SMARTERLANDLORDING

ADVICE FROM EXPERIENCE

The Business of Landlording

After The Fire A Landlord’s Guide – The Insurance Settlement

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I had a major fire at one of my properties a while back and I have been posting about my experiences dealing with that here on my blog.

Last time I wrote about dealing with the insurance adjuster that was sent out to my property to determine the amount of loss. While the fire and water damage might have seemed like a total loss to me, the eyes of an insurance adjuster can see things completely differently. If this were not the case then there would not be an entire industry out there dedicated to fighting insurance companies and securing larger claims.

Anyway, I was hopeful that the adjuster my insurance company sent out would see things my way; that my property was a total loss and that I was due the full amount of my insurance policy. I was hopeful that I would not need the services of an attorney or anyone else to fight my insurance company. I had already done some pre-estimation of what it would take to rebuild the property and after paying off the bank, I would need every cent I could get.

Thankfully, my hope paid off. The insurance adjuster agreed with me that the property was a total loss and they would be paying the full amount of the policy.

Whew!

One major hurdle crossed.

But there were still many more hurdles to go.

The next hurdle was actually getting the insurance money.

You would think this would be as simple as writing me a check, and if I had owned the property free and clear of any mortgages it would have been. But, like most of you I am not independently wealthy so I usually have to get a loan to purchase properties. So because there was a loan on this property, the insurance check is made out to both me and the bank that holds the loan. I received this check in the mail about a week or so later and all in all I can say I am very happy with the way the insurance company handled my claim. They did drop my coverage on the rest of my properties after that, but claimed the fire had nothing to do with it as they were just getting out of the market. Perhaps, perhaps not, but that is a story for another post.

Thankfully I had the check. Another hurdle was crossed. But I could not cash it since it was made out to me and the bank. To get the cash, I had to endorse the check and send it (Fedex so it can be tracked!) to the bank holding the loan. The bank would then take their cut of the insurance proceeds to pay off the mortgage and then send me the balance.

How long might that take? Months. In the meantime, there is little I can do with the property but keep it secure and start to get repair estimates. I’ll write more about that next time.

 

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Do You Now Have To Rent To Felons?

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HUD recently announced some new guidelines that have been causing quite a stir in the landlording world.   You might think the stir was all caused by the catchy title, “Guidance on Application of Fair Housing Standards to the Use of Criminal Records by Providers of Housing and Real Estate Related Transactions.”  Instead the stir was caused by the misconception that HUD was telling landlords they could no longer discriminate against those with felony convictions. That those with murder, rape or child pornography convictions could no longer be denied housing on that basis alone.

That would certainly cause quite a stir, but it is not the case.

However, these new guidelines from HUD do mean that landlords will have to rethink and retool their rental standards.

Vena Jones-Cox over at regoddess.com did a nice job of explaining the new guidelines and what they mean to us landlords. With permission, I reprint her analysis below.

“So Now I Have to Rent to FELONS?” What the new HUD rule actually says about applicants with criminal records

On April 4th, HUD released a statement entitled “Guidance on Application of Fair Housing Standards to the Use of Criminal Records by Providers of Housing and Real Estate Related Transactions” that immediately set the landlording world abuzz with the news that we could no longer “discriminate” against felons.

Like most incursions by the government into our private property rights, this one spawned a great deal of wrath, and a lot of angry speculation and half-truths regarding what the statement actually “means”.

First, to be clear, this is NOT a new “law”.

It’s what is euphemistically called “guidance” by HUD, which, in this case, is acting as the arbiter and policing force behind fair housing law. So while no actual change to federal law has occurred, we can assume that, going forward, this “guidance” has the force of law, at least insofar as fair housing testing and enforcement is concerned.

In other words, while congress has made no law, and the courts have made no decision in regards to this new policy, it IS one that HUD will use to prosecute housing providers that “break” it.

Second, in order to understand why HUD thinks that whether or not you rent to felons is a discrimination issue AT ALL, it’s important to understand the “Doctrine of Disparate Impact”.

