SMARTERLANDLORDING

ADVICE FROM EXPERIENCE

The Business of Landlording

Help The People Who Helped You

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The holidays are here.  It is the time of year when things slow down a bit and we reflect on where we have been and where we are going.  We take note of what we are thankful for and share in the joy of giving.  It is a good time to realize that we have not been alone on our real estate investing journey.  To realize that many have helped us and to contemplate how we can help them.  In that spirit, I have jotted down some ways that you can help the people who helped you.

Give A Little

If you can afford it, a little bit extra to your employees or contractors goes a long way.  Cash is great.  But gift cards to Lowe’s or Amazon are safe and secure and are a nice way to say thanks to those who have helped you.

Break Bread

Take folks out to lunch or have a nice catered meal.  Everyone has to eat.  Nothing spreads good cheer faster than good food.

Be On Time

Do your best to get everyone paid in full and on time.  Sure, everyone thinks you are a great person, but they need to eat as well.  They need what they are owed as soon as they are owed it.  Be on time with your paperwork as well.  For example, some may be looking forward to a large tax refund.  Help them receive it by providing them with the required Form 1099 as soon as you can.

Teach

I have found that many who help me are ignorant when it comes to money and money matters.  As investors, many of us have learned a great deal about the workings of money and we should share that knowledge to help others.  It is surprising to me the amount of money ignorance out there, especially when I talk to those who are new to business or new to the country.

Teach these folks how banking works.  Show them that they can cash a check from you at your bank without paying the exorbitant fees of a check cashing store.  Teach them how to save on their income taxes with legitimate business deductions such as milage and work expenses.  Many simply have no idea these things can be dome.  But once they learn it from you, they will teach others and that will ultimately benefit us all.

Be thankful for what real estate investing has provided you and enjoy the benefits. But also take some time to spread the joy this season.  Enjoy the holidays.

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

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Almost Time For Form 1099

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2019 is almost over.  The new year will hopefully bring good things but one thing it will surly bring is taxes.  As a real estate investor, you have folks, such as plumbers, lawn crews, carpenters, etc., that do work for you.   If you payed any of these folks more than $600 you have to send both them and the IRS form 1099.

I have discussed IRS form 1099 before here.  The thing to understand about IRS form 1099 however is that you have to use a specially designed form.  This form cannot be downloaded and printed from your own printer.  You have to buy them.  This means you need to purchase those forms now.  And since every other real estate investor will also need these forms, you need to buy them now before supplies run out.  These 1099 forms are specifically for 2019 and trust me, they will go out of stock.  So order now.

You only have until January 31, 2020 to send 1099 forms out to your contractors.  That is just over two months away so the time to think about next year’s taxes is now.

Plus, your contractors may be waiting or depending on their tax refund.  They cannot file to get their refund until they get the 1099 form from you.  So be a friend to you contractors and get them their forms early.

You can order your 1099 forms by clicking this link.  Do it today!

By clicking on the above link, Smarterlandlording.com will receive a small commission.  This commission in no way affects the price you pay, but it does help keep this site up and running.

Please help support Smarterlandlording.com by ordering your 1099 Forms by using this link.  Thanks!

Being The Bank

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Have you ever used or considered using private lenders for your real estate business?  That is, borrowing funds from private individuals to purchase your real estate investments.  If not, why not?  You should.  Such a strategy can be very powerful for the real estate investor.

Now take those thoughts one step further.  Have you ever considered being the bank?  Have you ever thought about being the person that lends the funds for others to invest in real estate?  If not, why not?  It too can be a very powerful investing strategy and it is something that you, as an investor should learn about.

I recently read Be The Bank by Ben Lyons and I found this book to be a great introduction to the world of private lending.  Mr. Lyons has over 30 years of private lending experience and his book takes you through all the basics and more.

He begins his book with a very good question.

Almost every bank in the United States makes a large portion of their money from lending money secured by real estate. So why doesn’t the individual invest in mortgages as part of his or her investment strategy?

He answers that it is because most simply do not understand how private lending works.  This is why he wrote the book.

Beginning with the history of the mortgage, Mr. Lyons, using his own real world experience, explains:

  • The various types of mortgages available today.
  • Which types of mortgages private investors like you and I should consider investing in.
  • Who would be interested in borrowing private money and why.
  • How a private lender should qualify or underwrite potential borrowers.
  • The returns a private lender can expect.
  • Loan structures, property types and risk.

