SMARTERLANDLORDING

ADVICE FROM EXPERIENCE

Real Estate Investing

Get Off the Wall

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I attended my local REIA meeting the other night and was glad to see several first time visitors there wanting to get into real estate.  As I have written before, joining a local REIA group is a great way to get into real estate and now is a good time to get into real estate.  Being an officer of MIG and one of the more experienced members, several first time visitors caught up with me during the meeting.  They always ask the same thing, “What do I need to do to get into real estate?”  Here is what I tell them.

First, I tell them they need to study all they can about real estate.  There are many different aspects to real estate and I do not know what you want to do and frankly, neither do you.  Check out every book from the library, buy a few books, listen to pod casts, peruse the internet.  You need to get familiar with the basic terms and concepts used in real estate like wholesaling, mortgage, writ of possession, trust deed, etc and you need to become familiar with the methods to invest in real estate.  There is no right way to invest but not every way is right for everyone.

Secondly, you need to get to know some people in real estate.  You need to meet people who do different things in real estate such as landlording, or rehabbing or retailing.  While all deal with real estate they are very different and utilize very different skill sets.  You need to determine which investing activity best suits your skills.  There is no better place to do this than at your local REIA group by talking with other experienced investors.

I know this can be hard.  I was a newbie once too.  I went to meetings and stood along the wall and I see many first time visitors doing the same thing.  I know what they are thinking.  They are afraid you will sound dumb.  They are afraid you will not make a good impression.

But none of that is true.  The more experienced folks remember when they were first timers and how hard it was to take those first steps.  We will not think you are dumb.  We will be impressed that you have taken that first step!  So take that first step.  Get off that wall and up out of your seat.  Ask what people do, how they got into investing and ask for a business card.

Here is another idea for you first timers, offer to take a few of the people you meet out to lunch.  You need to eat lunch.  They need to eat lunch too.  Use your lunch time to your advantage.  There is nothing like an hour over a good meal to pick someone’s brain.

So get to a local REIA meeting if you really want to get into real estate.  Get off the wall and introduce yourself, talk to folks and find out what they do.  Over time, they will help you become a successful investor and soon you will be handing out cards to the first timers.

The One Clause Every Lease in Tennessee Should Have

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If you invest in the great State of Tennessee like I do, there is a clause that you should be sure that you have in your lease.  I say “should have” because it is not required.  But if you put this one clause in your lease, you will save yourself some time and hassle down the road.

Tennessee Code Annotated (T.C.A.) 66-28-201(c) states in part that:

Rent shall be payable without demand at the time and place agreed upon by the parties. Notice is specifically waived upon the nonpayment of rent by the tenant only if such a waiver is provided for in a written rental agreement.

What that law says is that you the landlord have to provide your tenant notice that he/she is late on their rental payments before you can take them to court, unless your lease specifically contains a clause stating that the tenant waives the right of notice.

When you go to eviction court here in Tennessee, one of the first things the judge is going to want to see is your lease.  The judge will ask if you have the notice clause in your lease.  If you do not, the judge will then ask if you served notice that rent was due.  If you have not served notice, guess where your case goes.  Yep, right out the door.  Ignorance of the law is no excuse.

I know it sounds silly.  The tenant knows they have not paid the rent, why do I need to notify them of it?  Plus, it takes time, effort and money to serve notice, time you do not have because they are not paying you!  You want them out so you can get it re-rented.  So put a simple clause in your lease like the following:

Rent is due without demand or notice from Manager/Landlord.

And be sure to have your tenant initial beside this clause when you are going over the lease with them.

Remember I’m not a lawyer and can’t provide legal advice.  I am only a landlord with several years experience.  So check with your own legal counsel.

Those of you in other states, I bet there are quirky laws like this for your state, so be sure to know and follow the laws in your state.  One good place to find out about local laws is at your local REIA group.  Find one and join up today.

 

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The Time Is Now To Get Into Real Estate!

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Right now there is almost a perfect storm for real estate investors.  If you are thinking of getting into real estate investing and becoming a landlord there is no better time than now.  Real estate is currently on sale and mortgage rates are at the lowest points anyone has ever seen!  Even better, rents are on the rise because more and more people can’t purchase a home and are there fore forced to rent.

