SMARTERLANDLORDING

ADVICE FROM EXPERIENCE

Apartments

Online Rental Payment – A Must Have Tool

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I have a question for you.  What is the one thing we landlords want?  I’ll give you a hint. It usually comes on or about the first of the month.  Yep, you guessed it, the rent.  We want to collect the rent.

So here is another question.  Why do many of us in this day and age make it so difficult for the tenant to get us the rent?  Think about it.  How many of you still require your tenants to mail you a check?  Why do you make your tenants go through the process of finding an envelope, stamps and a check month after month?

There is an easier way.

Set up a system to allow your tenant to pay their rent online.

Almost nobody writes checks anymore.  In fact, your tenants are already paying most of their bills online anyway.  They do not have to find stamps for their utility bills or car payments.  They don’t write checks at the grocery store.  I’ll bet many of them do not even carry much cash and instead use electronic debit payments for almost everything.

Setting up a system for online rent payments is easy to do.

We used a system at clearnow.com for many years.  I highly recommend them.  We would still be using it today but our cloud based property management software has an electronic bill payment system included.

The clearnow.com system is a great tool all smarter landlords no matter what your level of experience or how many properties you have.  Using this system will save you, and your tenants, time and effort.  There are many other benefits as well.

  • It is a great marketing tool for the landlord.
  • Rent payments get directly deposited into your bank account.  No more running to the bank every time a check arrives in the mail.
  • Rent collection is much easier.
  • You get a heads up e-mail if a tenant cancels their automatic payment.
  • You can set up different debit days working with your tenant’s pay schedule.
  • Tenants can build their credit histories.

On the down side, there is a small fee charged for this service, but I believe the fee is well worth it for the amount of time you will save.  Plus, this service will not work in all markets or with all segments of the population.  Some tenants simply are not going to have checking accounts.  Tenants in those markets will still need to bring you a money order.

Online rent payment is the wave of the future however.  Philly.com for example reports that rent payments made online have increased by over 66% in the last three years.

So do yourself and your tenants a favor.  Set up on online rent payment system today.  Once you do, you will never look back.

They Can’t See Your Vision

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Recently, Jenna wrote a post describing her experiences showing an apartment and getting it in rent ready condition.  She mentioned that she was showing the property before she was finished with all of the repairs and that one person “shared her vision” and signed a lease for the unit.

First, let’s congratulate Jenna on getting a unit rented and then ready.  She deserves it.  This is her first property and I saw it not long after she bought it, so I know the amount of work and time that was put into it.

Now, let’s use this opportunity as a teaching opportunity.

You see, I think it is a waste of time to show the property before it is rent ready because in my experience, most folks cannot or will not see “your vision.”

Yes, Jenna did find someone who saw through the unpainted walls, the missing appliances, the unfinished floors, the wet paint, the drop cloths, the extension cords, the tools lying around everywhere, etc, etc.  So again, let’s give kudos to her.  But I think her experience was the exception rather than the rule and it would have been a better use of her time to focus on getting the unit ready.

Why can’t potential tenants “see your vision?”  I think for several reasons.

  • They have never touched a paint brush much less done a major rehab so they just cannot conceive of “your vision.”  All they see is the mess which screams “RUN AWAY!”
  • They can’t see past the mess.  The mess prevents them from seeing where their TV, bed, sofa, computer, etc. will go.  In their minds, they cannot see this as their “home” because it is not put together.
  • The unfinished nature of the unit will highlight the imperfections rather than the benefits and charm of the property.
  • They do not want to worry about whether or not you will be finished when they are ready to move in.  Will they have time to finish?  Will they run out of money?  They don’t need to worry about that when there is another unit ready to go just down the street.
  • They want to move and be done.  Moving is stressful.  They do not need the landlord coming in to “finish up a few things.”
  • They are afraid you will not do what you say you will do.  They have been burned by other landlords before.  Why go through that again?

Obviously there are exceptions as Jenna has demonstrated.  Some will “see your vision” or will really like the location or some other factor.  But most will not be able to see through the mess.  Why watch them cringe and frown?  Save your time.  Save your energy.  Focus on getting it done, then show.  Your pool of applicants will likely be larger, giving you the added benefit of being choosy.

