SMARTERLANDLORDING

ADVICE FROM EXPERIENCE

Dealing With Tenants

Landlording Is Not Worth Getting Killed Over

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There have been several headlines lately regarding landlords getting killed by their tenants.

Here is one in the Miami area.  Here is another one near Pittsburgh.  One more headline is from the Milwaukee area.

We landlords have to remember that the landlord-tenant relationship can easily become confrontational.  We have to remember that a situation can quickly spiral out of control, in a matter of just minutes.  Things can be said and actions taken that cannot be taken back and that are later regretted.

When dealing with tenants, it is always a good policy to keep things on a very professional and businesslike level.  You can never be sure what is going through somebody’s head, or what sort of day they have had or where their breaking point is.

Tenant Screening Is A Good Start, But…

Of course the first step landlords can take towards preventing confrontations is good tenant screening.  Good tenant screening will screen most problems out.  But, even the best tenant screening techniques will not always prevent potential problems.  Tenants can become mentally ill, fall off the wagon, stop taking meds or have a host of other problems.  I, for example, once had an otherwise good tenant proceed to scream at me from the top of her lungs because I had disturbed her by knocking on her door.  It did not matter that we had a pre-arranged appointment.  What mattered was that she had stopped taking her medication.

When faced with such a situation, smarter landlords know to back away and to try to diffuse things.  As the title to this post says, landlording is not worth getting killed over.  And you just never know what people are capable of.

It Does Not Matter Who is “Right”

Trying to force the issue and prove your point, even if you are completely in the right, may not be the best way to go.  Doing so may only ratchet things up.  Again, it is not worth losing your life over.  Leave and diffuse the situation.  Remember that you as the landlord will ultimately have the upper hand.  It is after all your property, and the laws (most of the time) are on your side.  You can “prove” your point later on if you have to. But do it from a safe distance.

If a situation with a tenant starts to spiral out of control, remember that the goal is not to win the battle then and there, but to win the war so to speak. You could end up losing both the battle and the war if you let things escalate too far.   Let the angry and irrational tenant win the day.  Go home, calm down, regroup and come back later to resolve the issue.

Ever had a scary tenant experience?  Please share how you handled things with a comment.

The Qualities of the Best Tenants

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A good tenant is worth their weight in gold.  Finding them is one of the keys to a successful landlording business.  As landlords, we must strive to find people who will pay, stay and respect our properties.  Doing so is mostly done with tenant screening and background checks.  But finding the best tenant goes deeper than screening.  Smarter landlords have learned what the qualities of the best tenants are and to look for them.

What are these “best tenant” qualities?

The first quality landlords should seek out is stability.  Tenant turnover is a cash flow killer.  You want someone who is going to stay in your property for the long term.  Look for tenants that do not move every year and have held steady jobs.  People who move from place to place and from job to job may not have the qualities you are looking for.

A second quality is reliability.  You want tents that will do what they say they will do.  Have they paid their bills on time?  Have they kept a job?  Did they show up to their appointments with you on time?  Reliability can be hard to find in this world so if you do find this quality in a potential tenant, make an effort to get and retain them.

Third is politeness. Lots of people can look good on the reports you get back from your screening service, but how do they act in person?  What is their demeanor?  How do they treat you or your staff?  Were they rude or considerate, loud or even toned?  Whatever they are, if you let them move in it is something you will have to deal with.  Try your best to get a good feel for a potential tenant’s personality as you interact with them and then think about that person on the phone asking you for a repair.  Shy and quiet is one thing, demanding and disrespectful is another.

A final quality is thoughtfulness.  I am not so much speaking of a prospective tenant’s attitude, rather, have they put some thought into where they want to live?  Someone who puts some active thought into where they want to live, checks out the market, and does their own screening process on potential landlords is likely to make for a better tenant than one who does not.  Think about it.  Would you rather have a tenant who looked around and choose your place or someone who said that “this will do?”

We landlords can often get a good read on potential tenants as we interact with them through the application and screening process.  Looking for the above qualities will help you make a good decision and avoid many dreaded tenant problems.  This may take a bit of practice on your part, but it is something that must be done.

What are the best qualities do you think are the best to look for in a tenant?  Please let me know with your comments.