All in all, I consider Mr. Lyons book to be a very good read for the real estate investor.  Not only will it perhaps get you thinking about different ways of investing, but it will also teach you how private lender view risk and what they are looking for in a borrower.  Either way, this book is a win for the smarter landlord.  Order your copy here.

By ordering this book through Smarterlandlording.com, I will receive a small commission to help with the upkeep of this site.  This commission in no way changes the price of the book for you.  I have no relationship with Mr. Lyons, I simply find his advice and knowledge to be potentially valuable to my readers. Please help support Smarterlandlording.com by ordering a copy of Mr. Lyons book through this link.  Thank you!

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

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Clauses Every Lease Should Have

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Your lease is the contract between you and your tenant.  For any contract to work and be legal, certain clauses are necessary.  If these clauses are left out or are poorly written, the the landlord runs the risk of serious problems in the future.  This post describes several clauses every lease should contain.

Before I get to clauses, let me start off by saying that there is no universal, standard lease.  Situations between landlords and tenants differ. Properties differ.  State and local laws differ.  Thus the lease found at Office Max or even my lease will not work for you.  A lease needs to be tailored to your unique conditions.  Plus, it should be reviewed by a competent real estate attorney from your area.

That said, here are some clauses every lease should have.

Duration

While tenant turnover may be a cash flow killer, I would strongly advise against open ended leases.  Instead, every lease should contain a duration or a length of time the lease runs.  You want a definite end date, so that either you or the tenant can get out of the contract (with a no-fault eviction if necessary).  Traditionally, with residential leases, the duration is a year, but that amount can be adjusted to fit your particular situation.  Six month or two year leases are not unheard of.

Term

Most residential landlords set the term lengths of their leases at one month.  In other words, while the duration for the lease may last for a year, the term is monthly.  This term is why rent is due to most of us every month.  Some leases have weekly terms.  Hotels have daily terms. Terms can therefore vary, but are important clauses as they set out when we get paid.

Cost

Don’t forget the most important part, which is how much the rent is.  Rental amounts need to be clearly spelled out.  I think most of us know that, but it deserves a mention as it is so important.

Extension

What happens when your lease duration is up?  Does the tenant have to move?  Do they need to sign an entire new lease?  Does the existing lease continue on in some fashion?

I have seen landlords do all of the above.  But the most common way to extend a lease at the end of its duration is to go by the term.  Most of us landlords use monthly terms so the lease becomes monthly, or month to month, in duration.  Of course this can also be weekly or even daily.  Whatever it is, it has to be spelled out in the clauses of the lease what happens when the duration is up.

Late Fees

How much will be charged if the tenant is late with their rental payment?  How much can you charge?  When is a rental payment considered late? All of these items should be spelled out in your lease so there is no confusion.  Plus, you need to provide incentives to get the rent in on time.  State laws often dictate when and how much landlords can charge with late fess.  So know and understand what those laws say.

Notice of Termination

Both side to any contract, like a lease, need advance knowledge that one party to the contract is terminating the relationship.  In the landlord world, this notice of termination means the notice given by a tenant that they are planning to move.  How long should this notice be?  Most landlords require at least the term of the lease, which is most commonly a month.  But why not require a little more?  Would not 60 or 90 days of advance notice give you more time to market and re-rent the property and reduce the interruption of your cash flow?  We have found in our business that it does.

Allow Showings

Once a notice of termination has been provided by your tenant, you need to get the property re-rented.  How do you do that if you cannot show the property?  In our leases we insert a clause that allows us to market and show the property once a notice of termination has been submitted.  Sometimes tenants complain about the intrusion, but we just point out the clause in the lease they singed and that usually ends the discussion.

Overstay

What happens if a tenant gives you notice of termination, whereupon you re-rent the property but the existing tenant does not move when they saw they will?  Where does your new tenant go?  Who pays for the expenses incurred?  Could get pretty sticky if you do not have the proper clauses for tenants that overstay their lease.  In our business, we charge $100 per day of overstay.  That clause tends to keep things moving.

Local Needs

Some states require special stipulations in leases.  You may need to tell folks where their security deposits are held for example.  In Tennessee where I work and live, leases need to have special provision related to notices of non-payment of rent.  Not having such a clause can lead to lost time, income and much frustration for the landlord.