Back in 1968, when the Civil Rights Act defined housing discrimination as the “refusal to sell or rent a dwelling to any person because of his race, color, religion, or national origin” (other categories of “protected classes” were added later in both the Federal and State and Local laws), discrimination was understood to be an intentional, if not overt, act.

It was widely recognized that housing providers, sellers, agents, and lenders who intended to keep members of certain classes out of housing didn’t always just say “No Chinese Allowed”—instead, they engaged in subtle behaviors like “steering” (“I think you’d be happier in this neighborhood over here than in the one you said you wanted”), claiming units were rented when members of one class called but available when others did, and other discriminatory conduct.

What these had in common with more run-of-the-mill “We don’t rent to your kind”  acts was that they were all intentional efforts to keep certain people out of certain neighborhoods or properties based on their membership in a protected class. As such, they clearly fit into the definition of “discrimination”, and thus were violations of the law.

However, as time passed (and both overt and covert real discrimination lessened in the U.S.), fair housing “thinking” began to evolve to include the idea that even completely unintentional acts, if the effects of those acts served to limit the housing choices of protected classes, could be discriminatory, illegal, and punishable by law.

One of the early situations to which the disparate impact doctrine was applied was in occupancy limits. Landlords who created policies that limited the number of people allowed in a unit—for instance, “I won’t rent my 2 bedroom apartment to more than 3 people”, were accused of discriminating against families with children because, obviously, such families would be more impacted by such a policy than families without children

The fact that the reason behind these policies has to do with the economics of owning rentals (more occupants use more utilities and do more damage) does not stop them, under the Doctrine of Disparate Impact, from being illegal.

While the idea that you can be prosecuted for unknowingly and unintentionally discriminating might seem dangerous and unfair, the Supreme Court did uphold it in a 2015 decision, saying that the Civil Rights Act does govern any and all policies that create “artificial, arbitrary, and unnecessary barriers” to housing based on “statistical disparities”.

So what has disparate impact and statistical disparities got to do with felons?

Please read the rest here.

More Deadlines

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April 15th is right around the corner. Hopefully most of you realize the deadline associated with that date and have been working on getting your income taxes prepared and filed. If not, please file for an automatic extension. It is quick and easy to do and will save you a lot of money later on down the road.

But enough has been written on filing income taxes. In fact, there is so much media frenzy around the April 15th deadline that you would have to be living in a cave to miss it.

There are however other deadlines that are just as important but do not get anywhere near as much attention. Some get no attention at all. You just have to remember that they are there. Because of this they can be very easy to overlook or forget. And if you miss them, they can potentially be just as financially detrimental as not filing your income tax returns.

So what are these deadlines? I’ll get to that. But first we need to back up a bit.

Many real estate investors when they first started out bought into the idea that they needed some kind of corporate structure to successfully run their business. You really do not, but many people thought so, myself included.   So we set up either and LLC or an S corporation. People like these business structures for all kinds of reasons including professional appearance, asset protection and anonymity. The thing that people often forget is that you can just set up these entities and forget about them. They have to be maintained every year. And that is where these deadlines come into play.

The first deadline will usually be set by the state you are registered in. Mine are in Tennessee, yours could be in Wyoming, Nevada, Delaware, Florida, or even off shore. Your state will want some form of annual filing and fee to keep your entity active. They will likely send you some kind of notice for this but you have to remember to fill in the blanks, write the check and send it in. If you fail to do so, your entity will be decertified by the local Secretary of State and will cease to exist. If that happens, that corporate shield you thought you had in place to protect you will be gone. All because you forgot a deadline.

The other deadline that those of us with entities need to remember and keep up with is the requirement for annual meetings. You are generally required to have some type of annual shareholders meeting and perhaps elect corporate officers or conduct some other type of business. Minutes of these meetings should be recorded and kept in a safe and secure place with your other corporate documents.

When you have these meetings does not really matter. You can have them on Christmas Day if you want to, but you do have to have them. What happens if you do not? Your entity could be declared null and void.

How?

