SMARTERLANDLORDING

ADVICE FROM EXPERIENCE

Dealing With Tenants

They Can’t See Your Vision

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Recently, Jenna wrote a post describing her experiences showing an apartment and getting it in rent ready condition.  She mentioned that she was showing the property before she was finished with all of the repairs and that one person “shared her vision” and signed a lease for the unit.

First, let’s congratulate Jenna on getting a unit rented and then ready.  She deserves it.  This is her first property and I saw it not long after she bought it, so I know the amount of work and time that was put into it.

Now, let’s use this opportunity as a teaching opportunity.

You see, I think it is a waste of time to show the property before it is rent ready because in my experience, most folks cannot or will not see “your vision.”

Yes, Jenna did find someone who saw through the unpainted walls, the missing appliances, the unfinished floors, the wet paint, the drop cloths, the extension cords, the tools lying around everywhere, etc, etc.  So again, let’s give kudos to her.  But I think her experience was the exception rather than the rule and it would have been a better use of her time to focus on getting the unit ready.

Why can’t potential tenants “see your vision?”  I think for several reasons.

  • They have never touched a paint brush much less done a major rehab so they just cannot conceive of “your vision.”  All they see is the mess which screams “RUN AWAY!”
  • They can’t see past the mess.  The mess prevents them from seeing where their TV, bed, sofa, computer, etc. will go.  In their minds, they cannot see this as their “home” because it is not put together.
  • The unfinished nature of the unit will highlight the imperfections rather than the benefits and charm of the property.
  • They do not want to worry about whether or not you will be finished when they are ready to move in.  Will they have time to finish?  Will they run out of money?  They don’t need to worry about that when there is another unit ready to go just down the street.
  • They want to move and be done.  Moving is stressful.  They do not need the landlord coming in to “finish up a few things.”
  • They are afraid you will not do what you say you will do.  They have been burned by other landlords before.  Why go through that again?

Obviously there are exceptions as Jenna has demonstrated.  Some will “see your vision” or will really like the location or some other factor.  But most will not be able to see through the mess.  Why watch them cringe and frown?  Save your time.  Save your energy.  Focus on getting it done, then show.  Your pool of applicants will likely be larger, giving you the added benefit of being choosy.

Breaking Rule #1 – Update

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Remember how positive I was about our experience with renting to a friend? Well, the old proverb proved to be true after all.

Our tenant friend told us last week that he will need to move out before his lease is up. He’s in nursing school and would like to devote more time to study and less time to work. We shouldn’t worry; he will do us a favor by staying until January 1st.

Grrrr. Thanks—but no thanks.

So, let me recap for you. We have one vacant unit that is rent ready November 1 (later than expected), and now an impending vacancy after a 3-month occupancy. If I don’t get these units occupied ASAP, I could be footing the mortgage with $0 cash flow for a couple of months. No. no. no….

It makes me anxious.

So, I told our tenant friend that we would start marketing the property immediately. He seems flexible enough to move mid-month if I find a tenant with the desire to, but he would need a couple of weeks’ notice to move his things.

Oh, and we have to prep the apartment of course. Remember those custom colors he requested for his living room? What a mistake!

Needless to say, we won’t be renting to friends again. I’ve found that I can’t be blunt or forthright about how this is not acceptable. I’m so friendly that I will most likely refund him part of his security deposit, which of course would be out of the question for the average tenant.

Where is that silver lining you ask?

It could have been a lot worse. He did give us ample notice, and he has taken care of the place. I don’t think I would say that it worked out to our benefit though. Even though we were able to gain cash flow earlier than we would have, we reorganized our work schedule to get that unit rent-ready first. That was probably a mistake—along with buying custom paint.

 

Commence face palm:

  1. Know where your palms are.
  2. Take your palm and move them towards your face. (Speed of contact varies from situation)
  3. Take 10 seconds to breathe and recuperate your thoughts.
  4. Slowly slide your palms down your face.
  5. Give evil glare.

Breaking Rule #1

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I used to have a best friend whom I knew from the day I was born. We hit every milestone together—and so did our parents.  When we were both looking for a place to rent at the same time, it seemed like a no-brainer. Who else would make a better roommate than my best friend?!

It was quite possibly the worst mistake I have ever made. Within a month, our friendship was damaged. She didn’t like my cat. I didn’t like her make-up mess. We bickered, we fought, and we never recovered.

So, when I read all of the real estate blogs (including this one) about NEVER renting to family or friends, it resonated with me. I knew there was truth behind the warning, and I swore that I wouldn’t do it.

All of that changed when I jumped neck-deep into a triplex rehab. Suddenly, I found myself reevaluating my options—reweighing the pros and cons.

