Landscaping Tips
Updated January 1, 1 . AmFam Team
Keeping monthly costs down on rental property can be a real challenge. One way to combat these expenses is to make a small investment into changes that will result in long-term savings. If you’re watering your lawn daily or a few times a week to keep your real estate investment looking great, you may be throwing your hard-earned money down the drain. But with a few key tweaks, you can drastically decrease your water consumption without sacrificing curb appeal.
As an increasing number of communities across the US are experiencing extended periods of drought, municipalities are enacting water restrictions as a result. By swapping out your lawn with water-conserving plants, you’ll be more likely to avoid the fines these areas have charged real estate owners for overuse. Take a look at these landscaping tips that conserve water, and save money by converting your lawn to eco-friendly plants and shrubs.
The Reasons Why Landscaping Is Important to Tenants
There are many great reasons to consider landscaping as an investment that will pay off in many ways. Firstly, it’s important to tenants to see that the place is well-kept. It tells them that the landlord or property management company has invested in the real estate, and that translates into a positive first impression. And reliable tenants may be seeking a home where some opportunity to garden exists.
There are the financial benefits that come with a water-conserving garden. You’ll be keeping the water bills down and potentially improving your property’s real estate value with attractive flowers, plants and shrubs.
If you find a good tenant that’s willing to sign but has reservations about gardening, give them the option to outsource the work. By including an optional landscaping fee into the lease agreement, you may be able meet in the middle. Your property benefits from the improvement, and your tenant gets to enjoy the upgrade.
Choose Plants Native to Your Area
To preserve water, landlords are changing the landscape of their property. They’re swapping out thirsty vegetation with water-conserving native plants. And in doing so — they’re surprised to find that the savings can be substantial. If you’ve got a green thumb and want to save some cash on your utility bills, getting your hands dirty and planting a garden may be a great way to spend a few weekend afternoons.
Save by Ordering Drought-tolerant Plants and Seeds Online
A great way to keep costs down is to get seedlings sprouting before spring has sprung. Seedlings should be hearty and ready for transplanting into your garden once the evening temps climb well above freezing. Groups like Seed Savers or Burpee Seeds and Plants have a wide variety of perennial vegetation that you can grow from the seed up. The benefit of selecting perennial varieties is that they’ll come back bigger and more beautiful next year.
You can always pick up seedlings at your local gardening center if you’re pressed for time, but they may cost you more. Some mail order groups will send young plants online which can be a cost effective option.
Pull Up the Lawn
If you’re thinking this is going to be a big job to take on, you’re right. It may be best to outsource this project to a professional landscape group. Because you’ll have the old lawn to haul away, you’re wise to get on the calendar of a local landscaper that can get the removal job for you done quickly. Keep in mind that the money you spend upfront will likely be returned in utility savings later.
Put Down a Botanical Garden
Once the lawn’s up, plant those perennial flowers that need less water. Sourcing tall prairie grasses and other dense vegetation can help beautify and add dimension to your new garden. Black-eyed Susans and lupine are a few examples of colorful flowers that won’t require a lot of watering in order to look great.
Install Rain Barrels and Have an Overflow Plan
By hooking rain barrels into your existing waste water downspouts, you’ll be able to conserve even more water. But be aware — this project may be a bit more complicated than it first appears. If you’re not that handy, get a professional to install your rain barrels for a number of important reasons:
Rain barrels, when full, are really heavy. A 55-gallon drum topped-off with water can weigh as much as 460 pounds. Depending on the location of the downspout, you may have to dig out and pour a small concrete pad to act as a foundation for the barrel.
Rain barrels need to be elevated. Usually, a series of cinder blocks can be used to elevate the rain barrel. Again, a rain barrel professional should be hired to get the job done so the platform is stable and safe.
Overflow management is key. Because the barrel will likely need to reside close to the exterior wall of your property, it’s really important to have a plan for dealing with overflow after the barrel is full. Your go-to installers are able to outfit the rain barrel with reliable outflow ports, helping to ensure that the water is sent away from your foundation and kept out of your basement.
Use Organic Mulch to Reduce Evaporation
Organic matter, when added to your soil, can really help save water. And it’s a great weed inhibitor as well. If you’re collecting leaves and grass clippings and have a compost bin on your property, spread that material over the topsoil to help trap moisture. Compost also benefits your plants because it improves soil health and can reduce the likelihood of fungal disease that can kill plants and vegetables.