If you are thinking about becoming a real estate investor, I can’t emphasize enough how good the conditions are right now.

If you have been thinking about it and you want to jump off the fence and get into real estate investing here is what I would do.

  1. Do your homework.  Learn about real estate investing.  What are the major expenses and how will you handle them.  Join a local REIA for expert local advice.  Get this book for some real expert advice.
  2. Pick a place to farm as I explain here.  You need to start out in someplace you know and someplace you can get to rather easily.  Find a place and get to know it like the back of your hand.  Learn what properties rent for and what they are selling for so when a deal comes along you can run your numbers quickly and grab it.
  3. Get your money lined up.  If you have your own funds, great!  If not, you should go and talk to a mortgage broker about setting up some investor loans.  If you have good credit and income, it can be done.
  4. Look at buying foreclosures.  Foreclosures are everywhere right now and can really be priced right because banks can’t get rid of them fast enough.  There were over 4,000 in my area just this year alone!   Plus, with a foreclosure there are many other advantages that Richard, Jo and I talked about here.
  5. Once you find a deal, jump on it!  You have done your homework, plowed your farm and have some money lined up.   These conditions will not last forever.

Trust me, in a few years you will be wishing you had bought more real estate.  Like my friend Richard says “Don’t wait to buy real estate, buy real estate and wait.”  That’s great advice!

Podcast – Investing in Foreclosures

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Check out my latest podcast where Jo Garner, Richard Scarbrough and myself discuss investing in foreclosures.   We examine what a foreclosure is and the foreclosure process, why they are advantageous to invest in and how you can find and bid on them.  Originally aired on AM 600 WREC on July 7, 2012, be sure to tune in next time on August 4th as we talk more about real estate investing.

 

 

What Makes a Solid Lease

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A solid lease is one of the keys to being successful as a landlord.  It will clearly define both the tenant’s and the landlord’s roles.  So what makes a solid lease?  Here are my top ten components

  1. Make sure it is written.  Seems simple enough but I have heard more than just a few times of people not having a written lease.  If you do not write it down, how will you prove to a judge what the terms were?  It will come down to he said/she said.  Have a written lease!
  2. State the monthly rental amount and late fees upfront and in bold.  Have the tenant initial next to these amounts.
  3. State clearly when the rent is due.  Put it in bold and have the tenant initial next to it.
  4. State the amount of the security deposit.  You may want to have another form letting the tenant know what they have to do to get it back in full.
  5. Set a term for the lease.  Will the lease be for six months, a year, two?  What ever it is set the term and then make it go month to month at the end of that term.
  6. Outline who is responsible for what utilities.  Clearly spell out the utilities that the tenant and the landlord are responsible for.
  7. Have a set of house rules about noise, trash, cars on the lawn, criminal activity, etc, etc.
  8. List what appliances come with the property.  You may even want to list serial numbers on the lease.
  9. If your property was built before 1978, have a lead based paint disclaimer and be sure to hand out the lead based paint brochure.  It could be a $20,000 fine if you do not!
  10. Include any clauses that may be required by your state or local jurisdiction.  Laws vary from place to place.  In my location the laws are completely different from one county next door.  Be aware of your local laws and seek competent advice on them!

You may want to take the time to have an experienced attorney look over your lease.  I have and it really helps.  Also, ask folks at your local REIA group if they will share copies of their lease with you.  Everyone’s lease is a little bit different and you can tailor one to fit your needs.

Finally, your lease should be a “living” document.  You should change it as you experience new issues or laws change.  Review it every once in a while to be sure it is keeping up with your needs.

Happy investing and work smarter not harder!

Dealing With Tenant Drama

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Tenants are the lifeblood of a landlord.  Their rent payments keep us up and running.  Tenants, being human however always bring some drama along with them.  Many times they want to involve you, the landlord, in that drama.

Sometimes it is just petty BS.

“My roommate is driving me crazy and she needs to move out! Make here leave.”

“My roommate did not pay me for this month’s rent so I only have half of the rent.”

Other times it is more serious.

“We are getting a divorce.”

“I lost my job.”