If I rented to a friend, then I could do the work while renting out the unit. I could start building cash flow to help fund repairs. The logic was persuasive.

In the end, we decided to rent to our friend at a discounted rate for one year, which still equals more than if we had held it vacant an additional month. He agreed to paint himself and to allow us free access to his property whenever we needed to fix something. Given that his unit needs the most work, this felt like a decent deal. I conceded; we signed a lease.

It’s now been over a month since we signed the lease, and I have to say, it’s not that bad.

PROS:
The tenant helped with the carport demolition
I have a tenant that I know, like and trust
I’m collecting rents earlier than expected
I don’t have to paint

CONS:
I have to work around stuff: furniture, appliances, dishes, etc.
I feel imposing, especially since he works 3rd shift
It seems like I always have friends over now
I’m more distracted when working

So far, the pros greatly outweigh the cons. We discovered a massive leak in the kitchen wall shortly after signing the lease, which meant that our tenant received brand new cabinets, sink and faucet. We were happy to have him as a tenant throughout the kitchen rehab, which proved to be messy and time consuming. It would have been an awful inconvenience for a new tenant. Plus, he’s happy to have a new kitchen.

I would do things a little differently though, like be more specific!

For example, I told my tenant that I would purchase the materials if he painted. That seemed fair. However, I failed to mention that I had envisioned white paint in all rooms. So, when he brought me the color swatches that he had picked up from Lowe’s, I felt compelled to go with his plan. Had he been an average tenant, I would have responded with a heartless “Sorry but I failed to mention…” Since he was a friend (and had been so great throughout the kitchen debacle), I coughed up the extra cash for the colors he wanted. I’m always looking for the silver lining though. Our tenant friend feels almost as much invested in our rehab as we do.

That has to be good news, right?

Has anyone else ever cautiously rented to friends or family? I would love to hear your thoughts, especially since my grandparents are getting older and inquiring about a one-bedroom.

Teach Your Tenants to Help You

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I wrote previously about tenants being the eyes and ears of your properties.  Tenants can really save you some serious time and money if you listen closely to what they are saying.

In this post I want to talk about another way your tenants can help you save time and money.  All it takes is a little bit of teaching and training on the front end at  move in.

The key here is to understand that tenants are not homeowners.  They likely have never owned and therefore never learned about a house and its systems.  They do not know how the electrical and plumbing systems function.  They also don’t know how appliances work except that you push the “on” button to make it go.

Your job as a smarter landlord is to teach them about some of the basics of these systems.  Once you do that they will be able to help you solve minor problems which will in turn save you time money and even aggravation

So here are some of the basics we go over with new tenants to help them help us.

  1. The Breaker Box – Do not assume that your tenants know how to work breakers or even what a breaker is.  We show our tenants the electrical breaker box and how breakers work.   We explain what a tripped breaker is and tell them what it causes.  We then show them how reset it the breaker.
  2. Gas Cut Off Valves – We show our tenants how to shut off the gas.  We explain what gas smells like and instruct them if they notice a faint smell of gas to shut off the gas and call us right away.
  3. Water Cut Off Valves – We like to show our tenants where the various water cut off valves are located and how they work.  Surging water can cause major damage really fast.
  4. Appliances – We explain how to run the washer and dryer.  Many just do not know that you cannot wash all of your rugs at once.  They also do not know that a clogged lint trap or vent pipe will prevent the dryer from heating properly
  5. HVAC System – Believe it or not, we once got a call that a tenant’s heat was out.  After going over there, the only problem was that she had hot turned the thermostat to the heat setting.  Now, we show them how to the thermostat works.   Plus we explain the importance of changing filters and also leave a few filters near the HVAC unit.
  6. The Toilet – I once got a call late one night from a tenant telling me the toilet had broken completely and was unusable.  When I got there the pull chain from the flush handle had come off.  The toilet was certainly still usable.  So now in addition to the cut off valve, we also explain the inner workings of the toilet tank.

By showing tenants these few items you can really save yourself some time, money and aggravation.  Your tenants will now be able to flip that tripped breaker, turn off the water until you get over there tomorrow to check it out and not ruin your washing machine by washing every towel at once.  It does make things a little bit easier.  Helping them learn helps you.

Tenants Are Your Eyes and Ears

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You can’t be at your properties 24/7, but things can certainly go wrong 24/7.  Your tenants are your first set of eyes and ears that can alert you to something gone wrong.  Your job as landlord is to determine when something requires your immediate attention.

A smarter landlord listens closely to what their tenants are saying.  Tenants are not property experts.  Something that seems like a huge problem to the tenant may not be a huge problem.  But, something that seems small to the tenant may in fact be a huge problem.  Here is what I am getting at.

