SMARTERLANDLORDING

ADVICE FROM EXPERIENCE

Maintenance and Repairs

Sometimes Technology Causes New Problems

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I am constantly amazed by technology and the benefits it brings.  As a child of the 1980s, having more than three TV channels along with a source of communication and all knowledge right in your pocket is astounding.  But sometimes I think too much technology can be too much of a good thing. As a landlord, it seems that instead of being helpful, technology sometimes causes new problems.

When you own multiple rental properties, the last thing you want to create for yourself is more potential problems, another maintenance issue or something else you have to keep on top of. We landlords have enough of that already with all of the roofs, yards, accounting and personalities we must deal with.  Technology has certainly made many things better.  Cell phones make communication, scheduling and completing tasks much more efficient for example.  But technology also seems to create its own problems.

Take thermostats.  Yes, I’m talking about the simple device that controls the heat and air conditioning.  They are not so simple anymore. Gone are the days when a thermostat had two switches and a lever to control the temperature.  Today they have batteries, long instruction sheets and need to be programmed.  Sure, there are benefits to these things but batteries die and need to be replaced, instructions get lost and programming gets deprogrammed.  All of which causes a hassle for me and my tenants that I would not have if I had the simple, old style, analog thermostat.

Appliances are another example.  Appliances have always been a maintenance issue. They breakdown, get abused and worn out and must be replaced.  This can be such a problem that some landlords shy away from even providing them.  Technology has made this problem worse.  As a landlord I want simple.  I want indestructible.  I want something that even a small child could figure out and use.  Technology is moving us away from that.  Stoves, washing machines and dishwashers used to have simple switches or knobs.  On was on and off was off.  Not so anymore.  Electronic control boards have changed all of that.  There are now so many circuits, switches and buttons that can break or malfunction to render the appliance useless and in need of replacement.  No longer can one just replace a knob or a switch in a few minutes, now the entire appliance has to be replaced.

Sometimes I feel like I am just yelling at a cloud and turning into an old fogey with these sorts of rants.  Perhaps I am and I guess it will happen to the best of us.  I truly get many of the benefits that technology has and is bringing us.  I like the LED lights that save on electricity and hardly ever need to be replaced for example.  But I do not need or want technology to create new or increase problems for me.  It seems that sometimes the old technology was simply better.

What do you think landlords?  Am I wrong here?  Am I just not keeping up with the times? What technology do you think is great? What just causes you more problems? Let me know with a comment below.

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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Estimating A Rehab – Four More Pieces Of The Puzzle

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My previous post examined how to quickly estimate three major rehab components.  To further help you when estimating a rehab, in this post I will discuss how to quickly estimate four more basic rehab components – flooring, paint, bathroom tile and kitchens.

The components described in this post, while perhaps not as big as those in the previous one, are no less important.  Being able to quickly and accurately evaluate all parts of a potential rehab will put you ahead in the game.  The discussion below examines estimates for a basic interior rehab of a rental property.

Basic Flooring

Basic flooring generally refers to installing new flooring materials.  It includes carpet, laminate and ceramic tile, but it can also refer to refinishing hardwood.  A basic rule is to budget about $2 to $3 per square foot of flooring needed.  This price includes both material and labor.  Of course the materials you choose for your flooring will matter.  But many types of flooring are pretty inexpensive.  For example, I just bought some ceramic floor tile at one of those big box home stores for less than 40 cents a square foot.  So be sure to shop around

Paint

A gallon of paint will cover approximately 300 to 400 square feet.  You can use this standard to estimate how much paint you will need for a particular job.  On a 10’ x 10’ room with standard 8’ ceilings (320 square feet total, less doors and windows) a gallon may do it.  The actual paint is fairly inexpensive.  $20 a gallon or so will get you a decent quality product.  But it is not the materials that are the expense here, it is the labor.  A decent paint crew will cost you about about $2 per square foot.

Bathroom Tile

New bathroom tile can really make your rental property pop to perspective tenants.  Nothing grabs a potential tenant’s eye more that a fresh, clean bathroom.    Bathrooms however can be a bit more intricate and thus take more time to do.  Both the walls and floors often utilize materials that are more unique.  Wall tile for example use bullnose (rounded edge) and other specialty tile types.  Floor tiles may be small and hexagonal in shape.  Expect to pay about $3 to $4 per square foot of new tile installation in a bath, depending on the materials you choose.  I like standard, old style black and white tiles but square foot ceramic tiles can look quite good as well.