Thoughts on Cash for Keys

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Some agree that Cash for Keys can be a good option to use.  Others however argue that it is the stupidest thing they have ever heard and something they would never consider doing.  Do these dissenters have a point?  Yes, they do.  In this post I want to look at Cash for Keys in a bit more detail.

First off, I want to make sure everyone understands what Cash for Keys is.  I have written on it before.   In a nutshell, if you have a tenant that you need to go away, instead of evicting them you pay them to give you the keys and leave.

A key point made by several who were against using Cash for Keys is the use of strict tenant screening procedures and a tough stance when it comes to your lease, rules and policies should preclude the need for such a thing.  I could not agree more.  Proper tenant screening will eliminate most of your problems.  Being firm and strict when it comes to your house rules will help even more.

However, even the best tenant screening and the strictest landlord will not always prevent the need to get rid of a tenant.  This does not mean that the landlord was duped or scammed by the tenant.  It more often means that sometimes bad things happen to otherwise decent people.

What Bad Things?

Have you ever had a tenant fail to pay you because they were diagnosed with cancer and exhausted their resources?  I have.  Have you ever had a tenant fail to pay you because they were involved in a horrific accident that was not their fault and made them unable to work?  I have.

When these bad things happen, these otherwise good people can put their head in the sand in hopes that the problem you present will go away.  Unfortunately, I cannot be a charity.  After all, the bank is not allowing me to stop my payments to them.  I can however cut these folks some slack. I do not have to pile add an eviction to their list of problems but I do need them to realize the situation and make arrangements to move on.

Sometimes all that takes is a little cash for a moving truck.  Other times it could be a little cash for a deposit at a less expensive rental or to move in with someone.  I am going to have to spend something to get them out of the place, why not nudge instead of force.  Force can lead to some negative consequences.

It Is About Incentives

Another argument against Cash for Keys comes down to incentives.  Many argue that Cash for Keys rewards bad behavior.  Landlords should instead “Teach these people a lesson!”  I understand all of that and generally agree.  I am all about incentives.  My house rules and strictness from the outset are designed to incentivize good behavior.  Again things happen.  But, if a tenant wrongs or takes advantage of me, then I have and will go after them with an eviction.  They know that on the front end.

I understand that larger companies those with larger apartment complexes may not want to use this tool.  Word can get around and tenants “learn” very quickly.  Cash for Keys may not be a reasonable tool to use in those situations.  But for me and my business it is a tool that sometimes comes in very handy.

And that is really what it comes down to.  What is the right thing for you and your business.  There is no one way to be a real estate investor.  You have to choose what works for you based on your particular circumstances and sometimes Cash for Keys, despite the negative aspects, is right for me.

Get Off Your A$$ And Knock On Doors

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It’s hard to stay focused on real estate all the time.  To give my brain a break, I like to read “page turners.”  One of my favorite sets of “page turners” is the Harry Bosch series.  If you have never heard of Harry Bosch, he is a fictional character from the mind of author Michael Connelly.  Bosch is a detective in LA.  He is good at what he does.  He always finds the killer.

In the book series, Bosch recalls what a senior detective once told him when he was just a rookie.  To catch the killer, you have to “Get off your a$$ and knock on doors.”  In other words, the killer will not be caught if you just sit at your desk.  You have to get out there and pound the pavement and track the killer down.  The phrase is repeated enough in the books that if you look close in the Amazon show “Bosch” you will see the phrase pinned up in Bosch’s cubicle.

Where Am I going with all of this?  While we landlords and real estate investors are not out there looking for killers, the phrase is still good advice for us.  Why?  Because we are not going to find new deals or solve certain problems unless we get off our a$$ and knock on doors.

Think about it.

There is a lot of competition out there these days searching for real estate deals.  Foreclosure auctions are dominated by hedge funds or other big money interests.  Anything remotely close to a deal that is listed on the MLS has multiple offers within hours.  I even get three or four random phone calls a week asking me if I want to sell.

But, despite all of this, if we get off or a$$ and go knock on doors, if we get out there and drive around, if we seek out the owner and start a conversation, the chances of landing a deal get much higher.  Knocking on doors is something that many people will just not do.  It is easier to sit behind a desk and it is safer to hide behind a voicemail.  Folks, in today’s hot real estate market, you just have to get out there.