Pebbles, Pavers and Limestone Keep Garden Walkways Porous
Create permanent and visually attractive pathways through your garden with the addition of pebbles, bricks and limestone slabs. Store-bought, water-porous pavers can be used as well, offering the benefit of water flow directly through the brick into the soil below. But, be aware all of these will retain heat in direct sunlight and can accelerate evaporation in nearby soil.
Group Plants by Their Water Appetite
Mindfully design your garden so that you’ll know where — and how much — to water in each region. Plants that demand more water are best grouped near one another so you’ll only have to soak limited areas. Focusing these areas within reach of a rain barrel will also help you to use that source first.
By dedicating a small patch of space for growing vegetables in this high water zone, your tenants can get involved in tending the plot, if they’re up for it. They benefit from getting their hands dirty and you’ll find they’re more invested in treating your rental as their own.
Install Drip Irrigation Systems
These watering systems feed your plants economically and can be connected into an existing irrigation and sprinkler systems. Low-pressure water flows through PVC and the water gets distributed through “spaghetti” drip tubes with pinpoint accuracy. Your garden will flourish and it won’t be overwatered.
Who is Responsible for Landscaping Upkeep
Lastly, be sure your lease assigns the tenant as the responsible entity that will be obligated to maintain the garden and cut the grass. Remember to include terms discussing fines or penalties for non-compliance as well. This way, if they neglect their responsibilities, you’ll have the option to seek funds to remedy the situation. And if your tenant has opted to pay for that service, verify that the whole of the lease is updated.
And just like that, you’re done. Your rental looks great, and you’ve got an opportunity to showcase your work with updated marketing photos that can set your place apart from the competition!
As you’re getting organized and working on your plan to reduce water consumption, get in touch with your American Family Insurance agent (Opens in a new tab). Discuss upcoming improvement plans and remember to spend some time revisiting your landlord insurance. Your agent can help you make the most of your insurance and knows great ways to save through bundling your products and applying discounts that really can make a big difference to your bottom line.
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As a landlord, you know that an investment property has great potential. When everything goes according to plan, it can be an exceptional source of income. But seeing a consistent return on investment means you’ve got to keep a close eye on the numbers before you close on a property.
Although there’s a fair amount of risk involved in making a purchase, you can lean on a few key rules, formulas and indicators to help guide your decision. Next time, when you’re wondering “Should you invest in this rental property?” refer to these important purchasing tips to help make the right choice — and quickly rule out real estate that may not be worth the investment.
Start with the “One Percent Rule”
Answer a simple question: Will your monthly rent for the space equal at least one percent of the purchase price? If your answer is yes, then your place may be able to turn a profit in the years ahead. Congrats, you’re off to a good start. Be sure that the rental’s priced competitively for spaces of similar design. Here are few other factors to consider:
Understand the formula
If the total purchase price of the property is $200,000, rent should be no less than $2,000 per month or one percent of the total cost. Likewise, a $600,000 purchase price for a multi-unit rental property should meet or exceed $6,000 per month in total monthly rent earnings.
Get the purchase price right
When factoring in the purchase price, remember to include closing costs, property taxes and insurance. One way to better estimate these costs is to use an online closing costs calculator which can approximate appraisal fees, home inspection fees, application fees, prepaid interest among a host of other out-of-pocket expenses that can up your purchase price, sometimes by thousands.
Factor in repair costs now
Because real estate investing as a landlord requires the space to be “habitable” upon tenant occupancy, you may need to make certain repairs or upgrades before renting the property. As a result, you’ll want to add the total cost of these repairs into the purchase price.
Consider the “Class” of the Neighborhood
Neighborhood classifications help buyers understand the potential return on investment in a given area. If you’re new to being a landlord, you’ve got to pay close attention to what the neighborhood’s telling you.
One good way to check out an area — specifically if it’s an investment that requires some traveling — is to use Google map’s street view. Is trash left out on the front lawn? Do neighbors maintain their property? What can the cars parked on the street tell you about the demographic? Here are details on the four distinct neighborhood classes real estate agents use to classify a region:
Class A neighborhoods
High income neighborhoods, combined with a home that is move-in ready will usually get an A class rating. Because homes are expensive in these neighborhoods, and their higher than average tax burden, real estate investors usually won’t buy a home there because the one percent rule fails the test. Tenants in these areas tend to be very reliable, high-quality renters.