Top 10 Rental Lease Agreement Provisions

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The lease is perhaps the most important landlording document.  It is the legal document granting possession of a property from you, the landlord, to a tenant for a specified price and a specified period of time.

Smarter Landlords take care when drafting their lease.  They have it reviewed by a local attorney familiar with the local landlord/tenant laws.  Be aware that not all laws are the same.  Every jurisdiction has their particular quirks.  Even here in Tennessee the laws change drastically if I drive just 30 miles or so east to the next county.

Despite these local differences, most leases will say essentially the same thing.  So what basics should you have in your lease?  Here are my top ten rental lease agreement clauses:

  1. Amount of Rent and When it is Due – Remember this is a legal document and you have to spell out even the most basic of information especially when rent is due.  After all, how else can you determine if the rent is late?
  2. Lease Term – How long will the lease run?  One year?  Two?  A month?  Will it be renewable?  Will it run month to month?  All items to consider and spell out.
  3. Address of the Property – Seems simple, but simple things are easily forgotten.  Be sure you include where the tenant is going to live.  If you get in front of a judge with a lease without an address you may just be out of luck.
  4. Late Fees – How much are they?  When are they due?  Be sure to check you local laws here.  Most states will regulate how much and when you can charge.
  5. Security Deposits – How much are they?  Where will they be held?
  6. Occupants – You need to list the names of all occupants over the age of 18.  These are the folks who are legally entitled to be in your property.  Anyone else can be accused of trespassing if necessary.
  7. No Alterations – Unless you want your walls pink, black or purple (yes they will paint them black) you need to specify that the tenants are not allowed to do any alterations of any kind.
  8. Quiet Enjoyment – This is a legal terms that means the tenant has a right not to be bothered by you and other tenants.  It also states that the tenant has a duty not to bother other tenants with their loud music, late night parties, etc.
  9. Eviction – You should spell out when you will begin the eviction process.
  10. Attorney’s Fees – Be sure you have a provision that all attorney’s fees incurred to enforce the lease (to evict or otherwise) will be paid by the tenant.  If you do not have such a clause you will not be able to recoup these costs later on.

So there you have it, my top 10 residential lease provisions.  You can use these to form the basis of your lease, but again be sure to have any legal document reviewed by a professional.  A lease can of course contain many other provisions as well. But I will save those for another post.

Every Landlord’s Nightmare!

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The following story describes every landlord’s nightmare.  You have to read it to believe it.

Smarter Landlords screen their tenants and verify everything they say.  Save yourself the time, aggravation, frustration and money, screen your tenants or risk something similar happening to you.

 

 

By Barry Carter/Star-Ledger

He looks like an attorney in his crisp gray suit, white shirt and red patterned tie.

Not only does he dress the part, Mark Newton knows the law. In fact, an exhaustive Star-Ledger review of his court filings shows that for at least 19 years he has made Superior, chancery, federal and municipal courtrooms his virtual offices, representing himself in hundreds of court battles — though he has no license to practice law.

His specialty? Avoiding eviction. And he is relentlessly effective.

Read  the rest of the article here.

 

H/T to Josh at Biggerpockets.com

Hiring Contractors on Craigslist

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Kevin recently posted an interesting article about How to Find Good Contractors. I have to agree with him; networking with other landlords is the best way to find good contractors. Sometimes, these contractors think like investors. This can be helpful if you’re new to the game, like me.

We have already established that contracting cheap is not worth it for serious repairs: electrical, gas or plumbing.

My triplex needs a lot of miscellaneous work though. I need to repair the trim on doors, replace a cellar door, craft kitchen floor boards, and replace random pieces of exterior wood. This is in addition to the debris remaining from our carport demolition.

These repairs don’t require a lot of skill, but they do require time. So, it’s time for me to find some hired help. Where does a frugal, novice landlord turn?

Craigslist.

