SMARTERLANDLORDING

ADVICE FROM EXPERIENCE

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Another Handy Lease Clause

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Ever have a tenant think their security deposit equals their last monthly rental payment?

We have.

We put a stop to it with this clause in our lease.

“It is understood that the security deposit is NOT an advance payment of monthly rent.  If Tenant tries to use security deposit as last months rent, an eviction will be immediately filed.”

This simple clause seems to work well for us. 

Use it in your lease today!

Want to learn more about what needs to be in your lease?  Stay tuned for Episode 3 of the Smarterlandlording Podcast.  Coming soon!

A Simple Lease Clause To Help You Get Properties Rented

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When we receive notice that a tenant is moving out, our goal becomes getting that property re-rented as quickly as possible.  After all, no tenant means no cashflow.

Our lease requires our tenants provide us with at least a month’s notice of their intent to move.  Most have been very good with that request, giving us plenty of time to market the property and hopefully get it re-rented.  Of course re-renting the property means showings.  After all, how many people do you know that will rent a property sight unseen? 

Showing the property can cause some difficulty.  Your tenant still has possession.  It is their home.  They do not have to let you in to show the property.  They could potentially make you wait until they have fully moved out.

How do we handle this?  As simply as possible.

We have the following clause in our lease which the tenant reviews and signs upon move in.

            “Tenant will allow Manager access to show their apartment with 24 hours notice.”

Problem solved.

Whenever a prospective tenant lets us know they wish to see the apartment, we let them know that we have to give 24 hours notice and that we will get back with them to set up a time.  After contacting the current tenant and providing the notice, we then set up a time to show the property.

This process may seem a bit cumbersome, but it really is for the best.  It protects everyone’s rights and generally leaves everyone happy.

Most of our tenants understand the need to re-rent the property and really appreciate the notice.  Yes, there are a few that grumble every once in a while but we just remind them of the clause in their lease.

Remember your tenants have possession until they move out.   Use this simple clause in your lease to avoid any problems and help you get your units re-rented as soon as possible

It’s Easy To Incorporate (At Least In Tennessee)

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I recently decided to incorporate a new business venture, so I formed a new limited liability company (LLC).  I have written before on whether or not you should incorporate.  Generally, I feel that incorporating is beneficial only after your landlording business grows and increases in complexity.  That said, I wanted to share with you my recent experience in setting up an LLC here in Tennessee.

It has been over ten years since I last formed an LLC.  As I recall at that time there was a lot of paperwork to be filled out, checks to be written and mail to be sent.  The whole process took weeks before everything was finalized.

This is not so anymore.  The internet has made the incorporation process here in Tennessee very easy and very quick.  You can almost do it all right from your laptop.  If you want to form an LLC in Tennessee, here is what you need to do.

First, get a binder and a three-hole punch so you can neatly organize all of the papers for your LLC.

Second, go to the Tennessee Secretary of State’s website and fill out the online form to start a new LLC.  Fill in your company’s name, address, registered agent and a few other questions and pay the filing fee.  Your Articles of Organization will automatically be ready to print and download.  Be sure to print and download a copy of those Articles of Incorporation, they are important.   Also be sure to print out your filing receipt as you will need that later.  Put these in your binder. You are now good to go as far as the Tennessee Secretary of State is concerned. 

Third, go to the IRS website to obtain an Employer Identification Number (EIN).  This number is used much like a social security number and will be the identifying number used when opening your bank account, filing 1099’s and your income taxes.  Complete the questionnaire and print out your new EIN and associated paperwork.   Place the EIN paperwork in your binder.  You are now all set as far as the IRS is concerned.

In less than an hour, you have completed what used to take several days if not weeks.  But there is one more formal step.

You must record your Articles of Organization at your local register’s office in the county where the LLC’s primary address is located.  This means that you physically need to take the Articles of Incorporation and the receipt you printed from the Secretary of State’s website to the Register of Deed’s office.  For example, I am in Shelby County, TN so I recorded mine in the Shelby County Register of Deeds Office.  Driving to and from the Register’s Office and recording the document took less than an hour and cost only $10 (bring cash).  You should get a printout of the book and page number where the document is recorded.  Place that in your binder as well.

Once these three steps are complete, you are ready to go in the eyes of Federal, State and Local jurisdictions.  Easy.

There are of course other documents that will also go in your binder.  You will need an operating agreement along with minutes from shareholders and officers.  I suggest consulting with an attorney on those but they are generally not too difficult to set up.

I hope other states make it as easy to set up a corporation as Tennessee does.  You folks from other states, let me know with your comments.

Rents Soar To Record High

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As Homeownership Rate Plunges To 19 Year Low

 

 

 

From ZeroHedge.com:

“Long live the New Normal American Dream: Renting.”