Landlords also have to get out there and knock on doors, their own doors.  They need to do property inspections and keep up with what their tenants are doing.  Otherwise potential problems and issues will remain hidden.  Hidden problems fester and often turn into bigger ones later on.  By knocking on doors you can find problems before they fester too long.

Knocking on doors is not easy and can be intimidating.  Trust me, I understand that.  I have been yelled at and told to go away more times that I can count.  Nobody likes rejection.  We instead fear it.  But we have to get over that fear and get out there.  It is how things get accomplished and it is often how we keep moving forward.

Keeping The Utilities On

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Landlords cannot always trust tenants with their property.  Even the best tenants can and will do the seemingly unreasonable.  One such thing they can do is leave in the middle of a lease term without telling you they are doing so.  They can and will pack up their stuff, leave and turn off the utilities.  Your property, unbeknownst to you, can be left in the dark and cold.  Keeping the utilities on and our properties protected is an issue we landlords have to deal with

Having your tenant leave in the middle of the night is one thing, but having them turn off the utilities without your knowledge is another.  It may not sound like a very big deal but what if it is in the middle of winter?  The cold could very well cause your water pipes to freeze and burst.  Reconnecting the utilities can also cost you money and time.  Surly you have better uses for re-connection charges and for the time you have to spend waiting for the utility technician to show.  In short, having the utilities turned off without your knowledge can at a minimum be a pain or possibly cause thousands of dollars in damage.

Your Local Utility May Be Able To Help

To help you, your local utility company may have a program that can prevent the utilities from being turned off.  Here in Memphis, the utility has an apartment owner’s re-connect program.  The program will automatically switch the utility connection back to our company anytime the tenant turns off the utilities or even if they fail to pay.  It helps us to ensure that the utilities do not get turned off in the dead of winter.   It also helps  us not waste time and money on re-connection fees and meeting technicians.  This program has saved our butt more than once.

The Catch

The catch however is that you need to stay on top of this program.  Generally, the utility company will send you a written notice when the tenant has turned the utilities off or is behind on their payments.  These notices can easily be lost in the shuffle of all the paper that being a landlord generates.  Beware that less scrupulous tenants know of this program and may try to use it in hopes that you will not notice and thus pay their utilities for a while.

Watch For Notices

Those notices from the utility thus become very important.   They can also be an advance warning to potential trouble.  Especially if a tenant is getting behind in their utility payments.  But, if you have a lot of properties, the notice can be easy to miss or forget about.  The smarterlandlord therefore sets up some type of system to double check the status of their property when such a notice is received.  A simple phone call or a property drive by could head off trouble.

These re-connect programs can be quite helpful, like anything else they can be abused and need to be monitored.  Use them to help your business, but do not abdicate your responsibility to stay on top of things.

When A Bad Tenant Needs A Reference

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Remember that tenant who skipped out in the middle of the night owing you rent?  Of course you do.  We always remember the bad ones.  Your thoughts at the time likely consisted of anger and frustrated revenge.  I say frustrated because the tenant seemed long gone.  However things always tend to come back around.  Former tenants, even the bad ones, often need a reference.  While revenge can be tempting and sweet, what is the best way to handle the situation?  What is the best policy when a bad tenant needs a reference?

If you stay in this landlording business long enough, you will get a bad tenant or two.  No screening system is perfect and sometimes tenants just go bad.  If you continue to stay in the business, you will find that many of these tenants eventually pop back up again and actually seek your assistance.  They pop back up after several years because they need to explain a gap in their housing history.  They may be trying to rent another home or get a loan of some type.  No matter the reason, someone, somewhere is asking them something they cannot explain away.

When you hear your former tenant’s name it instantly rings a bell.  Both because you remember the sting and you have been waiting for this day.  You cannot wait to get on the phone and share all of the juicy details.  Your thoughts turn to how sweet revenge is going to be.  But before you do speak, before you over indulge in that sweetness, I want to stop you.  I want you wait just a few moments more and think about what you are doing.  Because if you do it wrong, it could come back around to you.

Stop and remember that we live in a litigious society, and anything you say or do can be used against you.  Yes, I know that former tenant screwed you over, but what you say now could hurt you even worse.  You need to play things safe here.  If you do, you will get your revenge and protect yourself from further damage as well.

How do you do that?

You do it by being professional and by sticking to the facts.  I am not telling you to not say anything about past events.  That would be unfair to whoever is currently asking and to you.  Plus, there should after all be repercussions for past actions.

