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ADVICE FROM EXPERIENCE

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Are Your Properties In An LLC? Evicting A Tenant? Read This First

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Many of us landlords hold their rental properties in a Limited Liability Company (LLC). Doing so can make very good business sense as a landlord can separate their business property (rentals) from their personal property (home, cash, stocks, cars, etc). This separation can significantly reduce a landlord’s personal risk if you get sued by a tenant. Plus it can be a great estate planning tool.

How?

An LLC is legally a separate entity from you. You can actually think of your LLC as separate person from you. It has (or it should) have separate bank accounts, separate credit cards, separate loans and even a separate address. The LLC therefore actually owns your rental properties, you do not. You just control and direct the LLC. Thus, if a tenant or anyone else for that matter falls on a property owned by an LLC you control, they can only sue the LLC, not you. This is what is known as the “corporate shield” between you and the LLC (This shield can get pierced if you are not careful, but that is a post for another day).

Unfortunately, even the best landlords with the best screening techniques will have to evict one of their tenants at some point. Tenants sometimes just go bad for reasons beyond your control. If you happen to hold your rental properties in an LLC, you personally cannot represent your LLC in court during the eviction process. You must have a lawyer represent your LLC during the eviction process.

Why?

It is not because it is difficult or complicated to file an eviction or to go in front of a judge.   In fact, with a little coaching, almost anyone can do it. The problem stems from the fact that the LLC is legally a separate entity from you. It is legally another person. So if you file for eviction and go to court to represent “your” LLC, you are technically representing someone else in court. By representing someone else, you are practicing law without a license.

Judges generally do not like folks in their courtrooms practicing law without a license. When they realize that you are, they will throw your case out. That may have been just an honest mistake on your part, but if you thought you were going to save money you were wrong. You are now actually even deeper in the hole because you have lost even more rent. Plus you have lost time. And as they say, time is money.

I know, I know, all of this may seem like splitting hairs and technicalities. Lawyers are also costly and evictions are generally pretty easy to do. But lawyers live for technicalities and this component of the Lawyer Employment Protection Act is just something you have to follow if you hold your properties in an LLC.

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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National Rent Report – February 2018

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Nationwide, rents have been on the increase since August 2017, but February brings slight relief — at least to renters of one-bedroom apartments. The national median rent for one-bedrooms dropped from $1,046 to $1,044, marking the first decrease in six months.

Although national one-bedroom rents decreased just .2%, some cities felt a much larger decline. Syracuse, NY, had the largest rent drop in the country, with rents sliding nearly 11% through January. Santa Ana, CA, also saw a significant decline of 9.1%, with one-bedroom rents there dropping from $1,841 to $1,673. One-bedroom apartments in Minneapolis, MN, and St. Louis, MO, slid nearly 4%, followed by Cincinnati, OH, one-bedrooms, which slid from $824 per month to an even $800, for a 2.9% drop.

Read the rest here

9 Out-of-the-Box Questions & Tactics Multi-Family Investors Should Consider Using

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9 Out-of-the-Box Questions and Tactics Multi-Family Investors Should Consider Using

By Richard Montgomery      www.DearMonty.com

Summary: Investing in multi-family housing and apartments requires extra investigation, sometimes called due diligence by attorneys. This extra investigation and these questions are beyond what a real estate investor may do normally for a typical commercial real estate investment. As a real estate investor, once you go beyond multi-family rentals such as duplexes or fourplexes, you enter the commercial real estate area.   Here are 9 out-of-the-box questions you should be asking, or at least consider asking, before you purchase that multi-family or apartment building.

DEAR MONTY: About six months ago, three longtime friends and I decided to make some real estate investments together. Our investment goals are similar; we are each high-income professionals, share similar risk tolerance and see real estate as a long-term investment opportunity. Now, we have identified a 60-unit apartment building we are interested in pursuing. We have the standard list of due diligence items, but wonder if there are some “out-of-the-box” due diligence tactics to make certain we do not make a mistake. Can you help?

Real estate apartment investing is a series of calculated risks

Answer: Buying, owning and selling investment real estate is always a series of calculated risks. “Make certain” are strong words. No matter your methods, you cannot know everything the seller knows. Over and above the standard due diligence list, buyers have ways to discover more about a property that either encourages or discourages them.

It is always difficult to understand the motivation of the seller because many sellers do not share their core beliefs, or some may even mislead or miscommunicate their ideas to create an image of trust. As callous as this statement is, I believe it to be true in many cases. To balance that statement, self-interest is to be expected.

Choose carefully which tactics to employ

Business ethics is a subject that is not black and white. It involves various shades of gray depending on the person with whom you are talking. Choose carefully which tactics to employ with which transaction. Some sellers might not take kindly to a given tactic, while others may well have done something similar, or further out-of-the-box, themselves.

I have never witnessed any one buyer applying all of these tactics on a single property. This is a career compilation of tactics I have seen.

No. 1 – The rent roll is not enough: Where do the tenants work?

Determine where the tenants are employed. This data will be on the rental application, but not on the rent roll.