Say someone slips and falls at one of your properties and sues you personally. You state the corporate shield argument and say the property is owned by an LLC and you can’t be held personally responsible. The layer for the plaintiff then subpoenas your corporate record book, you know, the one with all of your minutes. If those minutes are not there and in proper order, the judge may pierce your shield and put everything on your personally.

So, if you have a LLC or S corporation, put a reminder in your smart phone to have an annual corporate meeting and to complete required paperwork. You went through all that trouble to set it up, remember to maintain it. Don’t wait until it is too late.

After the Fire A Landlord’s Guide – The Insurance Adjuster

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I had a major fire in one of my properties not too long ago. After getting the fire put out and taking care of the tenants I filed an insurance claim. I had to. My property was severely damaged and uninhabitable. Upon filing a claim, the first thing any insurance company does is send in an adjuster. The adjuster for my insurance company came out very quickly. He was there, inspecting my property just two days after the fire occurred.

As I wrote last time, he spent about two hours going through my property, looking over the damage, taking pictures and making notes. His job was basically the same of any real estate investor, and that was to estimate the cost of the repairs. How much was it going to take to put the property back to the condition it was in before the fire? I already had a rough estimate in my head, and now I had to wait to see if my estimate was close to his. I hoped it was. For if it was not, I was going to have a hard time getting my property back up and running.

Remember that insurance companies are in the business to make money. They do this by charging premiums and denying claims. So I must say that having the adjuster out looking over everything and then waiting for his report was a bit worrisome. What if he missed something? What if his estimates were low? What if he was just plain dishonest? Any of this and more could reduce the amount paid for my claim and thus make any future plans I had for the property much more difficult. I was, for now, in his hands.

In my estimation, and in terms of my insurance policy, the property was a total loss. That term “total loss” does not however mean perhaps what you think it does. The building was not totally destroyed. Not everything was totally lost and in fact large parts of the structure were able to be reused. In insurance terms, “total loss” means something a little bit different. “Total loss” in insurance terms relates to the dollar amount you have a property insured for. If the cost to repair the damage to a property is at or above the insurance amount, then the property is a total loss and the insurance company will pay out the full amount the property was insured for. Anything less is obviously not a total loss.

Would the adjuster agree with me that the property was a total loss? I was cautiously hopeful as I waited for him to make his report. That process would take about a week.

In the meantime, I found out that there happens to be an entire industry out there that contests adjusters and insurance companies in the hopes of settling your claim for a higher amount. In a purely coincidental occurrence, I happened to have lunch with just such a person. Imagine that. I just filed a major claim and then I happen to have lunch with someone who fights insurance companies over major claims. He was optimistic about my claim and actually took a look at my property. He gave me his card and told me to call him if I needed his services.

Would I need them? Stay tuned.

 

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What Did This Landlord Do Wrong?

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So what did this landlord do wrong?

 

 

Let’s start a list.

  1. Did not use a pet agreement
  2. Did not just say, “I’m not renewing your lease.”
  3. Told everyone who is behind the trust
  4. Spoke to the press
  5. Got a bit greedy perhaps?
  6. Created a victim
  7. Got entwined in a lawsuit

What else?

How could they have handled things a little better?  I’ll share some thoughts later on.  Meanwhile let me know what you think with your comments.

After the Fire A Landlord’s Guide – Making the Insurance Claim

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I have been writing recently about a major fire that occurred at one of my properties recently. I wrote about the initial incident, surveying the damage on the day after and dealing with the tenants. In this post I want to talk about beginning the process to rebuild the property. Specifically, beginning the insurance claims process and dealing with the insurance company.

First let me say that I normally do not make insurance claims. My belief is that insurance is there only for a catastrophe, not for minor problems such as a defective heating system of roof leak. This fire was of course a major catastrophe, so placing a claim with my insurance company was in order.

Before starting the claim process there are several things that smarter landlords should do and think about before getting things rolling.