The other night a tenant called after business hours.  We ask tenants not to call after hours unless it is a true emergency, but the definition of true emergency can get muddled.  Anyway, the tenant says that half of the building’s power is out.  Some things are on, others are not.  And, it is not just in his unit, everyone is reporting the same issue.

The thing here is that his report was odd.  If all power is out, it is likely a utility problem.  If only some power in one unit is out, it is likely that a breaker is tripped.  But here not all power is out in all units.  This is odd and odd things should get your attention.  So I went over.  Turns out a tree branch had broken a power line and knocked out one phase of the power.  This explains why some power was on and some was out.  However when I was there I could hear the AC condensers trying to kick on, but not having enough power to do so they were burning themselves up.  If I had let this go overnight, they would have burned up and cost me thousands in repairs.

Another time a tenant complained about lights flickering.  No big deal I thought.  But she also mentioned her phone charger plug had melted in the outlet.  That is odd.  Something is wrong.  Power is surging somewhere.  Long story short, when I got there the meter was literally smoking hot.  I was minutes away from a major fire.  That tenant saved the building and who knows, maybe a life.

Another time a tenant called and complained of a musty smell.  Now you might not think a musty smell is such a bad thing but what causes a musty smell?  The answer is water.  Water is collecting somewhere, likely somewhere hidden.  It could be between walls or under the house because of a broken pipe.  It is something you need to check out before the walls, floors and everything else becomes mildew infested and rot.

So learn to use your tenant’s eyes and ears.  You don’t have to respond to every request right away.  But you must learn when you should.  If they are telling you about something out of the ordinary, you might want to check it out.

Tenant Selection Criteria – What to Use?

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Use the right criteria to say no!

Tenant selection is perhaps the most important thing a landlord can do.  You have heard the saying “One bad apple spoils the bunch.”  Well one bad tenant spoils a landlord’s life.  Bad tenants will not pay you, will destroy your property and will generally be a thorn in your side and to your other tenants.

So you want to weed those bad tenants out before they get into your property.  But, you must be careful with your selection in order to avoid a potential discriminatory claim.  To do that you need to establish a set of criteria that you use to rank all applicants.  You want to find tenants who can pay, who will pay and who will take care of your property.

What are those criteria?  Let’s first discuss what they cannot be.  You cannot base your tenant selection on the eight federally protected classes.  These are: race, color, national origin, religion, sex, disability, familial status.  That means you cannot disqualify someone because they are black, or Jewish or female or because there is a child involved.  These criteria in no way affect anyone’s ability to be a potential renter, so do not even think of using these criteria.  It is just wrong and it will get you in some serious trouble.

So, back to the question, what criteria can you use to select your tenants?  Frankly, it could be almost anything except those criteria listed above.  But here are some of the more common items used:

  • Enough income to cover rent, utilities and living expenses.  Many will use a standard of a monthly income equal to three times the amount of rent.
  • A steady work history with good references.
  • Decent references from past landlords.
  • A decent credit score.
  • A history of prompt bill payment.
  • No recent bankruptcy or evictions (last 5 to 7 years).
  • Criminal or arrest history.

Using the above criteria, you should be able to determine fairly well if an applicant can pay the rent, will pay the rent and if they will take care of your property.  Is it 100% effective?  No, nothing is when dealing with people but it does work pretty well.

Some will include other criteria based upon their own personal experiences.  I know of landlords who will not rent to lawyers.  Lawyers like to sue.  They are not a protected class and you can discriminate against lawyers as long as you are consistent.  I know another who will not rent to people with motorcycles.  Their experience has been that the motorcycle will end up in the living room dripping oil come winter.

You will most likely need to tailor your criteria to your particular circumstances.  Depending on your location, your tenant pool may not have decent credit scores, or bankruptcy may be very common.  Whatever criteria you do decide upon, be sure to write them down and be sure to evaluate everyone against those written criteria.  Keep a record of your evaluation process.  If someone ever does come back on your screaming discrimination, you will have records showing otherwise.

 

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Cash for Keys

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Tenant screening is one of the most important things that a landlord can do.  You want to make sure that you selected people to live in your properties that can pay, will pay, will pay on time and will not tear up the place and cause trouble.  However, no matter how well you screen your tenants, every once in a while you will have a tenant that cannot pay.

Perhaps the tenant lost their job, or had some other unfortunate circumstance happen.  Whatever the reason, when you have a non-paying tenant you want to get them moved out and a good paying tenant moved in as soon as possible.  It is not that you are a mean person, but you have to eat as well and the bank really does not care that the tenant has stopped paying you, the mortgage payment is still due.

