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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 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.

An Open Letter From A Landlord To (a few) Tenants

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By Jeff Wallach

Hate mail? Really? That’s what it’s come to?

Despite what you think, I’m not your enemy. Yes, I own rental property that you’d like to live in, and yes, rents are high — not as high as in many cities, but certainly high for Portland, given its population of folks like you who make art and save honeybees and wish to live well in a hip metropolis full of bicycling nonprofit workers.

For the record, I am also an artist, and I actually save honeybees and support nonprofits, too! And I ride a bicycle!

But additionally, I have worked seven days per week for more than 25 years — and assumed great financial risk — to afford the property that you are so angry about.  

Whatever your politics, we’re still residing in a capitalist society. And just as you hope to make a few dollars on the reggae hats you’ve been knitting to sell at the farmers market, rent is the way I get paid for all my time and effort and money spent taking a nearly ruined 100-year-old building — the kind of house that makes Portland unique and that you rail against demolishing — and repairing all the neglect that the truly bad landlords allowed, rather than knocking it down and making scads more money than I ever could by lovingly restoring this century-old landmark.

And just for the record, I’ve had hundreds of renters who would tell you that I’m actually a tenant advocate — that I let them slide on late rent (even the third time and despite the fact that I still have to pay my full mortgage. I’ve even reversed a rent raise because the tenants couldn’t afford it.)

 

Click here to continue to read Brother Wallach preach on.

The Lies Holding Us Back

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One of the toughest things for a new investor is just getting started. One of the toughest things for an experienced investor is growing their business and trying new ways of doing things. It can be so hard to pull that trigger and acquire your first deal or go down a new path.

Interesting thing is, our brains may actually be holding us back. It seems that our brains like to tell us little lies to discourage us. It wants to keep us safe and on the tried and true path.

Which of the 14 little lies in this article have you used to prevent you from buying that first deal or from expanding your business?

I know several that have entered my mind from time to time. And because of this it can be very hard to get off the path that you know. But if you want to succeed, at anything, often times you must leave the path you are on.

That is why I think the advice at the end of this article is so important. To be successful, you have to learn to recognize these lies and understand how to deal with them. You have to learn that being scared to get off the path you are on is OK. It is natural, but holding you back.

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.

Voting For Trump? Don’t Bother Applying!

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Voting For Trump?  Don’t Bother Applying!

At least that is the thoughts of one Colorado landlord.  I know politics can stir up strong feelings, but I am not so sure this was a wise move.  Perfectly legal though, as Trump voters or any other candidate’s voters for that matter) are not a protected class. 

How long until we see ads like “Voting for Cruz?  Then keep on cruzing.”  Or, “Feeling the Bern?  Don’t even turn here.”  Sorry for that last one.

Thoughts?

Looking For A Property? Deal With The Owner.

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How do you find the properties you buy?

That is a question that I get asked all the time.

The answer is something along the lines of “all kinds of different ways.”

I have found properties by responding to ads in the paper, from the MLS, from wholesalers, like I said, all kinds of ways.

The best deals I have found however have come from a source you might not think of, that is the owner of the property.

If I can get in touch with the owner of a property I am interested in and if they are somewhat motivated to sell, I can likely work out a good deal for me and a good deal for them.

So for me, the best way to buy properties is talking directly to the owner.

Why?

For one thing it is just you and the owner. You can build rapport. You can both talk through what you want out of the deal. You can both tell your side of the story. You can both negotiate. You can sleep on it and call the owner later. You have more input into and ability to affect the negotiation process.

For another thing there is no one else involved. There are not 20 or even 1 other investor knocking on the door offering too much or promising things they can’t deliver on. There is not a realtor involved talking the seller out of it for who knows what reason or telling them that you are one of those “evil” investors. This is often times the real advantage.

So that is why talking directly to the owner is best for me, but did you notice the two “ifs” in there?  Those “ifs” mean that making the deal work is not always easy.

I might be able to make a deal “If I can get in touch with the owner.” That is not always as easy as it seems. I try all sorts of ways to get in touch. I write letters. I talk to lawn people at the property (I did this to get the property shown in the picture). I knock on neighbor’s doors. I will go through friends of friends if possible. But not all owners will talk to you. They simply do not want to talk to you. Plus, some owners are very good at hiding themselves. That address the property assessor has, who know where that really goes.

But, even if you can get by the first “if” I think the second one, “If they are somewhat motivated” is even more important. The property owner has to be somewhat motivated, not necessarily “fire sale and have to sell tomorrow” motivated, but just somewhat motivated. If they are not, they are just kicking tires. There is likely no deal and I am not going to spend a lot of time on it.

But if there is a bit of motivation then perhaps a deal can be worked out. Sometimes it takes a bit of effort on your part. You may need to educate the seller about what you do and what services (speed and reliability) you are bringing to the table. You may need to educate the seller on the value of their property. You may need to let them think about things a bit. You may need to let the seller’s emotions subside before you can move forward. There are all sorts of things you may need to do and every situation is different. But at least when you are dealing one on one with the property owner you know what the situation is and you know where you stand. You are somewhat in control of the situation.

