenant how many occupants they plan on living with and see if the laws align with their expectations. That said, anyone over 18 will need to fill out an application and go through the screening process as well since they are considered tenants. Children under 18 are not considered tenants, so they do not have to fill out an application to live on the property but should be listed on the lease as occupants.
Do You Smoke or Vape?
Many landlords have strict anti-smoking policies in place at their rental properties. These days, vaping is extremely prevalent as well. Ask the applicant if they smoke or vape and let them know your rules regarding these policies. The issue with this question is–not everyone will be honest. So, even if they say no, let them know the smoking policies and reiterate the financial consequences of smoking in the rental property.
Fair Housing Violations Should Be Avoided During Screening
All landlords should be mindful of fair housing violations during the tenant screening process. After all, if landlords are found violating fair housing laws, they could be subject to severe financial and legal consequences. Here are some tips for avoiding fair housing violations:
- Be consistent with each applicant- One way to remain fair to all applicants is to be consistent. Keep the same standards, qualifications, and ask the same questions to each rental applicant. A worksheet is helpful.
- Word things carefully- Sometimes, the way you word things can get you in trouble. To avoid any violations, be careful with the way you say verbally and in writing. Additionally, the questions you ask during a screening must be appropriate. For example, don’t ask someone about their nationality or whether or not they have a disability.
- Hire property management- One way to ensure fair housing compliance is by hiring Northwest Atlanta Property Management. We can ensure thorough tenant screening that complies with all local, state, and federal housing laws.
Need Help With Tenant Screening?
Landlords are extremely busy, so it can be hard to set aside time to screen each rental applicant. Luckily, We can handle this process for you. Hiring our cost-effective and trusted team of professionals is a great way to streamline your rental business.
Whether you need help with tenant screening, rent collection, repairs, reports, 1099’s and more, Northwest Atlanta Properties has you covered.
