SMARTERLANDLORDING

ADVICE FROM EXPERIENCE

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Empty Pockets Ahead?

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Realty Trac just released a report showing that the average estimated monthly house payment increased 21% form one year ago.  Seems there has definitely been some appreciation in the housing market.

To many real estate investors, increasing payments may sound like a good thing.  We think that with rents going up we will make more money.  We think that with home prices going up we can flip them for more profit.

But rents and home prices are not the only things increasing.  Almost everything is increasing in price these days.  Have you checked out your grocery bill lately?  Ground beef for example rose about 5% in price in 2013 and it is predicted to jump another 5% to 7% this year.  Coffee is up over 20%.  Gas is also at a 5 year high.

One has to wonder if everyone can afford all of these higher prices.  Will we see increased stress from our renters with more late payments? Will they be moving to more affordable locations or adding roommates?  I have a feeling we will.  Time will tell. 

What do you think?  Are your rents going up?  Are you still able to command higher rents?  Are you seeing any payment stress from your tenants?  Let me know with your comments.

Pet’s Only Please!

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Here is a wonderful example of how you can discriminate against potential tenants.  The local CBS station in Los Angeles reports:

“Judy Guth owns a 12-unit building in North Hollywood.  Not only is Guth pet-friendly, she doesn’t want a tenant who doesn’t have a pet.  All pets welcome — cats, dogs, birds.”

Many think that you cannot discriminate against anyone for any reason. But that is simply not true.  While landlords cannot in most cases discriminate against the seven federally protected classes, race, color, religion, national origin, sex, disability and familial status, many other items are in play.  And you should be discriminatory in who you choose to rent your properties to.

You may not want folks with an eviction or bankruptcy in their past.  If you do not want to rent to lawyers, you do not have to rent to lawyers.  If you do not want to rent to people who own motorcycles, you do not have to.  If you do not like pets, then there are no pets.  Or if you like pets, it can be all pets as in the story above.

They key is to be consistent.  You cannot pick and choose which lawyers you will rent to for example or let some in with a bankruptcy while keeping others under the same circumstances out.  It has to be all or none.  Whatever you decide, be sure to write your rental standards down and keep them in a handy file just in case someone, like a fair housing officer, asks to see them.

Can I Paint My Apartment?

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We often have tenants ask us if they can paint or do other types of “improvements” to their apartments.  The short answer to that question is no. 

We have experimented in the past with letting tenants do some painting or other improvements and for the most part it has ended badly.  I have found walls painted black, purple and other garish colors, colors that take three coats of primer just to cover up.  What’s more is everyone thinks they are a really good painter.  I am here to tell you they are not.  Paint inevitably ends up on the trim, baseboards, carpet, tile hardwood floors, you know, everywhere!  And the paint job is usually so bad that it has to be redone anyway.

Repainting an apartment is not cheap in the first place.  Having to paint over a terrible paint job or use three times the amount of paint normally required because I have to cover “Deep Purple” is not something I want to spend my hard earned money on.

So no, you cannot paint your apartment.  You are going to have to live with the two colors that I use in every apartment I have, Navajo white and pure white.

“But I will leave you the left over paint so you can touch up and get more if you need it after I leave,” they often say.  Nope!  I have been down that road too.  I do not have time to remember which paint color and which finish goes where. 

My two standard colors make my life easy.  I know exactly what color and what finish is used in every apartment I have.  No longer do I have to search for or remember which color goes with which apartment.  I or my maintenance people can simply pull out any can of Navajo White if a place needs a bit of touch up.  It is simple and easy.

Smarter landlords want more “easy” in their lives.  This business is hard enough. So go to your local paint store and pick out a couple of colors for your apartments.  I would suggest a nice off-white for the walls and stick with white for the trim.  Use them every time.  In the coming years you will be glad you did.

Being A Landlord Is Not As Easy As They Thought

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I tried to tell them back in October, managing rental properties is not as easy as you think.  Now it looks like Wall Street is finding that out the hard way.  Will we see all of this hedge fund money that has been fueling the rental housing market boom dry up soon?  Time will tell.

Here is the highlight from the Bloomberg article.

“Rents collected on the collateral for the first U.S. rental-home securities declined by 7.6 percent from October to January, according to Morningstar Inc.

Payments declined as expiring leases and early tenant departures left residences backing the bonds of Blackstone (BX) Group LP’s Invitation Homes vacant, Becky Cao and Brian Alan, analysts at Morningstar’s credit-ratings unit, said in a report.”

Don’t Annoy the Landlord – In Fiji

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File under under “Things are much different here.”

 

Tenant annoys landlord

An angry tenant admitted to uttering obscene words at his landlord last year.

Vimal Singh told the court he was guilty of the offence as the magistrate was getting ready to make arrest orders against the witnesses.

Mr Singh was charged with annoying any person.

The police prosecution informed the court that summons for the two witnesses, including one who was a police constable, had been served last October.

The court was told the witnesses had failed to appear and the prosecution made an application for a bench warrant for the witnesses. Mr Singh told the court there was no need to arrest the two men because he committed the crime.

The court asked him if he was doing on his own will. He responded in the affirmative.