What Gives The Best Bang For The Buck?

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Uh Oh!  Looks like I might have some in house competition 🙂  Check out this story in Investor’s Business Daily which interviewed my lovely wife Terron as well as other landlords about things that give landlords the best bang for their buck.

What Will $1 Million Buy You Around The World?

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Time to dream a bit!

I thought this was an interesting article comparing how much space you can buy for $1 million bucks in different cities around the world.  

Would you spend $1 million to live in 161 square feet?  Apparently somebody will.  It all depends on the three most important rules of real estate.  Location! Location! Location!

What To Do With A Financially Struggling Tenant

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Have you noticed the rising prices lately?  I have.  Gas, food, just about everything seems to be getting more and more expensive.  Rents have been following this trend, and while that may be good for us landlords, it is not so good for many tenants out there.

I have a feeling many tenants are getting squeezed more and more.  Not only do they have to pay increased costs for housing, food and fuel, think about those student loans and other debt burdens many of them have.  While we can debate the causes and solutions to all of these issues, the fact remains than a lot of people are living paycheck to paycheck and barely scraping by.

Tenants can therefore find themselves between a rock and a hard place.  Their paychecks are just not going as far as they used to and this past winter was brutally cold in many areas causing higher utility bills.  One step back, say a broken down car or an illness which causes lost work, can cause tenants to have to make tough choices.  Should they fix the car, keep the heat on or pay the rent?

Let’s be honest here about this situation, paying the rent is likely to be dropped down the list after getting the car fixed and keeping the heat on.  On the one hand they have to get to work to earn the money to pay the bills so the car will get fixed first.  On the other hand you as the landlord also have bills to pay.  There is nothing I can say to the bank for example that will allow me to delay my mortgage payment.  So what should you do with a financially struggling tenant?

To answer that question, we have to back up a bit first.  We have to go back to your lease signing and move in process.  Hopefully at that time you set up a decent landlord/tenant relationship.  You were firm but fair in noting when the rent is due and what the consequences would be regarding missed or late payments.  Hopefully you also encouraged your tenants to discuss any future concerns or issues with you.  You told them not to stick their head in the sand if they ran into trouble, but to communicate with you about the situation.

So let’s assume they are communicating with you, then what?

Be Nice – Being a jerk is not going to help the situation.  Your goal is to ultimately get what is owed in the easiest way possible.  It is much easier to do that at this point with kindness and understanding.  You can reiterate your policies and concerns, but do it in a non-confrontational manner.

Determine the Nature of The Problem – Is the problem a onetime occurrence?  Will the tenant be able to catch up rather quickly?  Or have they lost their job with no immediate prospects.  The nature of the problem should determine your next steps.

Move Quickly and Decisively – Once the nature of the problem has been determined, you need to move quickly to resolve it.  If you think the tenant can get things worked out, perhaps setting up a payment plan is the way to go.  At least get a verbal commitment, better yet get it in writing through an e-mail.  Hopefully the issue is now resolved.

Move the Tenant Towards Action – If it appears the tenant is in a bad position with no end in sight; your best bet is to begin to cut your losses.  After all, you are not going to get blood from a stone so to speak.  Discuss with the tenant how they are going to resolve the situation.  Ask the tenant if they have somewhere else to go.  Ask if they can get a loan from their parents, friends or church.  The point here is to get them thinking of alternatives with the understanding that they are not going to be allowed to stay without paying rent.

Let Them Go – If their situation is truly bad, your chance of getting paid is tiny.  If the tenant can quickly find someplace to go, let them out of the lease.  Again your goal now is to cut your losses and get you property back and cash flowing again as quickly as possible

If They Will Not Leave – Perhaps offering some cash for keys will be the motivation they need.  Many times these folks are simply out of cash and cannot even afford a moving truck.  Why not rent the truck for them?  Why not give them a couple of hundred bucks to go?  It is much cheaper than going to court and much less adversarial as well.  If they take your offer, be sure to get a signed release to the rights of possession.

Still Won’t Go? Then Set a Deadline – Sometimes no matter what you do, the tenant will just stay in denial and decide not to decide.  This tenant will need the ultimate push, a firm deadline after which you will file for eviction.  Sometimes, the tenant will leave right before or after the eviction is filed.

If You Have To, Evict – I hate to do it.  It is an absolute last resort for me as it is expensive, messy and confrontational.  But sometimes there is just no other way.  However, we have rarely had to use this route, as the steps I have outlined above will usually resolve things.

Unless there is a drastic change in the economy in the near future, I expect everyone to keep getting squeezed more and more (including me).  I would bet therefore that dealing with financially struggling tenants is going to become a bigger part of the landlording business.

The Smarter Landlording Podcast: Episode #2 – The Expert Landlord

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The Smarter Landlording Podcast – Episode #2 – The Expert Landlord: Lessons and Advice from 40 Years, 400 Houses and 200 Apartments.