Kitchens

Kitchens can be as expensive as you want them to be.  You can easily spend five figures on a higher end kitchen.  In a rental property however, there is generally no need for that type of expense.  Cabinets and countertops make up the largest part of your budget here, but they do not have to be super expensive.   Unfinished wood cabinets will cost about $30 per linear foot.  Finished cabinets can be more than double at around $70 per square foot.  Of course if you go unfinished you have to think about the cost to finish them and the recurring costs of keeping them looking good as tenants move in and move out.

The choice of counter tops these days are wide ranging.  Laminate can run about $20 a linear foot.  Granite, which is very trendy these days is generally a lot higher but can be sometimes found at a decent price at some building discount stores.  Be aware with stone countertops of the added costs of cutting and installation.  Cutting granite is no easy task and may not always come very cheap.

Using the basic guidelines outlined above and in my previous post will help you get started with the estimation of any basic rehab project.  In future posts I will discuss other rehab costs that you need to account for and begin to put all of these various rehab components together.

Protect Yourself With An Independent Contractor Agreement

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Being a real estate investor means working with contractors.  As I said in my previous post, many of the properties we purchase need large amounts of work.  That work is often where the value for us investors is found.  Working with contractors however exposes us to risk.  You need to protect yourself with an independent contractor agreement from that risk.

Where does that risk come from?  The risk comes from the fact that repairing and rehabbing properties is somewhat dangerous.  People can get hurt, seriously hurt.  Just think of what is often involved.  There are roofs dozens of feet above the ground.  Ladders are used to get the workers up to them.  Electric cords and wiring are run or strung everywhere.  Natural gas lines are opened and exposed.  Floors that keep us upright are ripped apart.  Debris is often scattered about.  Nail guns shoot nails right next to toes.  Sharp objects are both used and found all over any job site.  All of this and more obviously increases the risk of injury and harm.

You, as the investor and property owner, have to take steps to protect yourself from this risk.  Those steps begin with hiring qualified people to do the job, but of much more importance in my opinion is the contract you sign with your contractors before any job begins.

You are using a contract on every repair job with every contractor right?  I hope so.

If not, you are exposing yourself to unnecessary risk.

It’s All About The Contract

Contracts are important documents because they spell out who is responsible for what, including the people that are coming to and working on your property.  These contracts spell out that these folks are not your employees.  You are not telling them what time to show up.  You are not telling them when to leave, nor are you supervising every move they make.   Instead they are independent contractors who (in many cases) are responsible for their own missteps and for their own insurance.  You as the property owner are just telling them to “make it so” and then letting them get it done.

By using an independent contractor agreement, you place much of the burden of responsibility on your contractor instead of you.  This is how you reduce your exposure to risk.

If you do not use such a contract and an accident, or worse a death occurs, then you might be held responsible.  Further, when these accidents and deaths do occur, people start looking for the deep pockets and who do you think they are going to assume has the deepest pockets?  They are going to look at and assume that you, the property owner are to blame and have deep pockets to pay.

It can all happen very quickly.  All someone has to do is slip on a roof and be paralyzed or killed in the fall.   Even experienced contractors can make mistakes or take a wrong step and if you are not protected, you and everything you own may be liable and open to damages.  People often want to blame someone after an accident happens and it is easy to look at and blame the property owner.

The Phrase To Use

It is such a simple thing to get a contract signed with your contractor before work starts.  It does not have to be long winded and full of legalese to be effective either.  Short and sweet often can and does work.  Here is a clause that I use in my independent contractor agreement.  Feel free to use it, or some form of it, in yours.

Contractor and Client intend this Agreement to be one of independent contractor and client.  Contractor therefore retains the sole right to control or direct the manner in which the services prescribed herein are to be performed.  Client retains the right to inspect, to stop work, to prescribe alterations, and generally to supervise the work to insure its quality and conformity with that specified in this Agreement.  Contractor warrants that upon signing of this agreement that Contractor has obtained all stated and necessary insurance, including worker’s compensation coverage, and that it will be kept in full force and effect until the completion of the work contracted for herein.  As such, contractor herewith agrees to sole and complete liability for any injury to self or contractor’s workers.

