SMARTERLANDLORDING

ADVICE FROM EXPERIENCE

Dealing With Tenants

Pet’s Only Please!

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Here is a wonderful example of how you can discriminate against potential tenants.  The local CBS station in Los Angeles reports:

“Judy Guth owns a 12-unit building in North Hollywood.  Not only is Guth pet-friendly, she doesn’t want a tenant who doesn’t have a pet.  All pets welcome — cats, dogs, birds.”

Many think that you cannot discriminate against anyone for any reason. But that is simply not true.  While landlords cannot in most cases discriminate against the seven federally protected classes, race, color, religion, national origin, sex, disability and familial status, many other items are in play.  And you should be discriminatory in who you choose to rent your properties to.

You may not want folks with an eviction or bankruptcy in their past.  If you do not want to rent to lawyers, you do not have to rent to lawyers.  If you do not want to rent to people who own motorcycles, you do not have to.  If you do not like pets, then there are no pets.  Or if you like pets, it can be all pets as in the story above.

They key is to be consistent.  You cannot pick and choose which lawyers you will rent to for example or let some in with a bankruptcy while keeping others under the same circumstances out.  It has to be all or none.  Whatever you decide, be sure to write your rental standards down and keep them in a handy file just in case someone, like a fair housing officer, asks to see them.

Can I Paint My Apartment?

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We often have tenants ask us if they can paint or do other types of “improvements” to their apartments.  The short answer to that question is no. 

We have experimented in the past with letting tenants do some painting or other improvements and for the most part it has ended badly.  I have found walls painted black, purple and other garish colors, colors that take three coats of primer just to cover up.  What’s more is everyone thinks they are a really good painter.  I am here to tell you they are not.  Paint inevitably ends up on the trim, baseboards, carpet, tile hardwood floors, you know, everywhere!  And the paint job is usually so bad that it has to be redone anyway.

Repainting an apartment is not cheap in the first place.  Having to paint over a terrible paint job or use three times the amount of paint normally required because I have to cover “Deep Purple” is not something I want to spend my hard earned money on.

So no, you cannot paint your apartment.  You are going to have to live with the two colors that I use in every apartment I have, Navajo white and pure white.

“But I will leave you the left over paint so you can touch up and get more if you need it after I leave,” they often say.  Nope!  I have been down that road too.  I do not have time to remember which paint color and which finish goes where. 

My two standard colors make my life easy.  I know exactly what color and what finish is used in every apartment I have.  No longer do I have to search for or remember which color goes with which apartment.  I or my maintenance people can simply pull out any can of Navajo White if a place needs a bit of touch up.  It is simple and easy.

Smarter landlords want more “easy” in their lives.  This business is hard enough. So go to your local paint store and pick out a couple of colors for your apartments.  I would suggest a nice off-white for the walls and stick with white for the trim.  Use them every time.  In the coming years you will be glad you did.

5 Screening Techniques When Using Credit Reports

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You may think when you are reviewing a credit report as part of your tenant application and screening process that the credit score is the most important piece of information.  If you do I have to gently tell you that you are mistaken.  There is much more to a credit report that a smarter landlord should be looking at when trying to determine if they should hand over the keys to one of their properties.

The first thing you want to check when you pull an applicant’s credit report is their personal information.  Does their name, date of birth and social security number all match up to what you were told on the application?  Is their last known address the same as they reported on your application?  Are they being upfront about who they are or are they lying to you?  Also check to make sure there is not a Jr. or Sr. in the name as that is sometimes easily confused and abused.

Second, examine their payment history.  Are they late with payments every month or is there only one or two over the course of their history?  Obviously you want someone who pays their bills in a timely manner.  If they do not pay everyone else on time they are not going to pay you on time either.

Third, examine how much has been charged off as well.  A charge off is debt that the applicant owned that was written off as .  If you see a lot of these charge offs, the applicant may not be a good risk as they tend to skip out on their debts.

Fourth, determine if your applicant can afford your property.  The credit report will estimate the total monthly amount of all of the applicant’s debt payments.  You can then use that number to determine if they can afford their debts, their proposed rent and other necessities like food and utilities.  If their debt level is too high, they will have trouble and will have to make a cut somewhere.  That cut could be your rental payment.

Finally, you want to look and see if someone had a life altering circumstance.  Things like a cancer diagnosis or a divorce can really side track things to say the least.  This is why the credit score is not as relevant as the rest of the report.  Their credit score is going to reflect these past circumstances but it may not tell you if they are in the process of getting back on track.  The applicant will have to be truthful about what has happened and note that they are getting things back together.  The credit report should demonstrate these items with recent on-time payments, etc.