What I am telling you is to act and sound like the professional landlord you are.  I know it is tempting but please do not fly off the handle with accusations and name calling.  Instead, relax and take a look at your files.  Explain exactly what happened.  Be calm, cool and collected.  Use phrases such as:

“Mr. Former Tenant was late 4 times with his rent.”

“Mr. Former Tenant left owing $1,000.”

“Mr. Former Tenant was evicted by our company on June 10, 2015.”

Just the facts as Joe Friday on Dragnet would say.  By remaining composed and by sticking to the facts, you limit your exposure.  No name calling.  No long winded rants.  Just the facts, just the way it happened.

If you want to put a bit of icing on the cake say the following:

“No, I would not rent to this person again.”

Quick, simple and factual statements like these say a lot.  Anyone on the other end of the phone should grasp your meaning.  They will also appreciate your calm and cool manner.  Now sit back and wish you could be a fly on the wall in whatever meeting your former tenant is in.  The look on their face is probably priceless.

Have a good story about getting back at a former bad tenant?  Please share below.

The Professional Tenant

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Your first thoughts when reading the title of this article might have been positive.  You might have thought that a professional tenant would be something landlords strive for.  They are not.   A professional tenant is someone that I hope you never come into contact with.

What Is A Professional Tenant?

A professional tenant is a landlord’s worst nightmare.  They are people who prey on unsuspecting landlords and suck the life out of them.  Professional tenants do this with a slick presentation and smooth talking.  They know all of the right words to say and exactly what you want to hear. They know exactly how to act and have an answer for every question.

Being polite is part of the scam.  So is dressing well and showing up to appointments on time.  Their goal is to dupe you into thinking that you have just found the best tenant ever, when nothing could be further from the truth.

The smooth talking and slick presentation is often followed by cash in hand.  They hold the deposit and first month’s rent and have it in their hand, ready to give it to you.  No need for you to do anything further.  Why wait?  It can all be pretty tempting.  Little do you know that the money they have in hand is likely owed to their current landlord.

Professional tenants will say and do anything and everything to gain entry to your property.  They hope that you will let your guard down.  They want you to let them move in and take possession.  But they have no intent of ever paying you another dime.  Once they are in, you may never hear from them again.

Professional tenants also know how the system works.  They know it takes time to file an eviction and work through the process, because they have been there before.  They also know all of the tricks they can try to delay that eviction; from continuances to bankruptcy filings.  They know that they will eventually get kicked out in six months or a year (or more in some states), but that was their plan all along.  They wanted to pay you to move in, skip the rest and then leave in the middle of the night to prey on another unsuspecting landlord.

Appearances Are Deceiving

Every professional tenant I have run across, and I have run across a few, looks and plays the part well.  On the surface, you really cannot tell they are trying to deceive you.  They are skilled actors.  Their one tell is perhaps their effort to make you feel that they have to move today, that the “good deal” they are offering you will be gone if you do not act.  This is their intent, they want you to act quickly and let down your defenses.

Defending Against The Professional Tenant

Your first defense is how you advertise.  Professional tenants look for small “mom and pop” operations.  They know the big property managers are not going to fall for their ruse.  Generic “For Rent” signs are often a major calling sign for the professional tenant.  No company policy there they believe.  Professional looking signage with a company name and logo are a great first line of defense.  Professional tenants want to avoid professional landlords.

The next best defense is to not be tempted by the cash in hand and the deal that will supposedly get away.  Always tell every potential tenant that you require an application and a background check.  That will scare most of them off.

But it will not scare all of them away.  Some will go through your application process, hoping you are just going to pocket the fee and forgo the actual background check.  Never do this, do the background check!  Because like I said, sometimes you just cannot ever really tell and they work hard to deceive you.

He Spoke Well

As landlords, we have to be aware that there are professional tenants out there looking to scam us.  Protect yourself on the front end and never forgo your application process and background check.   I once had what I thought was going to be the perfect tenant.  He spoke well and dressed well.  He was ready to move in.  When I checked however, everyone including the phone company was looking for him.  He had not paid a single bill in months as far as I could tell.

I feel sorry for the sucker that eventually rented to him.  But, I am sure glad it was not me.

Do you have a professional tenant story?  Share it with your comments.

