SMARTERLANDLORDING

ADVICE FROM EXPERIENCE

Everything

The SmarterLandlording Podcast – Buying, Rehabbing and Managing Class D Apartments

by

“The real estate is easy, the people are hard.”

Check out the SmarterLandlording Channel on iTunes

Stuff We Mentioned

Memphis Investors Group – The Memphis Investors Group (MIG) is the local REIA club here in Memphis.  If you are here in Memphis, look us up.  If not, check for a club in your area.

Multi-Family Investors Sub-Group – This MIG sub-group meets at noon every third Wednesday at Newby’s on the Highland Strip right here in Memphis, TN.   It’s free to go but lunch is Dutch treat.

Section 8 – Section 8 is a low income rental subsidy program that many investors in class D properties use.  Check out the Smarterlandlording Podcast with the Section 8 Landlord to learn more.

Like the Intro Music?  Check out my good friends in the band Kitchens and Bathrooms (Kind of fits right!).  They write and play some awesome, original music from right here in Memphis, TN.

Do You Refund Tenant Security Deposits?

by

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.

It’s The First Of The Month

by

It’s the first of the month.  A busy time for most landlords as rents are due, leases are up and tenants are moving.  Hopefully everything is going smoothly for you landlords out there.  If not, perhaps some of the links below can help.

There is a lot of information here at Smarterlandlording.  If you cannot find what you need, try the search box located at the bottom of every page.

Still looking for advice?  Send me a message and maybe I can help.

 

My Tenant Is Running A Business

by

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.

Why Is Your Property Not Renting?

by

One of the most frustrating things for a landlord is having a property that will not rent.  If this happens to you, you need to do some serious thinking quickly to get the cash flowing again.  Why is your property not renting?  Two reasons, your market and your rent.

Are You Reaching Your Target Market?

The first thing any business owner must do is make their potential customers aware of the product they are trying to sell.  If you are not reaching your potential customers you will not have customer traffic.  No customer traffic means no sales.  Reaching potential customers can be easier said than done.  If your phone is not ringing and you are not having many showings then you should think about your advertising.  Is a sign in the yard enough?  Have you posted ads online?  Have you made those ads look attractive?  What about sites like nextdoor.com?  Are you advertising in English in a Spanish speaking area?  All these items and more should be considered in your marketing strategy if you do not have traffic coming your way.

Do You Know Your Market?

You cannot just ask whatever rent you want, the market is going to set those rates.  You need to be very in tune with your market because you could very well be knocking yourself out of it.  There are plenty of ways today that make it easy to see what is happening in your market.  Rentometer.com is one way.  Zillow.com is another.  You can also pound the pavement and make phone calls to find out what other properties near you are renting for and even perhaps how long they are staying on the market.  It might not be just you, everyone could be having a hard time.

Ultimately, It Is The Price

If you are effectively reaching your potential customers and you know what your market will support but are still not getting any takers then there is only one thing left, the price.  The rent you are trying to get is just too high.  The market has spoken and everyone who has looked at your property feels they can get a better value somewhere else.

Why?

Hard to say, but there is something that is turning people off.  It could be something fixable such as an outdated kitchen or bath.  It could be that purple paint in the bedrooms or the brown shag carpet.  If your place is not renting take a good look around and try to determine which end of this scale you are on.  What are your potential tenants remembering about your property?  If you can fix it, then fix it.  If not or you do not want to, then you are going to have to lower the price.

Your problem could also be out of your hands.  You could be located next to a busy and noisy intersection.  A lack of parking might be a concern or the Taco Bell drive thru next door may be trying to take their order late into the night.  These problems cannot be fixed by you and are unfortunately going to cost you some money.  You simply will have to lower the price to overcome the hassles of these nearby nuisances.

The Sum Up

Why is your property not renting?  Maybe you are not reaching your target market or have misread it.  Maybe you are in a declining market.  Perhaps it is because you have not fixed your properties up.  But it can also be because of items way beyond your control.