The credit report is a must use tool for screening potential tenants.  Learn how to use all of it to get the most accurate picture of your applicant.  Don’t just rely on the score.

Does Bad Credit Mean No?

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One thing you need to examine when screening potential tenants is their credit report.  A credit report will give you an insightful history of just about everyone.  But should the credit report be the only thing you consider?  No.  There are numerous other factors to consider as well like criminal history.  But let’s take it one step further.  What if an applicant has bad credit?  Should that be an automatic case for rejection?  I think again the answer is no.

There are certain situations where you may want to consider renting to someone with bad credit.  For some landlords, their potential tenant base will determine if credit is an issue.  Everyone belonging to certain tenant bases may have bad credit.  Other potential tenants may have had their credit destroyed due to extenuating circumstances.  Let’s look at some examples.

If your rental properties are in marginal neighborhoods, you may not be able to find any applicants with good credit.  You may have to rent to people with bad or at least not so good credit. 

So what to do if everyone has bad credit?

  • Look to see that they are telling the truth.  Any false statements on an application should be immediate grounds for non-acceptance.
  • Look for a steady job history.  Look for someone who stays employed.  Hopefully at the same job.
  • Look to see that they pay most of their bills.  These tenants are likely living paycheck to paycheck and a bit beyond their means.  So look to see if they pay most of their bills. 
  • Get good references from the two previous landlords.  Did the tenant leave owning them any money?
  • Look for a steady rental history.  You do not want someone who moves every year.  You want stability.

In other instances, someone’s credit may have been ruined because of forces beyond their control.  Someone may have been through a nasty divorce or they may have been diagnosed with cancer or been in a terrible accident.  These types of situations can easily drain all available funds and bankrupt a person. 

So what do you look for if someone has had their credit destroyed?

  • Again, look to see that they have told the truth.  Your application should have questions about their credit, work, and criminal history.  If they are upfront with you about what you will see and why, that should carry some weight.
  • Look to see if the credit report supports the story you are being told.  We once had a cancer survivor apply for one of our apartments and their credit was devastated from the medical bills.  This person was honest about it and it was obvious from the report what had happened. 
  • Look to see that they are trying to get back on their feet.  Are they trying to pay off the bad debt or the bills?  Are they trying to get a fresh start?  It will be obvious from the report.
  • Check references.  These references should confirm what you have been told and vouch for their character.

So there you go.  Having bad credit may not necessarily be a show stopper.  As an example, our former tenant who is a cancer survivor was one of our best tenants ever.  There was never a missed payment and the property was kept in excellent condition.

You can of course try to reduce your risk a bit with bad credit tenants by asking for higher security deposits or increasing the rent a bit.  Just be sure that you have everything spelled out on paper in your application review policies.

Is Your Rent Increase Legal?

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Rents seem to be on the rise in most areas of the country right now.  Some are predicting this trend to continue for a few more years.  As landlords we obviously want to maximize our rental income to increase our cash flow and increase the value of our real estate holdings. But you can’t just go and increase rents across the board at any time.  There are certain steps and rules one must follow for it to be legal.

First, you have to remember that your lease is a contract between you and your tenant.  This contract spells out, among other things, the amount of rent to be paid, when the rent is due and the term of the contract.  If your lease is like most residential leases out there it has a specified term, often for one year.  That term generally sets the clauses of the lease in stone meaning that you cannot raise the rent without the consent of the tenant during term of the lease.

So unless you have specifically put some type of language in your lease allowing you to increase the rent during the term of the lease, you cannot raise the rent until the end of the lease term.  Can you put special conditions in your lease to allow an increase in rent?  Sure, if local laws allow it.  You could for example state that the rent will increase if property taxes are increased.  Your tenant would have to agree to it beforehand however and that is not likely.

Once the term of the lease is completed or just before completion, you can begin to renegotiate new terms for the lease.  Now you can increase the amount of rent.  To do so however you usually have to send notice to the tenant stating that the terms of the lease will be changing and what those changes will be.  This notice usually has to be sent at least 30 days prior to the time the rental increase is to go into effect.

For example, if you want a rent increase to be effective on May 1, 2014 you need to send a notice to your tenant no later than April 1, 2014.  This notice is nothing more than a letter from you to your tenant spelling out the terms of the rent increase.  At least that is how it works here in Memphis, Tennessee.  Local laws can differ greatly.  The City of Seattle for example makes things much more complicated.  So be sure and know your local laws to make any rent increase legal.