If 25 of the tenants are with the same company, and a move to Mexico is announced 30 days after the sale closes, your vacancy rate could skyrocket.

No. 2 – Visit with former tenants

Visit with multiple tenants who have moved out of the apartments.

You can determine this by comparing year-to-year rent rolls. Look for patterns in the reason they moved out.

Getting closer to work is one thing. But moving away from drug dealers is a different story.

No. 3 – Look for patterns in the vacancy swing

Get the financials both annually and monthly.

Look for patterns in vacancy swings. If you find one, learn what creates it every year.

When you hear the answer, trust it – but verify.

No. 4 – Visit the apartments in the morning- and in case you don’t see them also “good day, good evening and good night”

The quote from the Truman show applies when you want to find out what is really going on with the apartment building.   Visit the property unescorted on multiple occasions.

Visit in early morning, mid-day, late afternoon and midnight. You will learn something about your potential tenants and how the building functions.

  • Do tenants congregate in appropriate places?
  • Are there vehicles with stale damage?
  • Is the parking lot well lit?
  • Do you feel safe?
  • It can be surprising what you learn going unannounced.

No. 5 – Talk with the local police about the apartments

Check with the local police department.

Tell them you are considering buying the building and ask if you could do anything to help them in the neighborhood. You will learn if the building has a reputation.

The best thing that can happen on that visit is they will have trouble placing the property.

 

Read the rest here.

Just Graduated? Where Should You Move?

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Group of young people having fun together at home.

Trulia recently published a study that tried to answer the question: Where is the best place for a recent college grad to move? In this study they developed something they call the Graduate Opportunity Index. This index looked at 40 major cities across the United States and ranked them based upon the number of jobs available to recent college grads, rental housing affordability and the number of millennials living in that city with a college degree. How did your city rank? Check out the study here.

Memphis unfortunately did not make either the study or the list, but perhaps it should have. I can tell you from anecdotal experience that Memphis seems to be doing a much better job of attracting these recent college grads. For one thing we are renting to a lot of recent college grads lured here from all over the country and the world. Plus, I am just meeting more and more young people who have just moved here from out of state. Much more than in the past, but maybe that’s because I am getting out more :).

What’s bringing them here?

A lot of things are actually. But top notch organizations like FedEx, St. Jude, International Paper, AutoZone, Service Master and Smith and Nephew are high on the list.

What’s more, Memphis is perhaps the most affordable city in the United States to live in when it comes to real estate. It is very hard to get more bang (or square feet and amenities) for your buck anywhere else in the country.

And how can you beat Graceland, Beale Street, The Grizzlies and so much more?

Sure we got our problems just like everyplace else. But I think Memphis has a lot going for it and the younger folks who have recently moved here, that I talk to, seem to agree.

The Best (or Worst) Landlord Laws?

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I have always said that smarter landlords have to be very familiar with their state and local landlord laws as they can vary widely from place to place. As an example, check out this article about the landlord laws in Arkansas.

It is amazing that someplace just over five miles away can be so radically different from what we deal with here in Tennessee. Give it a read. I think some of you in more restrictive parts of the country will be fascinated.

 

Rent reforms 

Arkansas’s landlord tenant laws work well for honest landlords, too well for slumlords, and they don’t work at all for honest tenants.

By Ellie Wheeler

Arkansas’s landlord tenant laws work well for honest landlords, too well for slumlords, and they don’t work at all for honest tenants. Disputes between landlords and tenants are inevitable, and Arkansas needs laws that capture the worst players on both sides without abandoning good tenants or overburdening good landlords. The goal should be fixing the stark lack of legal balance that heavily favors landlords. Arkansas is the only state where not paying rent on time can land you in jail, and the only state where landlords are not required to uphold basic living standards of their properties.

Read the rest of the article here.

The Boom Is Here!

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The real estate boom that is.

 

How do I know?

 

The stats tell me. Check out these two.

  1. First time foreclosure starts are at their lowest point since the year 2000. Not 2008 when things crashed, but 2000! Lower than they were during the last boom.
  1. New home sales are at their highest point in 8 ½ years.

Add the following to the above:

  • The stock market continues to climb ever higher.
  • The Federal Reserve is keeping interest rates very low.
  • Adjustable rate mortgages are making a comeback.

Suddenly it begins to appear a lot like the year 2005.

What is more, I am seeing A LOT more interest in real estate these days. Everyone wants to know how to go about getting started. Anecdotal I know, but still eerily similar to 2005.

Things do not seem to be quite as exuberant as they were a decade ago but let this be a warning to smarter landlords and real estate investors. The market is definitely heating up. There are still deals out there but there are more and more people chasing them thus driving the prices up. DO NOT get caught up in the exuberance. Keep your head in the game and listen to the numbers. Remember not to bet on appreciation and do not think you will always be able to refinance out. Instead always remember that cash flow is king. I’ll say it again, cash flow is king!

Enjoy it while it lasts. I do not think we are near a crash, but we should definitely remember that nothing goes up forever. So, If you need or want to sell a property, now is the time. In fact, I seriously considered putting some of mine on the market but decided against it. I like the cash flow.