Looking for contractors on Craigslist can be efficient and cost-effective. Many people make their entire living off of Craigslist. I guarantee that you can find someone willing to do the work for the price you’re willing to pay. It’s not all flowers and sunshine though. There are just as many dishonest and unqualified people out there trying to make a dime. Here are a few rules to follow when using Craigslist to hire contractors.

  1. Do not post your phone number, email address or property address on your Craigslist post. You’re trying to save time by hiring help. Don’t waste it away answering questions to no avail.
  2. Itemize each repair requested in your post. Post pictures to reference repairs if you can. Transparency allows people to offer honest bids for the work.
  3. Sign a name to your post, but only a first name. You don’t want them to be able to look your property up if they know it’s vacant, right? *Ladies, I don’t sign my name. I use my boyfriend, Eric’s. It makes me feel less vulnerable, and Eric will most likely be on-site directing them anyway.
  4. Do not provide any information beyond what is needed. This is especially important when you’re issuing multiple posts. People who work off of Craigslist can easily piece together your information based on your signature or pictures. I posted once that I had recently purchased a truck. Someone responding to an unrelated post mentioned it. Watch out.
  5. Provide people with specific instructions to follow when responding to your post. Ask that they itemize their bid for each repair requested. At a minimum, I ask that people respond with their first and last name, phone number, whether or not I can text them, and their itemized bids. If they don’t follow directions when responding, rule them out!
  6. Call your Craigslist respondents. Ask them questions like what vehicle they drive and what tools they plan on bringing to the job. You may want to tell them you’ll call them back after speaking with the other potentials. Be discerning.
  7. If they don’t arrive at the agreed upon time, cancel and start over again. Craigslist is less dependable than Kevin’s recommendations, but it can be worth it. I get better deals when people blind bid for the work.
  8. After the work has been completed, pay the agreed upon price. Only pay your contractor for the work that has been finished. If you ask your respondents to itemize their bids, this step will be easy.

I rank my respondents based on their email professionalism and bid amounts. Good indicators are people who sell themselves a bit, people who respond with a business name and people who respond with a picture of their truck, trailer or tools. As Kevin said though, follow your gut. Be guarded with your personal information and property until you have developed a working relationship.

I will concede that buying, selling, and hiring help off of Craigslist takes time and patience. I’m a beginning investor though; all I have is time and patience.

I’m building a Rolodex from the ground up.

 

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When Is Cheap Worth It?

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I delved into real estate investing because I thought it would save me from the misery of living paycheck-to-paycheck. I’m 2 months into my rehab and I’ve found that not much has changed yet. I’m rehabbing paycheck-to-paycheck. When I’m shopping for tools and supplies, it’s no surprise that I reach for cheap. I look for deals and I do the work myself.

Not everyone shares my sentiments concerning frugality. I bought a Husky crescent wrench and was advised to buy better tools. My plumber strongly recommended that I install a new, double-basin sink. My partner and I disagreed when I insisted on using a combination of old and new shoe molding. This isn’t how I imagined my investor persona!

I justify my frugality by telling myself that I can replace it all during my next vacancy. I need to get my second unit cash-flowing so that I can better fund repairs. I ask myself if my tenants will know the difference. This is when I turned to Kevin. I emailed him, “when is cheap NOT worth it?” This is his response:

  • When it involves gas.
  • When it involves electric.
  • When it wastes your time. You have to understand the value of your time. You may need to pay a plumber for a service call, but they will get it done right and quick. You may be able to do it, but it will take you four times as long to do it. You will have to make three trips to Home Depot to finish it.
  • Appliances! Just buy a new “used” one rather than trying to replace parts. Unless it is incredibly simple to fix, it is just not worth it. The part will cost almost as much as the replacement appliance. You will most likely order or receive the wrong part. Beware, many parts look the same but have slight differences. Trust me on this.
  • Is it really cheaper for you to do it? Don’t try to save money if it is costing you potential rent. Take a rehab for example: You do it all yourself and it takes two months. You could have had it rented at a rate of $625 per month. A contractor could have had the job done in 2 weeks for $1500. Did you really save any money?