  1. Be completely honest about what you know when talking with your insurance company. Don’t try to inflate the damage or increase the claim.
  2. Call your insurance agent first and ask their advice instead of calling the general 1-800 number. Your agent can provide you with valuable advice and contacts within the company that may make the claims process much easier. They may also be able to get the claims process going faster by calling it in themselves.
  3. Remember that insurance companies are for profit companies. They make money by collecting premiums and denying claims. Understand that they are going to conduct an investigation into what happened and what you are claiming. So think carefully about what you are saying at all times when speaking with your insurance company.
  4. Call a trusted attorney and discuss your claim with them as well. Ask for advice on dealing with the insurance company and starting your claim. An attorney can be very helpful through this process, especially if things start to head south.
  5. Start a journal of your fire event. In this journal keep a record of all contacts, discussions, etc. Trust me, this will come in handy later.

I called my insurance agent the very next day after the fire. Through my agent, I got a number for the claims department and made the call. They were very responsive and professional. They gave me a claims number and said an adjuster would contact me shortly.

The adjuster called me the next day and set up an appointment to view my property’s damage the day after that. The process was moving very quickly which both surprised me and made me happy. I was surprised the insurance company would move that fast and of course happy that they were.

So what is the purpose of the adjuster? Their job is to estimate the amount of the damage and determine what it would cost to repair, replace and fix the damage. They will take measurements, take pictures and in general examine every detail of the damage and make a report back to the insurance company.

You should always meet the adjuster at the property and go through it with them. Pay attention to what they do and say. Take notes. Be sure to point out how expensive replacement materials will be. Make sure they note that floors are hardwood instead of carpet, tile instead of vinyl, that the counters were granite rather than Formica and so and so on. Remember, you want to get what you are due to rebuild and restore your property. Remember also that the insurance company will be trying to save money. So you need to stay on top of them and make sure that they record accurate information.

Overall the adjuster spent about two hours going through and examining my property. He stated that he would need a couple of days to finalize his report and he would be in touch then. Until he finished his job, there was really nothing I could do other than keep the property secure and begin to think about rebuilding. It was time to start getting estimates.

Next time, I’ll write about what the adjuster reported and how the insurance company settled my claim. Was I in “good hands” as they say? Stay tuned.

 

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Do You Search Your Applicant’s Social Media?

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Do you check your applicants on social media sites to see what they have been up too?

Perhaps you should.

Remember that one of the most important things you do as a landlord is find tenants who will pay, stay and take care of your property. And sometimes you need just a bit more than a criminal and work history background check to do that. Especially if a potential red flag begins to wave. Searching an applicant’s social media can help determine if those red flags are genuine concerns.

Here is an example. Suppose you have an otherwise decent applicant who claims to have been unfairly treated by a previous landlord that has dinged her rental history. You applicant claims the landlord never made necessary repairs so she moved out. The landlord claims the applicant failed to pay the rent on the last month of her lease and just left in the middle of the night. Who to believe? Both sides to the story have been known to happen.

You decide to Google your applicant’s name. Her Facebook account pops up and you take a look. On her Facebook page are pictures of a beach vacation with comments stating that she was in effect having fun on her landlord’s account. You now know which side is telling the truth.

Here is another example. Perhaps an applicant claims to have only “one small” dog. A quick search however turns up pictures of your applicant with several rather angry looking German shepherds.

The point is you can find out all sorts of things by looking at your applicant’s social media. Just by Googling their name or e-mail address you can get past the “best face façade” and develop an idea of what they are really like. People post all kinds of things. We have seen drug use, criminal activity and just plain sloppiness and stupidity.

On the other hand, not everything posted on social media is bad. Searching social media can reinforce the good things that an applicant states and help you determine that you are likely to have a good tenant. A search can show they have a steady job and steady family life and are just normal folks posting normal things.

If you find searching an applicant’s social media a bit creepy, I honestly have to agree with you a bit. But social media today is a fact of life and everyone has to have the expectation that whatever they post on the interest will not remain private. So, word to the wise, be careful what you post.