Whatever you do, just make sure you use a contract and make sure you use one that will protect you.  Beware that the contract your contractor wants you to sign usually protects their interests, not yours.  You need your own independent contractor agreement (reviewed by your own attorney too) that protects all you have worked and are working for.

 

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Is It Possible To Get A Quality Rehab Quick And Cheap?

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Working with contractors is often a significant part of a real estate investors business.  Many of the properties we invest in need work, lots of work.  Getting that work done on time and on budget can greatly increase our bottom line.  But is it possible to find a contractor who can deliver a quality rehab quick and cheap?

Maybe.  But it is really difficult to do so.

Working with contractors can be one of the most frustrating parts of this business.  Many will over promise and under deliver and you never really know how well they will work out until you have had at least one go around with them.  And in a tight real estate market like we have today, your choice of who you can get to do some work may be quite limited.

Many contractors will also tell you that they can deliver a quality job quickly and cheaply, but doing so requires skills that are often lacking. It is much more common to find contractors with two of those qualities, but not all three.  It is the rare person who can actually deliver quality quick and cheap.

This situation can put us investors in sort of bind.  Which two out of the three do we want?  Do we want quick and cheap but low quality or higher quality with an increased price?  And what about the time frame for completion?  How important is that?

Over the years I have come to the conclusion that quality and price are the more important of the two.  I would rather extend a job a few weeks and get it done right than get it done so quickly that I just end up doing it all over (and spending money) again in the near future.  I have found that while I may save a bit of money on the holding costs on the front end by getting a job done more quickly, I often lose it on the back end because quality was sacrificed for speed.

Plus, a good contractor is going to need time to make sure that a job is done right.  There are some things you just do not want rushed.  If you try to rush tings, shortcuts will be taken.  I am not a fan of most shortcuts as they always seem to come back later and bite me in the butt.

Contractors who can and will do quality work in a reasonable amount of time are usually not the cheapest you can find.  That lower price quote often means that something is being skimped on somewhere.  The old saying “You get what you pay for” may sound canned, but it is just as true in the contracting world as it is anywhere else.

Go For Quality

So while I do not think that quality quick and cheap is very attainable, quality at a fair price and done in a reasonable time frame is. How do you find that?  Here are a couple of ideas:

  • Shop Around – Get several estimates, even if you plan on using the same contractors again and again. Familiarity can often breed complacency along with a mistaken comfort to not double check your numbers.  Getting multiple quotes all the time keeps both you and your contractor honest.
  • Use Incentives – People respond to incentives. Give a bonus if a job is completed ahead of schedule.  Use a penalty if things run too long.
  • Be Available – Make yourself available to solve problems. I can tell you that every major rehab job will have unforeseen issues.  Be around to help solve those issues.
  • Let Them Work – Do not nitpick and do not hover. Sure, point something out that does not meet your standards or looks out of place.  But otherwise let them work.

We can all strive for a quality product done quickly and cheaply but when it comes to contractors getting all three can be a tall order.  Over the years I have found that quality is the most important of the three.  Even if it is often a it more expensive and takes time.  Cheaping things out will eventually hurt you, your good name and your bottom line.  Remember that part of being in business is making people want to do it all again.  A poor product will not get you there.

What the Kitchen Faucet Taught Me About How to Keep Great Tenants

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What the kitchen faucet taught me about how to keep great tenants

By John Triplett, NationalREIA

That late-night maintenance call

I got a call last night from Jake – We will call him Jake for purposes of this blog – who handles the majority of the maintenance on my rental properties. My property manager usually just asks Jake to call me when a tenant reports a problem that involves a repair.

I often cringe when Jake calls because I know there is always a cost involved. So the less I hear from Jake, generally the better.

But not always.

Sometimes a call from Jake is an opportunity for me to become a better landlord and treat the tenants more like the customers I want them to be.

So in this case it seems the faucet in the kitchen sink has gone out and needs to be replaced.

Now I don’t know about your house, but at our house the faucet in the kitchen sink is one of the things I touch multiple times per day. It’s a regular, high-use item and darned annoying when it’s not working right.

I imagine the tenants feel the same way. Put yourself in the tenants’ shoes occasionally.

Rather than running to the store just to get a cheap kitchen faucet to replace the cheap one the last owner put in there, Jake asked me a question.

What kind of faucet do the tenants want?

Read the rest here.