The first thing that most people think of when they have a non-paying tenant is the eviction process.  Yes, you can go that route, but it can be expensive, time consuming and just downright nasty.  It creates ill feelings on both sides.  Plus, crafty lawyers will be sending your tenants advertisements telling them how they can stop that eviction with a bankruptcy (and they can for several months!)

Rather than eviction, I prefer to use the cash for keys method.  What is cash for keys?  It is simple really.  You pay the tenant to move out and hand you the keys.

Why would anyone do that?  Shouldn’t the tenant be paying you the back rent?  After all, they owe you money.  Yes, that is correct, but by the time they get to the point where they cannot pay the rent they have likely exhausted their resources.  They may want to move, but do not have the money to do so.

So it seems to me that it is better to pay them a little bit of money, maybe even as little as $50 or even as much as $300 to get them to move their stuff out and give you the keys.  By using the cash for keys process you have control of the incentives.  You can even get the tenant to clean the place before they leave so they can get their money.  Evictions use the threat of the courts and we all know cash today is much more effective than the threat of a judge sometime down the road.

Plus, when using the eviction process you are going to have to pay a lawyer.  How much will that cost?  $300, $400?  Did you figure in the filing fees, process server fees, writ fees and set out crew fees as well?  Now which one makes more sense?

I know it can be hard to swallow giving money to someone who may owe you a substantial sum.  But the best thing for everyone is for the tenant to move on and for you to get possession of your property back so you can get it re-rented as quickly as possible.

One last thing, before you had them the cash for their keys, be sure to get them to sign a release to the rights of possession.  Otherwise you could be in for more headaches down the road.

Finding and Keeping Good Tenants

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What is a good tenant?  It is someone who will pay their rent on time and take care of your property.

Finding good tenants will depend on your particular market, your marketing strategy and then your screening process.  Keeping them will depend upon how you respond to their needs.

First, you as the landlord need to put on your marketing hat and understand how your potential tenants want to communicate and find you.  Different segments of the market find their homes in different ways.  Some will read print ads, but fewer and fewer do.  Some will heavily utilize the internet.  Others will have limited access to the internet.  Some will drive around looking in particular neighborhoods because of school or family connections so yard signs are a must.

In my market segment, the internet is key.  Thus, a website and ads on Craigslist are a must.  I hardly ever use yard signs anymore as they just do not generate positive leads.  I know others in different markets that have to use yard signs, do not have websites and even hand out fliers at major supermarkets and do very well.  You will most likely need to try several techniques before you find the one that best works for you.

Once potential tenants find you and your property, you need to check them out to find the good ones.  “Trust but verify” are the key words here.  You start this process when they call.  Ask questions like “Can I show you the apartment after you get off work?”  Or. “This apartment rents for $x, is that something you can afford?”  These types of questions are designed to pre-qualify prospective tenants.  With such questions you can find out if they have a job and if they can afford the apartment among other items.

Continue the process by having them fill out an application so you can verify all of their information through a credit, criminal and work history check.  This is a vital step.  Do not take their word. We once had an applicant that looked and dressed professional, had a decent car and said all of the right things.  He filled out his application and paid the application fee in cash.  When we checked him out, he had the lowest credit score we had ever seen and from what we could tell had never paid a bill in his life.  Even the phone company was looking for him.  If we had taken his word and not checked him out and let him move him, he would have lived in our place up to six months rent free before we could have evicted him!  Another gave us his work info but neglected to tell us he had been fired that morning.

As a matter of fact, simply telling prospective applicants that you will conduct these checks will weed many of the bad ones out, but not all of them.  So check them out!

Once your find them and get them in, you want to keep them.  One of a landlord’s biggest expenses is tenant turnover.  When a tenant moves not only are you not collecting rent, there are expenses as well.  Often the apartment will need to be repainted.  Minor repairs may need to be made and carpets will have to be cleaned.  These items can really add up.  So you need to be proactive on the front end and do what you can to keep the good tenants.

How do you keep them?  It is simple.  You respond to their needs and maintain your properties.  You need to spend a little money upfront to avoid spending a lot more on the back end.  If they need something fixed, fix it as quickly as possible.  If they are concerned about crime, maybe you can offer to put in an alarm system for a few dollars more rent per month.  Reward long term tenants with new ceiling fans or other small amenities.

You should also be professional, respectful and fair at all times.  That does not mean you do not read tenants the riot act if you need to, but that you do it in a professional and respectful manner.  Tenants will appreciate this because so many other landlords can be just plain obnoxious.  They have lived under those landlords.  A professional and respectful manner will get you referrals and sometimes my tenants move back after leaving.