Kevin Perk is the founder and publisher of Smarterlandlording.com.  He is the author of Advice From Experience To New Real Estate Investors.  Contact Kevin here.

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Tenants Can Retaliate So Choose Your Battles Wisely

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This story from Buffalo came across my news feed the other day and I thought it would make a good introduction to a post.  In the story, a tenant and his landlord apparently ended up in a very adversarial relationship.  The tenant damaged the landlord’s car, the landlord had the tenant arrested and the tenant then proceeded to wreck the landlord’s property causing thousands of dollars in damage.

I am sure there is much more to the story than the snippet reported in the link, but the story helps to demonstrate some good points that we landlords need to remember.  Tenants can retaliate and cause a lot of damage.  We therefore need to do our best keep our relationships with our tenants on a professional level.  And we need to choose our battles wisely.

Tenants Control A Valuable Asset

Our tenants occupy some very expensive and easily damageable assets, our property.  If they get it in their head that they want to cause us harm, then they very well can and will.  There is simply no way that we landlords can guard and protect our properties 100% of the time.  Sure, you can sue and you might get a judgment against them, but good luck collecting it and who wants the hassle of going to court and repairing a destroyed property.  It therefore makes a lot of sense for us to do what we can to keep our tenants from taking things personally.

Sometimes however that can be a very difficult thing to do.

Tenants can and will do crazy things.  Tenants will hide stuff from you.  They will paint the walls purple.  They will not pay the agreed upon rent and then tell every lie in the book to try to get out of it.  It can all make you want to scream just throw their butts out on the street.

Keep Your Cool

Do not let the professional relationship with your tenant spiral out of control.  And do not let them get the best of you.  There is just too much money, property and emotions on the table to allow that to happen.  It may take a humongous effort on your part, but here is what you must do if a tenant starts to become unreasonable or emotional and tries to escalate matters.

  • Keep Calm – You have all seen those trendy British posters. You need to follow their advice and keep calm.  An angry mind will make stupid decisions.  Do not put yourself in a position to make stupid decisions.
  • Keep Things Professional – Always keep things on a professional and businesslike level, even if your tenant is yelling at you. Cite company policy and the house rules.
  • Keep Your Voice Down – Never ever get into a shouting match. Nothing good will come of that.  If you have to, just….
  • Walk Away – Remove yourself from the situation to let things cool off. If you feel your temperature rising and you think you are going to blow, it is best for you to remove yourself from the situation before things get askew.
  • Do Not Take It Personally – It is hard not to sometimes, but just remember that these are business decisions and people lash out at others associated with those business decisions.

Now, I am not saying that you do not need to defend yourself, your reputation and your property.  Nor am I saying that you should not bring the hammer down when it needs to be brought down.  What I am saying is your tenants control a significant asset of yours and they can quickly do a significant amount of damage to it if they feel wronged.  They can and will retaliate against your property if you handle a situation poorly.  It has happened to me and it has happened to many other landlords I know.  So the thing is to not make them feel like you have wronged them, even if you are demanding rent and evicting them.  And you cannot do that if you get angry or let them dictate when and how the battle is fought.

Choose Your Battle

Remember, you can get into a screaming match with your tenant, or you can calmly walk away and go back to your office then call your attorney and file for eviction.  In this way, you choose the timing of the battle and how it is fought, not your tenant.

The Smarterlandlord knows not to let their tenants get the better of them.  They know when to walk away and they know how and when to pick their battles.   They understand that ultimately they will have the upper hand, and that they can make even the biggest problem go away eventually.  But they also know they have to be careful and remove that problem in a way that will not cost them so dearly on the back end.  It does not always work, but when you choose wisely, it will work most of the time.

 

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Do You Refund Tenant Security Deposits?

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There seems to be this idea out there that security deposits are unlikely to be refunded.  Many landlords and tenants either have the “I’m going to keep it” or “I’m going to lose it” mentality.  That seems like the wrong way to go about the business.  Landlords should be more than happy to refund tenant security deposits.

What Is A Security Deposit For?

Let’s think for a minute about what a security deposit is for.  A security is a sum of money taken upfront as a sort of guarantee that at the end of a lease your property will be returned to you in much the same condition as it was rented, less normal wear and tear.  You take the deposit to try to ensure that the tenant will refrain from causing damage to your property.