Whatever the reason a reduction in price will usually solve the problem.  Yes, I know it is frustrating and perhaps even a bit infuriating.  But letting a property sit vacant is expensive.  Do not let your pride get in your way.  Despite your efforts the market has spoken.  Listen.

Seven Things Your Tenants Will Try To Hide From You

by

If you are a landlord, at some point your tenants are going to break your rules and try to hide it from you.  They are going to think they are smarter than you and that they can get away with it.  The thing is, you cannot let them because these hidden items can cause you big trouble.  So what will they try and hide?   Lots of stuff.   But here are seven things your tenants will try and hide from you that we have found to be most concerning.

1.  My Significant Other Is Moving In – Let’s face it, people shack up. However, shacking up can cause you serious headaches.  The main concern here is you do not know who that significant other is.  You do not know what their background is because they did not go through your screening process and now, they are essentially living in your property.  Sure, if your tenant was screened than all might be OK, but you never know.  That significant other could have a record, a warrant or worse.  If you suspect someone is living in your property that is not on your lease, you need to confront the situation right away.

2.  I’m Getting A Pet – We like pets. They are a money maker, so we allow them.  However, some tenants neglect to tell us they have one or that they are getting one later on.  Why?  They do not want to pay the pet fees, or it may be of a type or breed that we do not allow.  Finding out about unknown pets is one of the reasons that routine inspections are so important.  Your tenants may try to hide the fact they have a pet, but most times the evidence is just too strong to deny.

3.  I’m Posting On Couchsurfing.com – Are you aware of couchsurfing? If you are a landlord you need to be.  Couchsurfing is when someone with a couch allows someone else to crash on their couch for the night.  That someone with a couch could be your tenant.  There are websites dedicated to hooking up people with couches with those looking to crash on them.  Thing is, neither you nor your tenants have any idea who is actually crashing on their couch.  That is way too scary for me.  If you or your other tenants see a lot of strange people coming or going, do a little investigation on the internet.  You may just see your property listed in places you would rather it not be.

4.  I’m Trying To Make A little Money With Air B and B – You have most likely heard of Air B and B by now. Thing is your tenant has as well and some are going to think it is perfectly OK for them to rent out that extra bedroom they have.  Do not allow this.  Again, you do not know who is coming into to your property.  It is too much of a liability.  Have a “no subletting” clause in your lease and explain at your lease signing meeting that it means no Air B and B.

5.  I Found My New Roommate On Craigslist – That person your tenant wants to move in with them, they have no idea who they are. Why?  Because they found them on Craigslist.com.  For some reason they will tell you they know them when they really do not.   I’ve seen this situation work but I have also seen it be a disaster.  Usually, if it is a disaster it starts off with your current tenant trying to “upcharge” the new roommate on “their half” of rent.  The new roommate is often “surprised” that the actual amount of rent is lower.  Again, make sure of who is coming and going in your properties.  Make sure anyone living in your property goes through your screening process.  Once properly screened, your tenant might just be surprised at who she thought she was going to live with.

6.  I Lost My Job – Losing a job is traumatic and stressful, I get that. But sticking your head in the sand and hiding from me is only going to make things worse.  Unfortunately, many tenants think this is the best way to go.  Why?  Perhaps they are embarrassed or perhaps they refuse to face reality.  Who knows?  Thing is, if you work with me, I can work with you.  We can perhaps avoid an eviction and work out a plan.  But, if you don’t talk to me, I will be forced to deal with you the hard way.

7.  I’m Running A Business Out Of Your Property– Running a home based business could mean many things. It could mean selling sheet sets on Amazon.com or cars out of your backyard.  I’ve had both happen and while one is generally not a problem, the other is.  Either way, your tenant is unlikely to tell you about it and you should have a clause in your lease that prevents home based businesses so you can keep a handle on these issues if they arise.  Zoning and code enforcement officers are not going to go after your tenants, they will go after you.