Leases are legally binding contracts.  What they say and how they say it is important.  Carefully consider the words and clauses in your lease. Do not use a “boiler plate” lease and have a competent real estate attorney in your area review it.  What you say, or not say, can make all the difference towards helping or hindering your life as a landlord.

What is in your lease?  Do you have any special clauses that are required in your area or help your landlord business?  Please share 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.  Subscribe to Smarterlandlording here.  Contact Kevin here.

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Tenant Referrals

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How to best provide tenant referralsIf you are in the landlording business long enough, you will eventually be asked to provide a referral for a previous tenant.  Referrals are a great tenant screening tool that should be in every landlord’s rental standards toolbox.  On the surface, providing tenant referrals may seem simple enough, but you should exercise some caution when doing so.  What is the best way to respond when asked for tenant referrals?

Referral Requests Come In All Sizes

We receive many different types of tenant referral requests.  Some are just a quick phone call.  Some want to have a long conversation. Others will fax or e-mail a long form they want us to fill out.  Every landlord seems to have a different way of asking for tenant referrals.

But no matter how different landlords ask, we believe in keeping things simple and to the point.  Why?  Landlords have to remember that we do live in a somewhat litigious society.  The tenant referral we give could potentially make or break someone’s application for housing.  If someone feels they were wrongly denied housing, you could easily be brought into that conflict.

Keep Referrals Short And Consistent

With that in mind, it is best to keep your referrals short, succinct and consistent.  There is no need to have a long, drawn out conversation. Nor is there a need to go into too much detail.  There is however a need to keep things consistent and focused.

When a landlord calls you asking for a referral, We believe the best strategy is to use one of the following phrases. “Yes, I would rent to that tenant again,” or “No, I would not rent to that tenant again.”  After all, what more needs to be said.

If you get a fax or e-mail referral form (Yes some landlords still use a fax because it is more difficult to falsify.), examine the questions it is asking you.  Are they related to a tenant’s ability to pay, stay and respect the property?  Are they asking only about rental payments and damages caused?  If so, go ahead and answer them.  If not, be careful as you might be treading into ambiguous territory.

Focus Tenant Referrals On What Matters

The key is to remember to keep things focused on the tenant’s ability to pay, stay and respect property.  Going beyond that leads to trouble and becomes inconsistent.

How do you handle tenant referral requests?  Please share with a comment.

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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Security Deposits

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Security deposits are a necessity in the landlording business. They are used to incentivize tenants to give our property back in the same manner it was provided to them. Over the years we have learned some things to keep security deposits feasible and practical.  Here is some Advice From Experience on security deposits.

1.  Know Your Local Laws – Local laws may dictate how much you can charge for security deposits.  Many states have no maximum.  But others may only allow a month or two of rent.  Some local laws will determine how security deposits are held and others may even require that interest be paid.  A decent guide to state security deposit laws can be found here.

2.  The Market Will Determine Rates – If there is no law in your area setting security deposit maximums, then your competition is going to do it for you.  The trick is to know exactly who you are competing with.  Are you high end or lower end?  Do you offer a lot of amenities or not? Keeping tabs on what your competition is offering is the a key part of this business.

3.  You Can Charge What You Want, But… – If you charge too much, you will price yourself out of the market and lose potentially great tenants to your competition.  On the other hand, if you charge too little, you may not create enough incentive for a tenant to keep things neat, clean and in working order.  There is a balance that needs to be found.  What that balance is for you and your particular situation will take a bit of research and most likely some trial and error as well.

4.  Be Careful Charging Differing Amounts – Avoiding illegal discrimination also has to be one of your top priorities when you are a landlord, and charging differing amounts for security deposits can look awfully suspicious to some.  Yes, you can do it sometimes and sometimes you should.  But perhaps keep the differences limited to different properties.  Or perhaps use different amounts if the tenant has a pet.  There are of course other situations where you might want to cover yourself with additional security deposit amounts.  Just tread carefully.

5.  Do Not Charge The Same Amount As Your Rent – Doing so may equate the rent with the security deposit in the tenant’s mind. You as the landlord want those two items to be thought of as separate and distinct. The last thing you need is a tenant not paying that last month of rent before they move out thinking the security deposit will cover it.  You do not want to have to chase a former tenant down to recover things that should have been covered by the security deposit.