You will get all kinds in this business.  I have had roommates stealing from each other, fall off the wagon, stop taking their meds and start screaming in the middle of the night.  Every year brings a new experience.

You as a landlord need to protect yourself, your property and other tenants from the tenant drama.

Let’s tackle the petty BS first.

First of all, we are clear at move-in, we do not do tenant drama and we do not resolve disputes between roommates.  Renting an apartment is an adult experience and we expect our tenants to act and resolve disputes like adults.

Secondly, you need is a strong lease.  Be sure that every adult living in the property is a signatory on your lease.  Our lease states that each tenant/roommate is “jointly and severally liable” for the payment of rent.  So if one does not pay, the other tenants are each individually liable for the non-payment and we can evict them all.  We also require that we receive only one check or money order for the rent, no matter how many roommates.  You do not want to be chasing down roommates for their share of the rent.  These tips will protect you and give you an out to point towards when dealing with the drama.

When tenants try and drag you into the drama, you need to be cool, collected and firm.  Remember, you do not do tenant drama.  Listen to your tenants, always be polite and remind that they are adults and they need to work out their problems as adults.

Then there are the more serious matters.  You need to have policies in place to deal with these events.

When someone gets a divorce or loses a job, no matter what your lease says, things are going to change.  Your job now is to manage that change as best as you can.  These more serious matters are going to generally require someone to move and many times the breaking of a lease.

Tenants may try to hide things as long as they can, since “denial” is not just a river in Egypt.  Eventually however the problems will surface and you need to be proactive.  Talk to your tenant as soon as you suspect a problem.   Again be firm but polite and listen to the problem.

If there is a divorce and someone needs to move, let them move.  Have policies in place that state the consequences for breaking the lease.  For example we may keep all or a portion of the security deposit depending on the circumstances.  We require a release fee of extra month’s rent if they break the lease.  You just need to say that you understand their problem however our policy is x y and z.  Most people will understand.

When a tenant has lost their job it can be a really serious blow and you have two options; evict them or work with them to move them out asap.  Again be firm but fair.  State that you understand their problem but that they can’t stay without paying and that they will need to find other accommodations soon.

Set a date for them to move out and be sure to stick to it.  You may actually need to help them move along with gentle reminders or you may even want to provide them some funds to move or give their security deposit back upon move out even if the have to break the lease.  You job here is not to stick it to someone who is down, your job is to get your property back in as close to a rent ready state as is possible.  One of your biggest expenses as a landlord can be eviction and the subsequent clean up and repairs.  We try to avoid that at all costs.  You are not going to get blood from a stone at this point, so cut your losses, help the tenant transition out and get your property back so you can re-rent it.

What about the tenant that stops taking their meds and starts screaming in the middle of the night?  When these types of situations arise you need to be careful.  You can try talking to the tenant, but they may not be helpful or may be embarrassed, etc.  In this case you may need to call their emergency contacts for help.

Your rental application should have a section for emergency contacts.  Be sure that you ask the relationship of the emergency contact to the tenant on the application.  Many times the tenant will put a family member, such as mom or brother, on the application.  These types of  situations may be ones where you get in touch with the emergency contacts to discuss your concerns.  Be careful of your tenant’s privacy rights here.  You may just want to let them know that it may be time to check in on their family member.  We have had success using this approach in the past.

As a final note, be sure to check with your own state laws.  If you become aware of drug dealing, spousal or child abuse and do nothing, you may become liable.  So be careful here and take action if necessary.  You can find out about your local laws at your local REIA.

In sum, expect a lot of tenant drama.  Be ready for it with a solid lease, a good application form and firm but fair policies that you discuss with your tenants at move-in.  You can’t predict or be ready for all the drama (we change our house rules every year based on the drama we experience), but you can sure save yourself a lot of aggravation, headache and drama.

 

Subscribe to Smarterlandlording and receive a Free Report: 21 Tenant Screening Red Flags

Finding and Making the Real Estate Deal

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Check out my latest podcast where Jo Garner, Richard Scarbrough and myself discuss finding and making the real estate deal. Real estate deals do not just fall into our laps, they are found and made.  Listen as we discuss the best sources for finding deals and then some techniques and tips we have to make the deal work.  Originally aired on WREC AM 600 on April 7, 2012.