Tenants are human and as humans they will respond to incentives that will make them feel more comfortable.  These comforts  could be money, a pet or a boy friend.  Unfortunately some of those comforts will run counter to your rules and your tenants will try to hide them from you.  As a landlord you need to recognize this and keep on top of your properties.  Conduct regular inspections and listen to your other tenants.  Find these hidden problems before they find you.

What have your tenants hidden from you?  Let me know with your comments.

We Allow Pets, Just Not All Of Them

by

I have written before on pets.  Pets to me are a money maker.  Plus, a lot of folks have a pet.  If you do not allow them, you cut out a large part of the market and a decent income stream.  So we allow pets, just not all of them.   There are certain pet types and breeds that are against the rules.

Pets That Are Not Allowed

Certain Dog Breeds – Sorry Pit Bull and Doberman lovers, these and other large dog breeds are not allowed.  They have been shown to have aggressive traits which along with their size make them a no go.  It is not just us, our insurance is the main problem. They require that we not allow them.  Yes, I have met many “nice” large dogs and hate to paint with the broad brush but that is just the way it is.

Large Animals – We do not allow any animals over 20 pounds.  Many of our properties are smaller and not the proper place for a larger animal.  Plus, larger animals are just going to cause more wear and tear and be potentially upsetting to other tenants.  So I’m sorry but if you have a shaggy sheep dog, you cannot rent from us.

More Than Two – Have you ever been in the “cat lady’s” house?  Sure you have.  You have smelled the result of having too many cats.   I do not want that smell coming into my property.  It is simply too hard to get rid of.  The best way to eliminate that concern is to just limit the number of pets a tenant can have.

Odd or “Creepy” Pets – A cat or a small dog is fine, but we do not allow anything else.  That includes reptiles, rodents, insects or other mammals.  We actually say in our lease, “Nothing we deem creepy.”  Sorry folks, you will have to go elsewhere with your snake, rabbit, mice, hissing cock roaches (gross!) or ferret.  I’m sure they make lovely pets, just not in our property.

No Dogs In Our Multi-Family Buildings – Dogs bark.  It is what they do.  They may bark when people are leaving.  They may bark when people are coming home.  They may bark at any type of noise or movement.  That bark and annoys the other tenants.  Barking dogs have caused us so many problems and phone calls in the past that we just no longer allow them in our multi-family units.

Enforcing The Rules

You can also make similar rules for your rental properties.  If you do, you are going to have to work a bit to enforce them.  Tenants will often try to push the limits with you or cover up what type of pet they really have.  How?

They will say they only have two cats when they really have four.

They will say their pit bull is a “mixed breed.”

They will flat out lie and say they have no pets.

We try to catch these issues early on in one of two ways.  First, we will conduct an inspection upon move in or soon thereafter.  It is usually obvious if they have a pet or have more than they said.

Second, we always have to “meet” the dog.   We want to verify the breed and the size.  We “trust but verify.”  Plus, when you state that you are going to have to meet the animal, many of your potential pet problems will suddenly go away.   It is amazing how many people with “mixed breeds” never call back.

Allowing pets can be a great way to improve your potential tenant base and income stream.  But, just allowing all pets can be problematic.  So, you should develop some rules on what you will and will not allow.  Hopefully this post will help guide you towards doing just that.

Potential Tenants Only Remember Two Properties

by

At the end of a long day, after looking at perhaps dozens of properties, potential tenants only remember two properties.  One is the dirtiest and the other is the cleanest.  Everything else will fall somewhere in between and be lost in the haze.  The moral of the story is obvious.  Keep it clean!  But what is the best way to do that with limited budgets and resources?

Start With Your Current Tenants

Being clean is not that hard, it just takes a bit of effort and focus.

It starts with the effort you make with your current tenants.  A well maintained property will stand out.  Plus it is often a lot easier to keep something clean that to make it clean.   So you have to repair things as needed.  You also need to conduct regular inspections to make sure trash is not piling up and the walls have not been painted purple.  Staying on top of these issues will make being the cleanest much, much easier.