The court heard the incident occurred when the landlord told Mr Singh, who was partying with two women at his flat in Samabula, that partying was not allowed.

In mitigation, Mr Singh said he was 41 years old and self-employed earning around $60 a day.

He told the court he was paying rent for the flat and felt his landlord had ridiculed him in front of his guests.

Mr Singh will be sentenced next Tuesday.

Buying Apartments? Use This Form!

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For us landlords, growing our business means adding new properties.  New property additions mean more rental units and more cashflow.  New property additions also mean more tenants.  Sometimes these tenants come with the properties we buy.  I call these tenants “inherited tenants.” 

Inherited tenants pose a special kind of risk to a buyer in a couple of ways.  First, as a buyer you are generally bound by their existing lease agreements.  You cannot just kick tenants out, raise the rent or revise other lease terms just because there is a change in building ownership.  Second, these tenants have not been through your screening process.  You really have no idea about their background or payment history.  100% occupied may not be what it seems.  So if one of these inherited tenants is a rotten egg, you may be stuck with them for a while

One way you can protect yourself as a buyer is to review all of the leases before purchase.  While I recommend doing this, I feel it does not go quite far enough.  I want more protection.  So I use an estoppel agreement as well.

Estoppel is a legal term which means someone is prevented by their own acts by claiming a right on another party.  For those of us buying investment properties and inheriting tenants an estoppel agreement prevents those tenants from making future claims on us after the property is transferred.  The agreement spells things out on the front end before we buy, thus preventing our inherited tenants from claiming something different later on.

Here is what an estoppel agreement should include:

  • Tenant(s) name and who lives in the unit
  • Lease term
  • Renal payment amount
  • Security deposit amount
  • Who pays utilities
  • Who owns the appliances
  • If there are any pets
  • If there are any problems or repairs needed
  • If there are any other agreements with the landlord.

The agreement should also be signed by both the tenant and the current owner once it is completed.

Don’t think for a minute that some unscrupulous tenant will not try to claim that their security deposit was really $1,000 instead of $500, or that they paid six months rent in advance, or that they really do own those window air conditioning units.  An estoppel agreement will stop those claims cold and it will stand up in court.   

Don’t let yourself be taken advantage of during an ownership changeover.  Protect yourself and your business.  Make completed estoppel agreements a part of your purchase contract.  It’s simple and easy to do plus it may just save you a bundle.

Feel free to download the estoppel agreement I use here.

Is The Real Estate Market Healthy?

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“In conclusion, the reason I remain bearish on real estate is that when the noise is filtered out, the market has only survived by means of an unprecedented amount of intervention.  This dependency is not only unhealthy, its stimulating effect is now fading.  If real estate prices cease to appreciate, the market will suffer, same as it did when the sub-prime bubble burst in 2006/2007.”

 

Want more doom and gloom?  Read the rest here.

H/T to zerohedge.com

5 Screening Techniques When Using Credit Reports

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You may think when you are reviewing a credit report as part of your tenant application and screening process that the credit score is the most important piece of information.  If you do I have to gently tell you that you are mistaken.  There is much more to a credit report that a smarter landlord should be looking at when trying to determine if they should hand over the keys to one of their properties.

The first thing you want to check when you pull an applicant’s credit report is their personal information.  Does their name, date of birth and social security number all match up to what you were told on the application?  Is their last known address the same as they reported on your application?  Are they being upfront about who they are or are they lying to you?  Also check to make sure there is not a Jr. or Sr. in the name as that is sometimes easily confused and abused.

Second, examine their payment history.  Are they late with payments every month or is there only one or two over the course of their history?  Obviously you want someone who pays their bills in a timely manner.  If they do not pay everyone else on time they are not going to pay you on time either.

Third, examine how much has been charged off as well.  A charge off is debt that the applicant owned that was written off as .  If you see a lot of these charge offs, the applicant may not be a good risk as they tend to skip out on their debts.

Fourth, determine if your applicant can afford your property.  The credit report will estimate the total monthly amount of all of the applicant’s debt payments.  You can then use that number to determine if they can afford their debts, their proposed rent and other necessities like food and utilities.  If their debt level is too high, they will have trouble and will have to make a cut somewhere.  That cut could be your rental payment.

Finally, you want to look and see if someone had a life altering circumstance.  Things like a cancer diagnosis or a divorce can really side track things to say the least.  This is why the credit score is not as relevant as the rest of the report.  Their credit score is going to reflect these past circumstances but it may not tell you if they are in the process of getting back on track.  The applicant will have to be truthful about what has happened and note that they are getting things back together.  The credit report should demonstrate these items with recent on-time payments, etc.

The credit report is a must use tool for screening potential tenants.  Learn how to use all of it to get the most accurate picture of your applicant.  Don’t just rely on the score.

Pick Up After Your Dog – Or Else!

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Seems some apartment communities are going to extremes in the war on dog poop.  The Jacksonville Daily News reports that:

“When the registry is complete, the DNA of any dog waste found on the property will be tested and matched to the registered dogs, according to information from the company. The matching owner will then be fined.”

Read the rest of the story here.