Class B neighborhoods
Typically populated by those earning a moderate-to-high income, B class neighborhoods are frequently considered a good investment for landlords and fertile ground for tenants seeking rentals. Purchasing “as is” properties that can be cheaply updated and rented above the one percent factor is typically possible here with minimal risk. These areas will usually experience increased turnover and vacancy rates.
Class C neighborhoods
Because the risk is a little higher in neighborhoods that land in the C class category, the opportunity to see a high rate of return on fixer-upper places is good if you buy a For Sale by Owner property, or one not listed on the MLS (multi-listing service for real estate sales). Populated with blue collar workers with relatively low-to-average income, C class areas typically have higher crime rates and under-performing schools. Landlords should expect less-than-optimal tenants and periods of vacancy.
Class D neighborhoods
Areas riddled with crime, properties damaged upon a tenant’s exit and high costs for property upkeep can be anticipated in D class neighborhoods. Buyers usually consider these types of purchases high risk. It should be noted that many property management companies are reluctant to accept properties to service in these areas because the risks associated with the area. Investors tend to seek properties in more stable neighborhoods.
Use the Capitalization Rate as a Predictor of Value
Another key way of understanding the rate of return on an investment is the capitalization rate or “cap rate” for short.
What is a cap rate?
A cap rate determines a profit ratio that a property can generate. It’s best used as a quick way to compare investment opportunities to determine which one is the better value. Start by dividing the total of one year’s rent by the current market value of the home which should include costs and upgrades required to get the space habitable — you can’t rent the place if it’s not livable, right? The resulting percentage is your cap rate. The higher the rate, the better your annual profit margin.
How to Calculate the Cap Rate for an Investment Property
Although the cap rate’s a useful tool to quickly analyze the relative value of comparable real estate opportunities, it’s used as a rough guide to qualify properties for consideration, given the state of today’s current market climate. First, estimate your property’s overall purchase price:
Figure the acquisition value
Simply put, this is the total purchase price. It should include all upgrade costs, closing costs, taxes, business insurance, fees, points, etc. Let’s assume a property you’re considering has a total purchase value of $200,000.
Calculate one year’s rent
If you’re collecting $2,000 per month, you’ll have twelve payments at the end of the year, or $24,000. This figure is your gross annual income.
Account for half a month’s vacancy
Because turnover typically requires some painting and repairs, it’s fair to consider that half a percent (two weeks’ worth of rent) of your total annual income will be deducted to cover the mortgage payments. Assume that your new tenant will cover the remaining pro-rated rent for the other half of that month. Once the vacancy amount is deducted, the result is your gross operating income.
- Gross annual rental income: $24,000
- Less the cost of vacancy: -$1,000
- Gross operating income: $23,000
Factor in operational costs
These costs will include money required to keep the property habitable, like paying for trash collection, making repairs, fees from property management, and landlord insurance. Let’s put that cost under fifty percent of the gross operating income, or $9,300. Some years it will be more, some less.
- Gross operating income: $23,000
- Less operating costs: $9,300
- Net operating income (NOI): $13,700
Divide the NOI by the total value of the property:
$13,700
--------------------- = 0.0685 or 6.85 % - That's your cap rate.
$200,000The capitalization rate for this investment is 6.85 percent annually. If another property under consideration returns a higher cap rate like 8.23 percent for instance, you may want to explore opportunity with the higher annual yield in order to maximize your profit potential.
What is considered a good cap rate?
Generally, a cap rate between 8% and 12% is considered good. However, an optimal cap rate is really going to depend on several factors including location, risk and current rental income. For example, in high-demand like big cities, a cap rate of 4% may be considered good.
Reach Out to Your Agent Today
With so many different ways to look at profitability when determining where to invest in rental property, it’s important you do your homework before you decide to buy. And while you’re making that big decision, remember to contact your American Family Insurance agent and discuss your upcoming purchase. When it comes time to close the deal, you’ll have peace of mind that your property’s insured carefully.
This article is for informational purposes only and includes information widely available through different sources.
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