“I feel like I have lived 200 years with everything I have been through.”

 

 

 

 

 

 

 

 

 

Books We Talked About

How to Wake Up the Financial Genius in You by Mark Haroldson

Strengths Finder 2.0 by Tom Rath

Links We Mentioned

HudHomeStore.com

MemphisInvestorsGroup.com

NationalReia.com

National Reia Cruise

Screeningworks.com

Check out all the podcasts at iTunes on the Smarter Landlording Channel.

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.

My Tenant Called The Cops On Me

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Landlords often hold the mistaken notion that they are the “lords” of their properties.  In many ways they are the lord, but in some very fundamental ways they are not.   Once a lease is signed with a tenant they gain certain rights and acting like a lord may just get the cops called on you.

Here is why.

Your lease grants the tenant legal possession of your property.  Your property is now their home and their home is their castle so to speak.   So just like a homeowner, a tenant has rights in their home.  They have the right to be secure and to privacy for example.  They have a right to their possessions and they can expect that you as the landlord will keep the property safe and habitable.

What does this mean for landlords?

It means that you cannot just go in a tenant’s apartment at any time.  If you do, a tenant can call the cops and potentially have you arrested for trespassing.  Smarter landlords always try to give their tenants at least 24 hours notice before entering.  Most tenants will understand that you need to do routine maintenance and checkups and will have no problem allowing you in with proper notice.  But they may get really angry if they come home and just happen to find you there.  Of course if there is an emergency such as gushing water, a landlord is permitted emergency access to prevent property damage.  Otherwise, respect your tenant’s home and give proper notice.

A landlord also cannot deny access without going through proper legal procedure.  Remember, the tenant has legal possession.  Do not lock them out for any reason, even non-payment of rent.  Every state has a procedure in place to regain possession of the property.  It is called eviction.  If you do not follow this process, it is you that may end up on the wrong side of the law.

As a landlord, you can’t just remove their belongings either.  Even if you think they have abandoned the place and moved somewhere else, there is usually a legal procedure in place regarding a tenant’s possessions.  Here in Tennessee for example, If you suspect a tenant has abandoned the property, landlords have to wait and give notice before they can remove the tenants stuff. Then the stuff has to be stored for another thirty days.  Removing anything belonging to a tenant before you gain legal possession of the property can get you caught up in a nasty lawsuit or even arrested for theft.

Finally, don’t think turning off the utilities will solve your troublesome tenant problem.  You as a landlord have a legal duty to keep the property in a habitable condition, and a lack of utilities is generally going to be deemed inhabitable by legal community.  Will the cops arrest you for this?  Not likely.  But they will institute further legal actions by getting code enforcement involved.

Remember, your tenants have rights.  You as a landlord need to know what those rights are and respect them.  If you fail to do so, your tenant may call the cops and you may find yourself on the wrong side of the law.

 

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Investors Are Being Watched

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We should all be aware by now that serious Wall Street money has gotten into the landlording business.  Hedge funds have been buying up thousands of foreclosed homes all over the United States and placing them on the rental market.  I have been watching this process take place here in Memphis, TN and have wondered how it is all going to shake out in 5 or 10 years.  Looks like others are starting to watch and wonder as well.

This article from the Memphis Daily News takes a look at the impact investors have made on the Memphis real estate market over the past few years.  The article notes that according to Jim Reedy, who owns Reedy & Company here in Memphis:

“Memphis is a 50 percent rental town now and I expect that to go to 60 percent, possibly 65 percent.”

What will the impact on the city be upon loosing so many homeowners?  The article goes on to say:

“The role of investors is growing and the impact on different kinds of neighborhoods is largely unstudied and unknown.”

People are watching this process develop however.  Some, like the Center for Community Building and Neighborhood Action (CBANA) at the University of Memphis are watching rather closely.

In a rather detailed 2010 study of lending patterns in Memphis which examined the roles of some of this City’s largest investors and turnkey providers, CBANA concluded that:

            The significance of the investor-driven market, however, has been anything but clear.

While CBANA can’t say that all of this investor activity is bad for neighborhoods, one can tell from the tone of their reports that they do not think it will turn out very well.

So while none of us may know what the future holds, here is the moral to this story.  With folks like CBANA and others watching us investors, we investors need to be sure we are keeping an eye what CBANA and others like them report.  Why?  Because at the first sign of trouble it will be folks like CBANA calling for new regulations, restrictions and registrations. 

And it will not only happen here in Memphis as there are similar situations in cities all over the country such as Atlanta, Dallas, Indianapolis.   Landlords and real estate investors of all types need to keep tuned into what is said and make sure their voices are heard as well.  Their business may depend on it.