Is it legal? Yes, as long as you are not discriminatory and consistent in the way you use it. Just Google everyone and document what you find. There really is no right to privacy when you post something on a public website like Facebook. It is up to the applicant to use the privacy tools found on social media websites to keep things they do not wish to be seen private. Or to simply not post those pics of them doing bong hits at all.

Making a few extra clicks when screening your applicants is definitely worth the effort. Searching social media can really back up or completely destroy what an applicant has told you on your application. You never know what you might find and you just might save yourself from some real headaches.

Do you search social media with your applicants? Let me know with your comments.

Is The Real Estate Bubble (Coming) Back?

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Home prices are up and rents are too. Rents increased about 5% in the 4th quarter of 2015 and about 7% for the year. It is going to be interesting to see where this all ends.

After the Fire: Leases and Tenants

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I have been writing about a major fire I recently had at one of my properties. I wrote about the initial shock and finding out the day after that my property was a complete loss and in need of a complete rehab. Most thoughts that next day were focused on getting the property rebuilt and up and running again. But there were tenants that had to be dealt with, and the fire had raised some interesting legal issues.

We had of course signed leases with our tenants. These leases ran for one year. One of the units in the burned tri-plex had just moved out at the end of her lease. There other two were however somewhere in the middle of their leases. They technically still had possession of their units. What where their rights? What where mine? Surly they would move, but what if they did not? Would I have to go through the eviction process to get them out?

Fortunately, the Tennessee Landlord Tenant Act contains a provision for just such an event. Tennessee Code Annotated Section 66-28-517 states in part:

66-28-517.  Termination by landlord for violence or threats to health, safety, or welfare of persons or property.

  (a) A landlord may terminate a rental agreement within three (3) days from the date written notice is received by the tenant if the tenant or any other person on the premises with the tenant’s consent:

(1) Willfully or intentionally commits a violent act;

(2) Behaves in a manner which constitutes or threatens to be a real and present danger to the health, safety or welfare of the life or property of other tenants or persons on the premises; or

(3) Creates a hazardous or unsanitary condition on the property that affects the health, safety or welfare or the life or property of other tenants or persons on the premises.

Since one of my tenants, by throwing a lit cigarette in the trash, had created a “hazardous or unsanitary condition” on the property, I could terminate the leases by posting a written notice, which I did immediately.

That does not mean I went in and started throwing things out. Some tact was required here, after all, some of the tenants were a bit shell shocked and needed to go through and see what they could save. But I was also firm. The place was literally a wreck, dangerous and getting more dangerous every day. They had to move quickly to get what they wanted. Anything they did not want they were free to leave.

Hopefully you will never have to go through such a situation, but if you do be sure you understand your rights and your tenant’s rights. I would bet most state laws have similar provisions to cover similar situations. Check them out and get to know them.

 

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10 Things Successful People Never Do by James Altucher

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Here is another great article by James Altucher. 

Do you under promise and over deliver?  Well perhaps you should not.

Pleas read on below.

 

 

 

 

I have done all of these ten things and seen the results. I was very unhappy.

Before I can give you the rules I must establish my credentials.

I have started about 20 businesses and failed at 17 of them. I have failed as a husband, as have many.

I hope I don’t fail as a parent but certainly some people would look at my track record and say, “yes, yes indeed, he failed as a parent.”

I’m not the best boyfriend. One time I broke up with a girlfriend while I was on the elevator up to meet her her in her apartment. I just hit the down button and never spoke to her again.

But I also have had a few successes.

HERE IS WHAT FAILURES DO:

1) THEY BELIEVE IN THE WORD ‘FAILURE’

We don’t live long enough to fail. Like if a planet is around for 4 billion years and produces no life-forms, I would call that planet a failure.

Everything else is an experiment.

Thomas Edison never said, “I failed 10,000 times before I made a lightbulb.”

The guy was in a LABORATORY. He experimented. And now everyone gets into “failure porn” and says “I’m a failure”. That’s BS!

John Coltrane didn’t fail when he couldn’t stay in Miles Davis’ quartet.