So yes looking at the MLS and keep reading those ads in the paper or on craigslist because those deals do come along. But also develop ways to get yourself talking directly to the owner of the properties you are interested in. Because when you are dealing with the owner, that is often when the best deals can be made.

How To Get Over Fear

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Ever feel scared making an offer, dealing with an angry tenant or just getting out of bed in the morning?  Sure you do.  If you do not feel fear sometimes you are not human.  Fear can be tough to get over but not doing so will paralyze you and stop you in your tracks. 

How do you get over it?  James Alutcher has some ideas.

 

I Am Afraid All The Time by James Altucher

I’m afraid to lose money. I’m afraid new things I try won’t work out.

I’m afraid the people I love will leave me.

I’m afraid people won’t like something I wrote. Or a podcast I did.

I’m afraid the future won’t be what I want it RIGHT NOW to be. That it will look different. That it will be out of my control.

I’m afraid when I read a new review of any of my books. What if it’s bad?

“Oh, you should get over that feeling already. You have to be a pro.”

Ok. I’m a pro. But I’m still afraid. What if they hit the right buttons that have caused me fear ever since I was three years old.

I don’t know how to button those buttons. They are exposed wounds, hot, scarred, bleeding.

I’m afraid someone will hit them over and over.

I’m afraid of you right now.

How I try to get over fear:

Themes Over Goals …

The more expectations you have, the more you will be disappointed. A goal (make a million, lose 100lbs, get someone to love me, etc) is an expectation.

A theme (eat healthy, make friends) is a way to live.

The fewer expectations I have, the more likely it is I will exceed them.

Kindness …

Kindness without expectation back has no fear in it. And, it’s a secret way to always improve yourself without having a goal of improvement.

What if someone pushes my buttons. How can I be kind back? I can’t. It’s hard. But then if I can, then I improve.

One Thing A Day …

I try to do one thing a day that makes me uncomfortable. I don’t know what I will do today.

Body, tell me something to do today that is uncomfortable and I will do it.

And then I wait for the answer.

Once I do it, then that thing that made me uncomfortable, whatever it is, will be a little more comfortable.

Stories Over Objects …

I like to make every day a story that I can tell. I like to make every object I buy have a story behind it.

Then I can give it or show it to someone and it’s like the top of a pyramid with a huge amazing structure underneath.

When we look at someone, we just see a doorway. The door opens and that person is having a dream. The dream is uniquely there’s and nobody can fully know it but we can all participate.

I want my dream to be vibrant and filled with stories. I think often people when they are older look back and say, “What have I done? Where is everything?”

They do this because they collected objects. Objects wither and gather dust and disappear. Story adds color to the private dream we all experience.

Value Over Money …

I went to a wine auction recently.

They had a great technique. Put guys at tables and give them a “wine tasting” first to get everyone drunk.

Put a beautiful woman at each table to say, “you guys should bid on X”.

Then guys would start competing with each other to bid on “X”.

The wine auctions make tens of thousands of dollars in profit. Because a bottle of wine shouldn’t cost $5000. It should cost $40.

Guys are stupid. But everyone has their own areas of stupidity. Money is important. it’s the way we barter our experiences, our objects, our skills that we spend years developing, our dreams, for someone else’s objects or skills or dreams.

If you don’t respect the value you have brought to this life, then you will end up getting nothing in return.

First self-respect. Then you can get greater and greater value with the dream you currently bring into the world.

Life Over Death…

We are often so scared about death, we forget that the greatest mystery is how to live life right now.

Water a plant. Literally and metaphorically.

Don’t Give Yourself …

It’s ok to give love. To give kindness. To give your hard work (in exchange for value).

But too many people give themselves. That’s too much of a burden for other people to handle.

They can’t handle it!

They will drop it. It will make a big mess. The floor will be slippery then. Everyone will be upset.

I find it’s hard to not give myself. To hold onto my self-esteem and not give it to anyone else to manage and take care of.

It takes practice. I trust. I love. I want to be loved back. So I give myself because it’s the easiest thing to give.

So I admit – it takes practice. I’m afraid I won’t put in the practice.

Today is a good day to start practicing. Check the box: physical health, emotional health (are you around good people), creativity (I’m writing a post!), gratitude.

That’s how I practice. it doesn’t always work. But when it does, I am a better person for it. These two things compound if you let them: betterness…or bitterness. You chose.

I don’t want to be afraid anymore. Sadness, anger, jealousy, mental illness, are all the masks that fear wears because it is too scared to reveal itself directly.

I’m going to try really hard not to expect anything from anyone. To respect myself and the work I am putting in.

To be me and not give it away.

To be scared (and ok with it) right before this moment I hit “publish.”