Get Your Tenant To Help

You also have to get your tenant to help you keep clean when they tell you they are moving out.  You do this by sending them a list of things they need to do before they move out.  A list that notes all of the things that must happen for the tenant to get their security deposit back.  This list includes:

  • Taking every fork, spoon, and Taco Bell sauce packet with them.
  • Taking every wire hanger with them.
  • Removing every piece of furniture, no matter how small.
  • Replacing every burned out light bulb.
  • Leaving the property wiped down and broom swept clean.

All of the above and more, if not followed, will result in a deduction from a tenant’s security deposit.  This is clearly states as our goal is to repossess our property in much the same way we rented it out, minus normal wear and tear.  And by staying on top of repairs, inspections and the move out process, we go a long way towards that goal.

What About Normal Wear And Tear?  What To Focus On

No matter how perfect your tenant was, normal wear and tear happens.  Things will look worn and need updating.  But with limited funds we often cannot fix everything.  So where should you focus your efforts?

  1. The Bathroom – Nothing is going to turn a potential tenant off more than a dirty bathroom. If you absolutely need to rehab or upgrade someplace, do it here.  New tile, caulk, grout and paint will yield your biggest returns.  And for the love of all that is good do not leave a toilet brush or plunger in the corner!  No one wants somebody else’s “stuff” in their bathroom.
  2. The Kitchen – After the bathroom, this room will give you’re the biggest bang for your rehab buck. Get rid of the grease.  Wipe down the insides of the cabinets and drawers. Make sure the stove and fridge are clean.  Spilled spices, grease spots and old ketchup packets make a place look dirty.  Be sure to look everywhere and get everything.
  3. Knobs and Handles – Make sure all of your knobs and handles are tight and in working order. Why?  Because once your tenant moves out, there will not be anything else to see, touch or play with when you are showing the property.  Your potential tenants are therefore going to touch every door knob, drawer and cabinet.  Loose knobs and handles will subliminally impart a junky message so take some time to tighten things up.
  4. The Smell – Smells can create powerful and emotional responses in people. Bad smells will of course elicit a bad response.  Make sure your place smells great.  A few plug in air fresheners, but not too many, go a long way.  Light lavender is perhaps the best.  Also be sure to run all faucets every so often as stagnant water in drains leads to foul orders.
  5. Anything Else Obvious – Hopefully your tenants left your property in great condition. But magic erasers and other tricks can only do so much. It may also just be time for a fresh look.  Use cool neutral colors everywhere.  Grays are in right now, but I like softer, yellow-whites as they seem to appeal to more people and stand the test of time.

If you want to get the best tenants and get them paying top dollar you are going to have to create a lasting first impression in their mind.  As I said, they are going to remember the dirtiest and the cleanest.  You only get one chance to make a good first impression, make sure it is the right one.

Deducting The Costs For Repairs From Security Deposits

by

Security deposits are the most common technique used by landlords to try and ensure their tenants do not damage their properties.  They are also, after evictions, the biggest point of contention between landlord and tenants.  Deducting the costs for repairs from security deposits is often filled with aggravation for both sides.   Here is how you can best manage this process to get what you deserve without exacerbating the situation.

Be Honest About Damages

The first thing you have to do is be honest.  You can only charge the tenant’s security deposit for actual damages caused directly by the tenant’s actions.  Many landlords try to use security deposits to repair normal wear and tear.  You cannot do that.  For one it is likely illegal and second it is the point that will create the most contention.

I discussed normal wear and tear in a previous post.   Anything beyond normal wear and tear is damage, and unless that damage was your fault, the tenant is likely responsible for it.  What are some examples of tenant damage?

  • Cigarette burns on the floors.
  • Doors pulled from their jams.
  • Cracked toilet tanks.
  • Crayon markings on the walls.

These items and much more are not normal wear and tear, and you should charge your tenant to have them repaired.  How you charge your tenant however can make your life easier, or much more difficult.  Let’s look at some techniques to make your life easier.

Keep Good Records

The first things you need are good records.  You need records of the condition of the property when the tenant moved in.  These should be in both written and video format and they both should include the tenant’s acknowledgement.