I appreciate Kevin’s emphasis on avoiding repairs with safety implications: gas and electricity. I was considering teaching myself how to repair appliances, but I think I’ve axed the idea. For the time being though, it makes financial sense for me to most of these repairs myself. Sometimes cheap is worth it, and sometimes it’s not.

Save

  • We used the cheapest vinyl tile at Home Depot and the kitchen floor looks great. You don’t even notice the mismatched shoe molding.
  • We shopped for used cabinets. We bought unfinished cabinets and painted them. The cabinets look great.

Spend

  •  We bought the cheapest paint brushes we could find, and it was a horrible decision. The hairs fall out and get stuck in the paint. Don’t do it!
  • We paid full price for a window air conditioning unit. I never will again. I later came across two used ac units, which were three times better for a third of the price.

 

While I advocate for frugality, please don’t cut corners by sacrificing quality installation. Tenants and buyers will notice. I firmly believe going cheap should be our current strategy. We rehabbed the entire kitchen of unit 1 for less than $1,000. It looks so much better than before. I look forward to seeing it look even better than now.

Do you have any advice? When is cheap worth it and when is it not?

When to Spend on a Rehab

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Most of the properties I have bought in my investing career have been distressed.  That means that they needed work.  I am not afraid of a major rehab.  In fact, I find that properties in need of a major rehab often make the best deals.

Of course as an investor I want to maximize my return on the properties I buy, but I also realize that I intend to hold these properties for the long term.  So I have learned over the years that you can save your self some money, time and hassle by spending a bit more money on the front end.

Here is what I mean.

Kitchen and bathrooms often sell a place to a potential renter.  If these two rooms look good, not only can you generally get a bit more in rent, you will also generally get a better tenant and the property will rent faster when it comes on the market.

So, instead of linoleum on the kitchen floor, invest in square foot ceramic tiles.  Tile is almost as inexpensive as to install as linoleum but it will look so much better and last so much longer.  Linoleum flooring simply gets grimy looking and it is guaranteed to be ripped or torn by your tenants when they are moving in or out.  Why install a floor that you will have to replace every two years or so?  Go with tile.

Same goes for the bathroom.  Install tile on the floors and shower walls.  Use those same square foot ceramic tiles you put in the kitchen.  They look nice, are easier to clean and simply more durable.  They will resist the water much better than that cheap plastic stuff, and even better, they resist the mold too.

So be a smarter landlord and invest a little bit more on your rehab upfront with the kitchens and baths.  Both you and your tenants will be glad you did.

Breaking Rule #1

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I used to have a best friend whom I knew from the day I was born. We hit every milestone together—and so did our parents.  When we were both looking for a place to rent at the same time, it seemed like a no-brainer. Who else would make a better roommate than my best friend?!

It was quite possibly the worst mistake I have ever made. Within a month, our friendship was damaged. She didn’t like my cat. I didn’t like her make-up mess. We bickered, we fought, and we never recovered.

So, when I read all of the real estate blogs (including this one) about NEVER renting to family or friends, it resonated with me. I knew there was truth behind the warning, and I swore that I wouldn’t do it.

All of that changed when I jumped neck-deep into a triplex rehab. Suddenly, I found myself reevaluating my options—reweighing the pros and cons.

If I rented to a friend, then I could do the work while renting out the unit. I could start building cash flow to help fund repairs. The logic was persuasive.

In the end, we decided to rent to our friend at a discounted rate for one year, which still equals more than if we had held it vacant an additional month. He agreed to paint himself and to allow us free access to his property whenever we needed to fix something. Given that his unit needs the most work, this felt like a decent deal. I conceded; we signed a lease.

It’s now been over a month since we signed the lease, and I have to say, it’s not that bad.

PROS:
The tenant helped with the carport demolition
I have a tenant that I know, like and trust
I’m collecting rents earlier than expected
I don’t have to paint

CONS:
I have to work around stuff: furniture, appliances, dishes, etc.
I feel imposing, especially since he works 3rd shift
It seems like I always have friends over now
I’m more distracted when working

So far, the pros greatly outweigh the cons. We discovered a massive leak in the kitchen wall shortly after signing the lease, which meant that our tenant received brand new cabinets, sink and faucet. We were happy to have him as a tenant throughout the kitchen rehab, which proved to be messy and time consuming. It would have been an awful inconvenience for a new tenant. Plus, he’s happy to have a new kitchen.