Security deposits are often overlooked as a very routine part of the business.  They should however be carefully considered. The incentives and cushions security deposits provide are an important part of being a successful landlord.

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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The SmarterLandlording Podcast – Advice From Experience To New Real Estate Investors

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Download the podcast here.  Or, check out the SmarterLandlording Channel on iTunes

Order Your Copy of Advice From Experience To New Real Estate Investors Today!

Available in E-Book or Paperback

Books You Should Read.

How I Turned $1,000 into $5,000,000 in Real Estate in My Spare Time by William Nickerson

Nothing Down for the  2000’s by Robert Allen

Multiple Streams of Income by Robert Allen

Links You Should Check Out

Memphis Investors Group

Want To Contact Us?

Richard has tons of advice from experience and he is more than willing to lend you a hand.

Connect with him by calling 901-753-3491.

You can find me at my blog, Smarterlandlording.com

And you can like my Facebook page too

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.

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Unintended Discrimination

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Landlording can at times be like walking in a minefield.  One small, unintended misstep and boom!  It blows up in your face.  No one intends to step on a landmine, and the majority of landlords I know do not intend to discriminate.  But small missteps can lead to unintended discrimination and potential legal trouble.  Here is how.

Most People Want To Be Helpful

Most people, by their basic human nature, want to be helpful towards others.  Many will hold a door, give directions when asked and offer helpful advice.  Being helpful is one way we all function together in society.  Being nice to each other helps us all get along.  Unfortunately, anti-discrimination laws can cause landlords to trip and step on that proverbial mine if they are not too careful with their “helpful” advice.  And being accused of discrimination is a serious landmine.

To help explain, let’s pretend that you have made it past that first phone call with a prospective tenant.   They did some checking and have called you back to further discuss what you have available.  What are some things you might say that could lead to inadvertent and unintentional discrimination charge?

This One Has More Bedrooms

Your prospective tenant might tell you that she has a child or two that will be living with her, or she may mention that her elderly father or mother may be moving in.  While looking at a one bedroom apartment, you begin to suggest two and three bedroom properties you have available. You suggest them because you honestly believe they might be a better fit.  Unfortunately, that advice may be misconstrued as attempting to drive someone away or towards a specific property because they have children or of their familial status.

This Apartment Might Be Quieter

You might think that by suggesting an apartment at the end of the hall, or on the top floor, or in the back may be helpful to your prospective tenant.  And it could be.  But, it could also be interpreted in a negative manner.  They might think that you are trying to keep them and their kids out of the way or out of sight.

The Units I Have In This Particular Neighborhood Might Be More Too Your Liking

You might be completely right.  Your tenant may favor a unit in a particular neighborhood.  Again however such a suggestion can easily be misinterpreted.   It may appear to your prospective tenant that you are trying to steer them away or towards a particular area.  “Why would they want to steer me towards that particular area?” they might ask themselves.  They might think that it is because they are black or lower income or have kids.

This Apartment May Be Closer To Your Price Range

Yes, one of the screening questions you should ask on that first call is about income, but offering advice or suggestions could be misconstrued as steering someone towards a location, especially if you have multiple units in multiple locations.  We all know that location, location, location affects the rental price.  Thus rents will vary depending on location.  Again do not appear that you are trying to steer.

Keep Your Advice To Yourself

As I said in the intro, most people just want to be helpful.  Most landlords are the same way.  They often have the best of intentions.   They may really believe that a particular unit in a particular building or a particular location is best for their prospective tenant.  But good intentions can have negative consequences.

Landlords should avoid making these types of suggestions to prospective tenants.  Instead, tell them about every property you have available.  Then, let them know about your rental standards and criteria and leave it at that.  Let them then decide on their own, which properties are best for them.  Then let them apply.  It seems sort of wrong not to be able to make informed suggestions to help someone, but that is just the world we live in today.  One person’s helpful suggestion, can and will be interpreted as unintended discrimination.

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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Advice From Experience To New Real Estate Investors

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Advice from experience is what you look for when you come to Smarterlandlording.com.  You want to figure out how to get started as a real estate investor.  You want to learn how to move forward and find ways around those road blocks that get thrown in your landlording path.