7 Things Bad Landlords Don’t Do

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Being a landlord is a tough and varied job. It requires the wearing of many different hats. A landlord has to be an accountant, a contractor, a guidance counselor and much, much more in order to be successful. Most landlords do a pretty good job at juggling all of these responsibilities.

Unfortunately, there are a few bad landlords out that that make this already tough job even more difficult. These bad landlords get the courts involved in our business. They get code enforcement involved in our business. They get legislatures involved in our business. They get reporters to dish out a fair share of bad press about us. The term “slumlord” starts to get applied to all landlords, no matter how they run their business. They just generally make it harder for the rest of us because of their bad actions.

Over the years I have found that many bad landlords are not necessarily bad people. Instead they just do not understand or know how to run their landlord business. They fail to do several key things that all landlords must know or do in order to make things run smoothly.

So what are the things that bad landlords don’t do?

  1. Bad Landlords Don’t Screen Their Tenants – There are bad tenants out there that prey on these bad landlords. They smooth talk you into letting them rent your place. They flash a lot of cash upfront. They lie, lie and tell more lies. If you fall for the talk, the cash or the lies you are going to learn a hard lesson. You will likely spend thousands trying to evict them and they can turn a great property into a problem child in a matter of months. Proper screening is perhaps the most important thing a landlord can do to prevent a lot of the other problems we encounter.
  2. Bad Landlords Don’t Understand Cashflow – Cashflow is king in the rental property business. If you bet on anything else, like appreciation, you are setting yourself up for failure. If you are not bringing in enough cash to cover all of your expenses, the bills will creep up on you over time until it is just too much for you to handle and your property goes into a death spiral downward.
  3. Bad Landlords Don’t Fix Things – Not fixing things when they break often leads to a death spiral for a property. How? Something breaks, then tenants complain, things remain unrepaired, then tenants start to leave. This spiral does not happen overnight, but rather slowly. Good tenants are simply not going to put up with a lack of service and repairs. These landlords may think they are saving money. But in the long run they are shooting themselves in the foot.
  4. Bad Landlords Don’t Do Preventive Maintenance – Speaking of things breaking, some things will break if you do not do a little preventive maintenance. These landlords again think they are saving money, but they are not. Condensers simply need cleaning, filters need changing, walls need painting, etc, etc. I hate spending the money as well but I have come to learn that if I do not spend it now I will end up spending a lot more later on.
  5. Bad Landlords Don’t Have House Rules – House rules are a very important part of your lease (You are at least using a lease right?). House rules spell out when people should be quiet, when and how long guests can stay, where trash should be placed, if you can use candles (Nope!), and whatever else you feel you need to include to maintain a desirable property. We go over our house rules word for word with our tenants during the move in process to be sure they are understood. It shows tenants we care about our properties and it helps insure that there are no misunderstandings later on.
  6. Bad Landlords Don’t Train Their Tenants – No, I do not mean train like a dog on a leash. What I mean is if you do not set out the rules from the start and enforce them (see above), your tenants will learn to take advantage of you. So, you must train them early on that you are not one to be taken advantage of. If they are late on the rent, charge the late fee. Otherwise they will learn it is ok to be late. If there are complaints from other tenants, give a warning notice, quickly. Otherwise they will learn that their behavior will be tolerated and that it is useless to complain. You have to be very proactive with your tenants. The old saying is true, if you give some of them an inch, they will take a mile.
  7. Bad Landlords Don’t Keep Learning – Every day is a new day that brings new people and new experiences. You cannot just keep dealing with these new experiences the same old way. You have to keep learning and keep adapting your business or you will simply get left behind. This is one reason that I find my local REIA so important. The education and networking opportunities that are available just cannot be found anywhere else.

 

Don’t be a bad landlord. Do the seven items listed above. You will be amazed how much smoother your business, and your life, will be.

 

What else do you think bad landlords fail to do? Let me know what I left off my list with your comments.

Podcast – Investing In Multi-Family Properties with me, Kevin Perk

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I recently did a podcast with Curt Davis over at Investor Talk Radio on investing in multi-family properties. In the podcast Curt and I discuss several aspects of investing in multi-family properties, including how to get started, financing them, the risks and rewards and much, much more. Give it a listen here.