So in sum how do you find and keep good tenants?  Figure out your market and how they want to communicate.  Pre-qualify prospective tenants and have them fill out an application.  Verify all of their information.  Be prompt to requests for repairs or other issues from them and always act in a professional, respectful and fair manner.

Till next time, work smarter not harder!

Dealing With Tenant Drama

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Tenants are the lifeblood of a landlord.  Their rent payments keep us up and running.  Tenants, being human however always bring some drama along with them.  Many times they want to involve you, the landlord, in that drama.

Sometimes it is just petty BS.

“My roommate is driving me crazy and she needs to move out! Make here leave.”

“My roommate did not pay me for this month’s rent so I only have half of the rent.”

Other times it is more serious.

“We are getting a divorce.”

“I lost my job.”

You will get all kinds in this business.  I have had roommates stealing from each other, fall off the wagon, stop taking their meds and start screaming in the middle of the night.  Every year brings a new experience.

You as a landlord need to protect yourself, your property and other tenants from the tenant drama.

Let’s tackle the petty BS first.

First of all, we are clear at move-in, we do not do tenant drama and we do not resolve disputes between roommates.  Renting an apartment is an adult experience and we expect our tenants to act and resolve disputes like adults.

Secondly, you need is a strong lease.  Be sure that every adult living in the property is a signatory on your lease.  Our lease states that each tenant/roommate is “jointly and severally liable” for the payment of rent.  So if one does not pay, the other tenants are each individually liable for the non-payment and we can evict them all.  We also require that we receive only one check or money order for the rent, no matter how many roommates.  You do not want to be chasing down roommates for their share of the rent.  These tips will protect you and give you an out to point towards when dealing with the drama.

When tenants try and drag you into the drama, you need to be cool, collected and firm.  Remember, you do not do tenant drama.  Listen to your tenants, always be polite and remind that they are adults and they need to work out their problems as adults.

Then there are the more serious matters.  You need to have policies in place to deal with these events.

When someone gets a divorce or loses a job, no matter what your lease says, things are going to change.  Your job now is to manage that change as best as you can.  These more serious matters are going to generally require someone to move and many times the breaking of a lease.

Tenants may try to hide things as long as they can, since “denial” is not just a river in Egypt.  Eventually however the problems will surface and you need to be proactive.  Talk to your tenant as soon as you suspect a problem.   Again be firm but polite and listen to the problem.

If there is a divorce and someone needs to move, let them move.  Have policies in place that state the consequences for breaking the lease.  For example we may keep all or a portion of the security deposit depending on the circumstances.  We require a release fee of extra month’s rent if they break the lease.  You just need to say that you understand their problem however our policy is x y and z.  Most people will understand.

When a tenant has lost their job it can be a really serious blow and you have two options; evict them or work with them to move them out asap.  Again be firm but fair.  State that you understand their problem but that they can’t stay without paying and that they will need to find other accommodations soon.

Set a date for them to move out and be sure to stick to it.  You may actually need to help them move along with gentle reminders or you may even want to provide them some funds to move or give their security deposit back upon move out even if the have to break the lease.  You job here is not to stick it to someone who is down, your job is to get your property back in as close to a rent ready state as is possible.  One of your biggest expenses as a landlord can be eviction and the subsequent clean up and repairs.  We try to avoid that at all costs.  You are not going to get blood from a stone at this point, so cut your losses, help the tenant transition out and get your property back so you can re-rent it.

What about the tenant that stops taking their meds and starts screaming in the middle of the night?  When these types of situations arise you need to be careful.  You can try talking to the tenant, but they may not be helpful or may be embarrassed, etc.  In this case you may need to call their emergency contacts for help.

Your rental application should have a section for emergency contacts.  Be sure that you ask the relationship of the emergency contact to the tenant on the application.  Many times the tenant will put a family member, such as mom or brother, on the application.  These types of  situations may be ones where you get in touch with the emergency contacts to discuss your concerns.  Be careful of your tenant’s privacy rights here.  You may just want to let them know that it may be time to check in on their family member.  We have had success using this approach in the past.

As a final note, be sure to check with your own state laws.  If you become aware of drug dealing, spousal or child abuse and do nothing, you may become liable.  So be careful here and take action if necessary.  You can find out about your local laws at your local REIA.

In sum, expect a lot of tenant drama.  Be ready for it with a solid lease, a good application form and firm but fair policies that you discuss with your tenants at move-in.  You can’t predict or be ready for all the drama (we change our house rules every year based on the drama we experience), but you can sure save yourself a lot of aggravation, headache and drama.

 

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