To help you do just that I am excited to say that I have published my first book, Advice From Experience To New Real Estate Investors.  This book is full of knowledge gained from my 15 years of experience as a landlord and real estate investor.

A small excerpt from the Chapter, Even a Newbie Can Compete with Experienced Investors, will help demonstrate.

There are several reasons why you can compete with more experienced real estate investors.

For one, there are just too many properties out there.  All of these properties mean that there is too much potential for developing real estate deals.  In Memphis, TN, alone (where I live and work) there are over 300,000 individual properties.  Now multiply that across the country. Multiply that across the world.  In all of that you will find one property that will work for you.

Second, all of these properties just lead to too many different deals.  There is no way any one investor, group of investors, hedge fund or whatever can get them all.  If they try, market forces will often push them back down, opening up a door for people like you.

Third, investors get tied up with their existing projects and therefore cannot have their eye on or get every potential property and every potential deal.  An investor may, to give an example, purchase a small multi-family building that needs a significant rehab.  That purchase and rehab will likely take that investor out of the picture for a while as they get the property fixed up, rented, and cash flowing.  They may not have the resources to acquire and rehab another property at the same time.  This situation will create an opportunity for someone else.

Fourth, investors get in or get out of the market all the time for a whole host of other reasons, again creating opportunity for you and other investors.  Investors will move, get divorced, retire, get sick, or even go bust.  No one gets out of this business alive and gets to keep things forever.  A morbid thought for sure but all of these things create a fluid market and opportunities for the newbie investor.

Finally, other investors will make mistakes.  They might have failed to learn the lesson about positive cash flow.  They may take on a project they had no business taking on, or they may misread the market.  I hate to hear about these stories and unfortunately have had some good friends go under.  The fact remains that the world keeps turning and new opportunities are made, because people make mistakes every day.

Want a bit more?

OK.

Here is some Advice from Experience on how to avoid becoming a target of fraud.

Fraud is everywhere and real estate investors can be tempting targets. There is a lot of money being passed around in real estate, thus the impulse to defraud can be great.  As real estate investors we must learn and realize that we cannot abdicate our responsibility to keep watch over our own businesses.  Unfortunately, that means we have to keep tabs on everyone.  Even your attorney could be doing something underhanded as demonstrated by the above story.  We simply must know what is happening and where our money is going.  Failing to do so just sets you up to get scammed.

I hate to sound so cynical, but it is what it is.

There are concrete things that you can do to make yourself and your business a more difficult target. You can reduce your fraud risk and help ensure that you keep your hard earned money.

How?

Understand What You Are Getting Into – An ignorant and uninformed person is the easiest to defraud.  Understanding the deal that you are getting into is a key factor to avoid fraud.  Remember that in any real estate deal, the numbers do not lie.  The numbers have to be able to be justified.  If things cannot be justified then remember the old adage, if it seems too good to be true, than it probably is.

Accurate Bookkeeping Is Essential – To know if you have been the victim of fraud you have to know what you had in the first place.  How can you know if you have been defrauded if you have no idea how much you are supposed to have or where it is supposed to be?  Real estate investors have to keep accurate records.  If you use an accountant or bookkeeper, reconcile the work that they are doing every few weeks or so.  Do not abdicate your responsibility to your bookkeeper or accountant.  You have to stay on top of them.

Advice From Experience To New Real Estate Investors is packed with great real estate investing advice.

What can new and experienced investors learn by reading my book?

  • Why real estate investing is such a good tool to build wealth.
  • What you need to understand and know as a new real estate investor.
  • Tips on finding, negotiating and closing on real estate deals.
  • Things you can do to get your investing business running smoothly.
  • What you can expect going forward as a full-time real estate investor.
  • Much, much more!

If you are like me and you want more out of life along more control over your time and future then you should order this book as it will help you achieve those goals.  I have learned a lot over the years about landlording and real estate investing and I want to help you have the same success I have been fortunate to have.

Order your copy today!  Available in both e-book and  paperback formats.

 

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Rents Are Up, But…

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So is everything else.

Rents are still going up according to Yardi.  But so is everything else.  Have you priced a new HVAC system or roofing materials lately?  They are all up as well.

Are we landlords making more money with these increased rents?  Perhaps a bit.  But with the costs of everything else increasing along with the rent, I’m not so sure.

What is your experience?  Let us know with a comment.

 

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