He was experimenting with Miles Davis style but ultimately, with 20 years of practice and study under his belt, he knew that only his unique style could survive and flourish in his own quartet.

He experimented, learned from the experiment and moved on.

HERE is the key on experimenting:

THE MORE MISTAKES YOU MAKE THE BETTER YOU GET.

Why is this? It’s brain science: when you make a mistake, you repeat and repeat until you get it right.

This repetition is “practice”. Practice makes perfect.

People who just get it right the first time (e.g. when I sold my first business) never learn all the subtleties you learn with practice.

So they get fooled into thinking that “luck” equals “good” when actually “mistakes + repetition = good”.

2) FAILURES “UNDER PROMISE AND OVER DELIVER.”

Everybody is told a lie: to be a success you have to under promise and over deliver.

This is the worst form of lack of integrity. The idea is that you are “safe”. Let’s say you under promise and you under deliver.

You think, incorrectly, “hey, at least I have my integrity intact”.

No, you have nothing intact. You are just like everyone else. There are 3,000,000,000 employees on the planet and they are all under promising and most of them are under delivering.

You are just like them.

You have to: OVER PROMISE AND OVER DELIVER

Over-promise sets you apart from the people who under-promise. 
Over-deliver sets you apart from people who just delivered.

It’s not that hard to do both. (It’s easy to slightly over promise and slightly over deliver because nobody else is doing it).

Try it and you will see the results. it’s amazing.

3) PEOPLE WHO FAIL SEEM TO HAVE A LOT OF ACCIDENTS

They left their important project on the subway. They are sick.

Their dog got sick. They broke up with their girlfriend or boyfriend. There’s a way to minimize accidents and it’s called health.

You can’t succeed if you are sick in bed. You can’t succeed if you spent all night the night before reading your wife’s emails because you can’t trust her.

You can’t succeed if you aren’t grateful for being given at least the chance to be something better than what you are now.

When someone consistently has a lot of excuses for why something has gotten done, I know they are not ready for the next step.

When I was young, I was the man with the excuses. I had them every day. I was a master of them. But I fooled nobody. And so I was given less opportunities for success.

And you know what: I was right! If I’m reading my wife’s email and she’s cheating on me, I deserve to fail.

So here’s what you do: You can’t be perfect.

But every day:

  • Move, Eat, Sleep…Well
  • Improve your relationships (Call a friend, surprise a spouse, be kind to your kids)
  • Be creative (only you know how to do this but at least write 10 random ideas a day)
  • Be grateful for where you are. (and this is the “Now” that people brag about)

4) FAILURES DON’T TAKE IT THE NEXT LEVEL

Bobby Fischer always took it to the next level. Nobody ever thought he was the greatest talent in chess history. He probably had average talent.

But he always said, “how can I take chess to the next level”.

When he was a kid he learned Russian so he could read the Russian chess magazines.

After that, he never lost a US Championship. He was 13 years old.

He was so much better than the Americans he even stopped playing in the US championship.

And he took it to the next level right up until the world championship.

For the first time in his life he played a different first move.

His opponent, the older world champion had ONLY prepared for the one move Fischer ever did. So Fischer came up an entire new opening with a new first move.

Gandhi took it to the next level. Every revolution before him was done with violence.

He experimented. He had a vision. He felt that 300 milllion Indians didn’t need to do violence.

He was right, despite everyone disagreeing with him.

Take the advice of everyone around you, and then take it to the next level. Practice taking it to the next level (because at first you won’t be good).

Come up with your ideas but then think, “What has never been done before” (it’s not true that everything has been done before. Only shadows of things have been done before).

But do it over and over again and you will be THAT PERSON that knows how to take things above and beyond.

5) FAILURES TAKE ALL THE CREDIT

Failures are insecure. When they do their little stupid thing at work they want the credit.

Give others credit all the time. Then you are the source of credit. Just like a bank.

When people want more credit, who do they go to? They go to you! Just like they would go to the bank when they need more money.

Credit is like currency. If you’re the bank, then in the long run you will end up with all the real credit.

 

Read the other five here.