A word of caution is necessary however.  I would not go hog wild raising rents unless you are in a particularly hot market.  Raising rents to much might cause many of your tenants to leave creating lots of tenant turnover.  And tenant turnover is the biggest cashflow killer out there.  Think about all of that new paint and carpet along with all of the other repairs that will need to be done once a tenant leaves.

So don’t shoot yourself in the foot by raising your rents to high or too fast.  Give careful consideration to rent increases.  Perhaps gradually and gently is a better way to go.

 

Subscribe to Smarterlandlording and receive a Free Report: 21 Tenant Screening Red Flags

Why Are Your Tenants Moving?

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Apartments.com just did an interesting survey of over 1,500 renters.    The survey examined the major reasons renters were and were not moving.  For example, here are the top five reasons survey respondents said they are moving in 2014:

 

 

 

  1. Shopping for a less expensive apartment: 24.6%
  2. Wanting to live in a different neighborhood: 13.6%
  3. Looking for a bigger apartment: 12%
  4. Change in marital status: 11.6%
  5. Looking for a smaller apartment, or to live alone: 10%

There are several other bits of interesting information from the survey.  You can read the rest of the article here.

Information from surveys like this one can be important to your landlording business.

Tenant turnover is probably the number one killer of positive cash flow.  If you can figure out the reasons your tenants are considering a move and can address their concerns you can save yourself a bundle of both time and money.

Always ask your tenants why they are moving when they give you notice of a move.  Perhaps some minor upgrades will encourage them to stay.  Perhaps you can provide them with a larger or smaller unit.  Perhaps you have something available in a different location.  If you have a decent tenant, try your best to keep them.  Good tenants can be hard to find.

Landlords – No Dirty Tricks!

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One of the worst things for a landlord is a non-paying tenant.  It creates a crisis in your business as the revenue you need to pay for the mortgage, insurance, taxes, repairs, etc stops coming in.  In years past, landlords had all sorts of dirty tricks to deal with non-paying tenants.  Tricks you had better not even think about doing today.

Tricks like:

  1. Taking off the Front Door – This is one of the older more creative tricks landlords used to use.  If a tenant fell behind or did not pay, the landlord simply removed the front door, leaving the unit and the tenant’s possessions out in the open
  2. Changing the Locks – The ultimate in “no pay – no stay.”  If the tenant wanted the new key and access to their stuff, they would have to pay up.
  3. Shutting off the Heat – This worked especially well in the colder months, but the landlord ran the risk of frozen pipes.
  4. Shutting off the Water – How long would you live in a place with out a flushing toilet, or the ability to take a shower?  The hope of many landlords was not for long.
  5. Blocking Up the Sewer Line – Taking a 2×4 and jamming it in the sewer clean out line was another tactic.  It did not take long before the toilets stopped flushing and the showers stopped draining.  Can get pretty smelly fast.  Of course once the tenant is out, the landlord was left with a mess.

Like it or not, a landlord can get in a lot of trouble if they use any of the above tricks.  There are just too many lawyers out there waiting to sue you to take the chance.  Can you imagine what a judge would say in this day and age if they heard you shut off the heat on a family in the middle of winter or that you had removed their front door?  Instead of solving your problem and getting the tenants out, you have created a huge pay day for them, plus they get to stay.

Don’t let that sense of crisis you feel because you are not getting paid allow you to succumb to bad advice or do something stupid.  In years past, landlords had a lot of dirty tricks up their sleeves that they could get away with; some are still using them.

Today however, the best alternative when dealing with a non-paying tenant is to offer cash for keys.  This technique gets them out as quickly and as cheaply as possible with little or no mess to clean up later (or doors to put back on). Proper screening will also solve a lot of these problems.  Learn these two important techniques rather than resorting to dirty tricks.

 

Subscribe to Smarterlandlording and receive a Free Report: 21 Tenant Screening Red Flags

Do Not Enter – Respect Your Tenant’s Home

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It can be difficult to find good tenants.  It takes time to show your property, take applications and screen out the bad guys.  Then there is the lease signing and move in processes.  After going through all of that, you want to keep the good tenants for a while right?  Of course you do. So don’t do things that will drive them away such as not respecting their privacy.

Once you find a good tenant, sign a lease and let them move in to your property you have given certain legal rights of possession to your tenant.  You have provided them with a home and as they say “a person’s home is their castle.”  You as the landlord have to respect that, even though you own the building you cannot just go into to a tenant’s apartment any time you fell like it.  If you do, not only are you a sloppy landlord (and kind of a jerk) you could be charged with a crime.