What’s going on in your market? Seeing a boom there? Let me know with your comments.

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.

How Much Space Does $1,500 Get You?

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How much square footage does $1,500 of rent get you in America’s largest cities? It’s pretty good if you live in Memphis, but what about other cities? Check out this interesting post from Rentcafe to find out and compare.

What Is A No Fault Eviction?

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The term “No Fault Eviction” has become a rather hot term in the headlines lately. Teachers in San Francisco want protection from them. Across the Country in Boston tenant groups are asking the city to stop landlords from using them.

But what is a “No Fault Eviction?”

How do they work?

And why are people suddenly getting so upset about them?

A so called “No Fault Eviction” is an eviction where the tenant is evicted through no fault of their own. They paid their rent on time. They followed the rules. However, the landlord has decided at the end of the tenant’s lease term that he no longer wishes to rent to that tenant. He has chosen not to renew the lease or let it run on perhaps on a month to month term.

If the landlord chooses not to renew the lease, he will ask the tenant to vacate the property. Usually this is done by letter at least a month or more before the landlord wants to retake possession of the property. However this time frame could vary depending on state and local laws or the terms of the lease.

Most of the time, the tenant chooses to leave and find a new place to live. But sometimes they do not. They want to stay despite the landlord’s wishes. If that happens, the landlord is them forced to evict the tenant.

Not really a “No Fault” to me. The tenant has violated the landlord’s property rights by not leaving when legally asked to do so. The landlord owns the building, the terms of the lease are up and the landlord should be able to retake possession of the building.

So why are people so upset about this?

It is because of the recent rapid rise in rents.

Rents have been going up all over the country in recent years. Landlords are thus often able to raise the rents at their properties. In some areas, quite significantly, as much as 400%! That simply is too good of a story for some media outlets to pass up.

Incomes have not caught up yet. Thus many renters feel that they will have to leave their longtime neighborhoods. Or worse, might not be able to afford new housing. A concern for sure.

While the recent rent increases have many causes, many choose to blame the landlords and have been petitioning local authorities to enact laws to prohibit or restrict “No Fault Evictions.”

No one likes to go through an eviction. It is just not a pleasant experience for either side. I try to avoid them almost any way I can. Thankfully in my experience, most tenants have agreed to move when I asked them to. Then again, we have not had the significant price increases here in Memphis either.

But what have you experienced in your part of the world? Are your tenants refusing rent increases or refusing to move? Please let me know with your comments.

 

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Inheriting Tenants? Protect Yourself

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When you buy an investment property, sometimes it will come with tenants already in place. These tenants can be a good thing as your new purchase will be immediately generating income. But, these tenants can also be a bad thing because you really have no idea how they were screened, how they have been as tenants or even what the details of their lease are. You can of course review existing written lease agreements, but there are landlords and tenants out there who have nothing more than a verbal agreement. There is no written lease to review.

So what you might ask.

Well, here is the thing with inherited tenants, you are stuck with them. The existing lease, even if verbal, cannot be changed by you just because you have bought the building. Your purchase does not in any way, shape or form alter the lease agreements the tenants currently have in place. You can’t raise the rent. You can’t just evict them. You can’t add rules. You can ask them to sign a new lease. You can offer to pay them to do so, but they do not have to. As I said, you are stuck with them. Stuck with them until the term of their lease is up.

Not a good place to be, especially if you have no idea what unwritten agreements might be hiding out there.

So how do you, as a landlord who wants to add the property to your portfolio, protect yourself? How do you determine what the current lease terms and conditions are?

One way is to ask to review the current leases. But what if there is no written lease? Or, what if the selling landlord is just making stuff up? It happens!

One of the best ways to protect your interests is to use an estoppel agreement. This agreement, which spells out the existing lease terms, is filled out and signed by both the tenant and the selling landlord. An estoppel agreement is a simple one page form that asks some very basic questions regarding a tenant’s living arrangements. Questions such as:

  • What is the term of your lease?
  • Who is listed on the lease?
  • How much is the monthly rent?
  • Do you pay any utilities?
  • How much is your security deposit?
  • Do you own any appliances in the apartment?
  • Are you current on your rent payments?
  • Are there any repairs that need to be made?
  • Do you have any other arrangements with your current landlord?

By getting this form filled out by the tenants you are about to inherit and the landlord you are buying the property from, you will have a legal piece of paper that will offer you some protection going forward.

How?

If a tenant later claims that his verbal lease was for a year and that you can’t ask him to leave you can point to the estoppel agreement that he signed stating that he was on a month to month term.

Or,

If when the tenant moves he claims that his security deposit was $5,000 and that he owns the appliances, you can again refer back to the estoppel agreement to determine if that is indeed the case (If it is the case when you review the agreement before closing you may want to renegotiate the purchase price.)

The estoppel agreement is a very important piece of paper to get completed when buying any property that has existing tenants. Use it every time and make the completion of this agreement a part of your purchase and sale contract. In fact, I think this document is so important I want to make it easy for you to use. So please follow this link to my Smarter Resources Page to download the estoppel agreement form that I use and protect your future buying interests.

 

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