I would do things a little differently though, like be more specific!

For example, I told my tenant that I would purchase the materials if he painted. That seemed fair. However, I failed to mention that I had envisioned white paint in all rooms. So, when he brought me the color swatches that he had picked up from Lowe’s, I felt compelled to go with his plan. Had he been an average tenant, I would have responded with a heartless “Sorry but I failed to mention…” Since he was a friend (and had been so great throughout the kitchen debacle), I coughed up the extra cash for the colors he wanted. I’m always looking for the silver lining though. Our tenant friend feels almost as much invested in our rehab as we do.

That has to be good news, right?

Has anyone else ever cautiously rented to friends or family? I would love to hear your thoughts, especially since my grandparents are getting older and inquiring about a one-bedroom.

What’s The Rent?

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Smarterlandlords want to maximize their investments by maximizing rental income.  That means they need to be charging top dollar for their rental properties.  Problem is, how do they know what to charge?  Here are some tips and tools to help.

 

 

 

  1. Talk to other landlords.  Most have no problems telling you what they get in rents because they want to verify what they are doing as well.  Where do you find other landlords?  You can find then at your local REIA.
  2. Scan Craig’s List.  Most landlords will put “for rent” ads up on this site.  You can refine your search in a variety of ways and target your market.
  3. There are several other tools available online.  Use them to establish a base.  But be careful.  Some of the data on these sites can be a bit misleading.  So know your market. Here are a few of the most popular.
    • Hotpads.com – The place to find your place.  Do a search here like you would for Craig’s List.
    • Rentmetrics.com  – Claims to be real time rent comparable data for real estate professionals.  I took a look around for my area and was impressed.
    • Renometer.com  – Paying too much or charging too little?  Cool site but it gave me quite a range for my area.
    • Zillow.com – Search the for rent section to see what you can find.  This site is nice, but it also gives me quite a range.

Remember however that these websites only show what rent was being asked for.  They do not really show you what the landlord actually got in rent.  So again, use these sites as a starting point.

  1. Finally, depending on your market, you may have to drive around and look for “for rent” signs and give them a call.  Some markets are just not going to be as accessible on the internet.

Once you have done your research, try putting your property on the rental market for as high as you think it can go.  If it does not rent in a week or so, you are likely asking too much, drop the price until you find a renter.  Only then will you truly know how much the rent is.

Know Your Market

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As a Smarter Landlord, you should be very in tune with the market where you invest.  Remember, you are a real estate investor buying investment properties and the value of an investment property is based solely upon the income it can generate.

To a landlord that means you really only need to know one thing when looking to buy a property, what will the property generate in rent.  Once you are reasonably certain about the rental income, everything else will fall into place.

I have seen way too many “investors” go at buying properties from the wrong direction.  They start, not by looking at the income, but by looking at the expenses.  They note that their mortgage, tax, insurance and expenses payments will be X dollars.  Therefore they reason, they will need Y dollars to cover those costs and make a little profit.

Sounds great, but here is the problem.   You do not get to set the rental amount at Y dollars.   The market, hundreds if not thousands of other landlords and tenants, will determine what the rent will be for you property.  It may not be Y, it may very well be Z.  The market does not care that you need Y dollars and were not in tune with what it was trying to tell you, it will simply ignore you

This is why knowing your market is so important.  Knowing what your market can generate in rents will set the price for the properties you are looking to invest in.  Knowing your potential rent first and then subtracting expenses will lead you down the path towards becoming a successful investor.  You will also be able to see when a deal is truly a deal.

Remember, the numbers do not lie.  If the numbers do not make sense, then do not buy.   And never, ever bet on appreciation.  Betting on appreciation is speculation, not investing. Look where that got folks in the last few years.

So learn your rental market and what it closely, by doing so you may just spot your next deal.  I’ll write more about that in future posts.