For the above to work however I think that the tenant has to have a reasonable expectation of getting their security deposit back when they move.  If everyone “knows” that the security deposit is going to be kept by the landlord, what incentive does the tenant have to not cause damage to your property?

A Better Business Model

A lot of this landlording business is about dealing with people.  And a lot of dealing with people is about setting up expectations on the front end.  Much like teachers on the first day of class who lay out what is expected of their students; landlords have to do the same with their tenants. If you want your property returned to you in decent condition, you have to set that expectation on the front end.

We set that expectation by explaining to new tenants that we want to and do refund the majority of the security deposits we collect.  This is done during the lease signing process. First, we give them the expectation that they can get their security deposit refunded.  Next, we explain the difference between normal wear and tear and tenant damages.  Finally, we list the charges we will apply to their security deposit for various damages they may cause.

So right upfront we have set the expectation that they can get their money back if they return our property to us in good condition.  We reinforce this expectation on the back end as well by resending all of this information to them when they inform us of their plans to move.

Most of the time, this process works very well.  We often retake possession of our rental units with minimal repairs and cleanup necessary.

The Wrong Profit Center

Seeing tenant security deposits as another potential profit center, to me is a bad business decision.  Doing so only creates the incentive for your tenants to cause damage and cost you money.  Why should your tenant care about your property if you are just going to take their money?  Thing is, they will not and will potentially create more damage than the security deposit will cover.

People respond to incentives; be sure to set yours up properly.

What is your view?  Do you refund most of the security deposits you collect?  Why or why not?  Please share with your comments.

My Tenant Is Running A Business

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Sometime in your life you wished you could work from home.  We all have.  Your tenants have too.  The thing about your tenants however is that their home in also your property.  Their business will therefore be your business. What should you do if your tenant is running a business out of your property?  Should you stop it?

Finding Out About The Business

The first thing course is finding out about the business activity.  This may not be as easy as it at first seems.  Your tenant is unlikely to tell you of their new venture, nor will you be on your property every day to witness what is happening.  What is more probable is that your other tenants are going to notice and either gossip or complain to you.  You may also notice business activity after one of your routine property inspections or after a maintenance issue.

However you find out, you should be a bit concerned.  Your tenant’s business could raise several issues, including:

  • Strangers coming on your property.
  • Disturbing your other tenant’s right to quiet enjoyment.
  • Increased wear and tear on your property.
  • Increased levels of liability if somebody slips and falls, or worse.
  • Zoning and code enforcement issues. They will come after you, not the tenant.
  • Restrictive covenant or homeowner association concerns.

Not All Businesses Are Alike

Should you discover that your tenant is running a business, I think a little investigation is necessary.  Not all businesses are alike.  Some will definitely create a nuisance while others are perfectly suited to being home based.  There is a huge difference between your tenant selling used cars out of the back yard and your tenant conducting an Amazon resale business (I have had both happen btw).  One, the used cars, is certainly going to be a problem while the other may not.

Either way it is your property.  You set the rules.

The Type Of Business Matters

You might think that you should completely ban all business activities on your property.  While you can do that, I am not so sure that is the best course of action.  Some activities will not cause you or your tenants any problems.   Think of telecommuting or designing websites.

Others could turn into a problem.  That E-bay business could mean a lot of odds and ends and empty boxes lying around your property.  While this type of activity is not something to stop outright, you may want to warn your tenant that it will need to stop if other tenants start complaining.

Other business activities will need to be stopped in their tracks.  Selling cars off the back lawn are a no go.  In fact, anything that will regularly lead to customers coming to my property is a no go, as is any business needing a sign or form of advertising directing people to my property.  Not only may this be illegal, but it may increase your liability and will definitely disturb your tenants.

Protect Yourself

The best way, I think, to protect yourself is to place something in your house rules regarding home based businesses or commercial activities.  We have a phrase that states that no home based business or commercial activity is allowed without our express permission.  We do not therefore ban all activity but we can stop anything that may be or become a problem.  After all, not every home based business will create problems and we want to be open to those tenants who may depend on such activities for their income.

Place a clause like the above in your lease or house rules if you do not already have one.  If you discover your tenant is running a business out of your property, do not automatically ban it as you may lose a perfectly good tenant.  Take some time to investigate and go from there.