Develop a written checklist on the condition of the property.  Send it to your tenant for their approval soon after they move in.  Ask them to review the conditions on the checklist, note any unlisted damages, sign the form and return it to you.  Explain to them that this checklist will be used when they move out to assess any further damages and charges to their security deposit.  Most will pick up on this checklist’s importance, fill it out and get it back to you.

You should also shoot a video of the property when the tenant moves in, because pictures can speak a thousand words.  Do this while you are moving the tenant in and include them in the video if you can.  It will be very difficult for them to make claims about the property’s condition later on that are different from those depicted in the video, especially if they are in it.

These two forms of record keeping are vital to you.  They can prevent a highly contentious “he said, she said” situation later on.

Upon Move Out

Once your tenant has vacated your property and released possession back to you, go in the property to inspect and assess for damages as soon as possible.  Use your checklist and video records to assist in this inspection.  Create a detailed list of any and all damages including reasonable charges to fix them.

Depending on where you live, your tenant may have a right to be present at this inspection.  Here in Tennessee tenants have that right.  But they have to request to be present at the inspection and they have to make this request within four days of vacating the property.  Your state laws may be different.  Understand your local laws to be sure you do things correctly.

Once you have your list compiled, send a formal copy along with a letter explaining its contents to your former tenant.   This letter could also contain a check for the amount of the security deposit to be returned.   If you are honest and have kept the records mentioned in this post, your former tenant will likely say little if anything about the charges you levy.

Ever get into a fight about a security deposit?  Share your experience with a comment.

Ensuring You Have Legal Possession

by

Possession is one of those legal concepts that landlords should understand.  Because legal possession, once granted, is not something that can easily be regained.  To regain possession a landlord must either get a court order through eviction or have their tenant voluntarily return it.  Obviously, having your tenant voluntarily return possession to you is the best way to go, but ensuring you have legal possession requires you to take a little action.

What Is Possession?

First, let me explain what legal possession is.  Landlords grant their tenants possession of their property through their lease, which can be written or unwritten (Yes, a handshake in the eyes of the law is a lease and a granting of possession.).  Possession gives your tenant the exclusive right to occupy your property.  This is often done in exchange for some form of compensation, usually money.  That is why we often substitute the more common term “rent” for the legal term possession.  We say that “I rented to John” rather than “I gave possession to John” for example.  Possession is different from ownership.  You can own and possess a property at the same time.  As the owner you can also grant some of your rights, such as possession, to someone else

Once possession is granted to a tenant, they have legal rights.  Some of those rights will depend on the clauses in your lease.  Others will depend on state and local laws.  It is because of these rights that you cannot disturb your tenant, enter unannounced or just change the locks.  It is because of these rights that you may have to evict if they do not want to leave.

Possession always resides with someone, either you or your tenant.  There is never a time that your property is legally not in someone’s possession.  Usually, tenants intend to return possession to you when they move out.  However, the thing landlords need to understand is that intending to do something and actually doing it are two very different things.   You cannot assume a tenant’s intent or actions actually will return possession to you.  Instead you need to ensure that possession is actually and formally returned to you.

How To Get Possession Back

To ensure you regain possession use a form called the Release of Rights of Possession.  This is a simple and short, one page form that will ensure you get legal possession back.  It contains the address of the property, the date the tenant is releasing possession back to you, a statement that they are abandoning anything left in the property and a place for their signature.  We have every tenant that we do not evict or abandon us sign this form.  No matter what the circumstances are.

Is the tenant simply moving out on the best of terms?  We get a signed form.

Is the tenant moving because we asked them to?  We get a signed form.

Is the tenant moving on a cash for keys deal?  We definitely get a signed form.

Using this form will give you a measure of legal protection.  If you have a completed and singed form, your tenant cannot at a later date say you locked them out.  They cannot later claim that you stole their stuff.  In fact, any claim they may think they have later on will be limited.

I have a copy of our Release Form here in Smarter Resources   Download it and use it.  Protect yourself, every time.