Check out this recent news story headline.

Tenants claim landlord broke into apartment overnight, heat still not on

The story continues:

Sievert rents an apartment for her daughter at a complex in Muskego near Woods Road and Racine Avenue.  She says Wednesday morning the landlord came by unannounced…

“He broke into my apartment.”

Sievert locked the doors to her apartment Tuesday night when she left.  When she came by to get her car this morning, she saw locks were broken.

“We noticed that doorknobs and locks were removed. The screw that we had screwed the door shut with was broken in half. The chains ripped off. The door was broken.

Muskego Police are involved and might give the landlord a municpal citation for criminal trespassing. But they want his side of the story.

“He’s sneaking around. He’s hiding his car in the garage.”

Certainly there is a lot going on in this story such as non working heat, code violations and a hiding landlord.  Plus why did he not have keys to his own property?  Who knows? But the story demonstrates my point.  A landlord can get themselves in trouble by “just going in” a tenant’s apartment.

But, what if there is an emergency such as busted pipes?  If there truly is an emergency, then yes, you are going to be permitted to go in unannounced to protect your property and fix the problem.

Otherwise, your local laws are likely going to dictate when you can and cannot enter a tenant’s home.  Here in Tennessee, the Uniform Landlord Tenant Act does just that.  Section 66-28-403 specifically addresses access by the landlord.  It states in part:

 (e) The landlord has no right of access to the premises except:

   (1) By court order;

   (2) As permitted by this section, § 66-28-506 and § 66-28-507(b);

   (3) If the tenant has abandoned or surrendered the premises;

   (4) If the tenant is deceased, incapacitated or incarcerated; or

   (5) Within the final thirty (30) days of the termination of the rental agreement for the purpose of showing the premises to prospective tenants; provided, that such right of access is set forth in the rental agreement and notice is given to the tenant at least twenty-four (24) hours prior to entry.

Your local rules may be completely different.  Local differences such as these are one reason it is so important to find a local REIA and understand your local laws.

Sure, there are other times when a landlord can have access to the property, such as to do a quarterly inspection, for a property appraisal, for insurance purposes, or if the tenant has requested maintenance.  But a good rule of thumb is to provide at least 24 hours notice and spell out when, where and why you may come into the property in your lease.

So be a smarter landlord and respect your tenant’s privacy.  After all, would you want someone barging into your home unannounced?

Top 5 Smarterlandlording Posts in 2013

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Here are the top five posts for 2013.  Thanks for reading Smarterlandlording.com and look for lots more in 2014!   Have a Happy New Year!

 

The Best Gifts a Tenant Can Give

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When you read the title to this post, I bet you thought I was going to say “the rent.”  But “the rent” is not a gift.  Rent is simply a contractual obligation.  Rent is paid in return for a place to live.

Gifts on the other hand are given without any expectation of a return.  A gift is freely given.  No one forces you to give a gift and no one will evict you if you do not give a gift.

Since this is the season for giving, what are some of the best gifts that a tenant can give?

  • Their Continued Tenancy – There are a lot of choices out in the market place.  We know you have a lot of options.  You could move but you choose to keep renting from us.  Thanks!
  • A Good Reference –People still need to move sometimes.  When they do, we want to get those vacant units rented as quickly as possible and a good reference from a good tenant goes a long way.  Your recommendation to your friends means a lot to us and we do appreciate it.
  • Return Business – Every once in a while, we have a tenant move only to have the situation that caused the move not pan out.  More than once these tenants have wanted to come back and rent from us again.  That says a lot.  Again there are a lot of choices in the market place and we appreciate your repeat business.

Want to get more of these types of gifts?  Here are some tips.

  • Keep Your Properties Maintained – Nothing says “run away” or
    ”I don’t really care” more than a poorly maintained property.
  • Respond Quickly To Tenant Concerns – Be it noisy neighbors or a leaking roof, at least acknowledge the concern.  If something needs to be fixed, fix it.
  • Be Firm, But Fair – Have policies in place that treat everyone equally and do not play favorites.  Be sure to explain what is expected of your tenants and hold them to it.  Trust me, they like to know that that are a part of a tightly run ship.
  • You Can Catch More Flies With Honey – This old phrase is really true.  Sure you can yell and scream.  You may even be 100% correct, but where will yelling and screaming get you?  Will you really “win” the argument?  Remember a little kindness can go a long way.  We are all human and that brings ups and downs.  Try not to add to the downs.

Remember that landlording is ultimately a people business.  Take that extra step for your tenants and many will give you one in return.

Happy Holidays Everyone!