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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Why Landlords Should Inspect Their Properties

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This is why landlords should inspect their properties. You cannot completely trust the screening process. Some people can look perfectly normal on the outside and in public, but their home life is a complete mess as the linked article demonstrates.

Just because you never hear anything from a particular tenant does not mean that all is perfectly well. Most times it is, but it is best to verify. Do you think the tenant in the story above would have ever called their landlord? It is highly doubtful. They are too embarrassed by their home life to let you in and will likely just vanish one night when no one is watching.

So don’t let this happen to you. Put a clause in your lease like the following that allows you to periodically inspect your property.

Tenant shall be entitled to quiet enjoyment of the use of the property so long as Tenant is not in default of the terms of the Lease. However, upon one day’s notice to Tenant, Manager shall be entitled to access to the Property for the purpose of inspection, repairs or marketing the Property.

Remember, your properties are a huge asset to you, don’t let someone trash them.

 

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The Anatomy of a Rehab – Part 3 – Finding Contractors

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In my previous posts I discussed how I went through and assessed what I needed to do to get the property rehabbed by using my Property Inspection Sheet and figuring out the budget. In this post I want to discuss hiring contractors.

Contractors are an essential part of any real estate investor’s team, especially as you grow and expand your business. Sure, it is OK to do some or all of the work yourself when you are starting out (in fact I would recommend this so you get a feel of what is involved in a rehab job), but as you grow your business you will need to spend your time on more important matters, such as finding more properties.

Hiring contractors can be one of the most challenging parts of this business. And when you are just starting out or have little experience it is quite easy to feel lost and out of your element when dealing with contractors.

We all have heard the numerous stories of people being ripped off by contractors, perhaps even someone you know was ripped off once. So the stories are true. Some contractors do rip people off. Dishonest contractors will abscond with prepaid funds, they will use inferior materials or take forever to get the job done.

So how do you find a contractor that will do an honest job, produce a quality finish on time and on budget?

To be honest it is not always easy.

I have found the best resource to be referrals from other investors. Other investors are after all in the same boat you are. They need someone reliable who can offer a good product at a good price. This is why it is so important to get out and network with other investors at your local REIA group. Some of these REIA groups will even have contractors as sponsors. I have found several good contractors in this manner.

Sometimes other investors may not like to share their contractors as they may have enough work to keep them busy. So referrals may be hard to come by. Other times referrals or sponsors can be real duds or so overworked that they just cannot provide you with the level of service you need. At this point you are simply going to have to go out on your own and find them. While this task may seem daunting, it is not as hard as you may think. In fact, you likely pass by numerous contractors every day you just have not been looking for them.

Where?

At your local big box home supply store. This is where the contractors go to get their materials.

If you are like me, you probably go to Home Depot or Lowes just about every day. There is always something you need to maintain your properties. You should start your contractor search when you enter the parking lot. You will see the contractor’s trucks all over the place. They will have placards like “Fred’s Painting” or Ed’s Plumbing.” You get the picture. If you see someone in or near the truck, go up and talk to them. Get their business card or contact info. Same goes when you are inside the store. If you see someone in the plumbing parts section, ask them if they are a plumber. Get their contact info.

Other good sources to find contractors are your neighbors. If you subscribe to a service like Nextdoor.com many people in your neighborhood will post recommendations. If you see someone working at a home in your neighborhood, ask your neighbor about the job and the contractor’s contact info. Better yet, just walk up to the contractor if you see them and get it yourself.

Trust me, if you do all of these things you will collect a lot of business cards. More than you will ever need. And that is OK, because when you go to call these guys later on for estimates, many will not even return the phone call, eliminating them right off the bat.

For those that do call you back (and many will), here is what you need to do:

  • Have a rough assessment of the work outlined for the contractor
  • Ask for a detailed and written estimate
  • Ask for references (and call them!)
  • Ask for liability and workers comp insurance info
  • Ask if you can possibly see an example of their work (they may let you visit one of their current jobs)
  • Do a Google search, see if there is anything good or bad out there
  • Ask how they want to get paid. Beware of anyone who wants large sums up front.
  • Trust your instincts. If something feels wrong move on.

If you follow these simple steps you will soon find a trusted contractor who can get what you need done. You may have to try a few.   You may spend a few dollars doing so and you may even need to fire one or two before you find the right one. But with persistence you will find one that “works” for you.

Next time – Making sure the job gets done on time and within budget.