 

What is a Real Estate Deal?

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Check out my latest podcast where Jo Garner, Richard Scarbrough and myself discuss the components of a real estate deal. We discuss figuring out the value of retail, wholesale and buy and hold real estate deals. We cover how to determine offer price, repair prices, holding costs, maintenance and a whole lot more! Originally aired on WREC AM 600 on March 3rd, 2012.

 

Spring Break

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Spring has sprung here in Memphis, TN.  It came a little early this year after a very mild winter.  I’m sure a lot of people now have spring fever and want to get outdoors or to the beach for spring break.  For me however spring break has another meaning, spring means repairs, a lot of them.

It seems that whenever the seasons change, things start to break.  In the spring with the March winds and April showers it is missing shingles and roof leaks.  With the rising temps, people start up their air conditioners and some will need recharging while others may not work at all.  All of the landscaping and trees turn green again and need cutting, pruning and trimming.  In short, it seems every seasonal change, with spring being one of the most drastic, brings a clump of repairs.

It is uncanny.   As soon as the temperature changes, the phone calls start coming in.  “My AC is out.”  “There is a leak in the kitchen ceiling.”   So far this spring I have replaced a condenser, a fan motor, recharged several AC units, fixed three roofs with two more to go and removed two trees that blew over.  And it is not even April yet!  So what does a smarter landlord do about all of this?

  • First, just know it is coming and accept it.  Things break and spring is a deluge.  In the winter it is the heat and frozen pipes.  This is just the way it is.
  • Second, save up some funds.  In a previous post I have stressed the importance of budgeting 10% of gross rents for repairs and putting away a little bit more each month for major expenses in reserves.  Trust me, spring break it going to make you (and your tenants) glad you did.  Understand that you will not have 10% worth of repairs every month.  Some months may have no repairs, but averaged out over the year 10% is a good number.  My repairs for all of 2011 totaled 10.14% of gross income.  Almost right on the money.
  • Third, have some skilled contractors on your team that you can call to fix the problem quickly.  You will need a roofer, a plumber, a good HVAC person and a landscaper/tree person.  By having these people on your team you can handle repair problems quickly and thus cut down on an even bigger expense, tenant turnover because you did not fix stuff in a timely manner.  Where do you find these team members?  Your local reia is a great place to start.
  • Fourth, take the opportunity to be proactive and do a little “spring cleaning.”  Now is a perfect time to inspect your properties, both inside and out, for damages and other problems.  Contact your tenants and let them know that you will be conducting an inspection.  Then, check their HVAC units and change the filters (tenants never do it), check their smoke detector batteries, check the plumbing for leaks and check around the outside for other general repairs such as fallen limbs, rotten wood, etc.

A smarter landlord has to be proactive and routinely check on their properties.  I would recommend that you conduct an inspection at least twice a year.  Perhaps once in the spring to check their AC, clean the condensers, etc., and once in the fall to check their heat.  Always look at the plumbing under sinks, around toilets, etc.  I can’t tell you how many leaks I have found that had obviously been going on for months and the tenant says “Oh yeah, I was going to call you about that.”

So there you have it: spring break, accept it, prepare for it and be proactive.

Until next time work smarter not harder.

There Is No “Right Way” In Real Estate

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My last post was about analyzing a good buy and hold deal.  In it I went through many of the criteria that I look at in evaluating if a potential deal is a good one or not.

A fellow investor and friend of mine read the post and we then had an e-mail discussion on a couple of the points.  He pointed out some of the criteria he uses and the logic behind his methods, which were very sound.  I did the same.

He is quite successful and good at what he does and it got me thinking that there just is no “right way” to do this business.  And that is one of the things that make the real estate investing business great.  As an investor, you can mold the business to fit you, or your customer’s needs based upon expectations or experiences.

However, you have to start somewhere.  You can go it alone if you want to, but I don’t recommend it.  If you are just starting out or fairly new to real estate investing here is what I suggest:

  • Read all you can on real estate investing, business and entrepreneurship.  Even if the subject is not real estate, you need to get your mindset to that of a real estate investor and an entrepreneur.
  • Join a local reia to network with other local investors.  The price of admission will be rewarded back to you many times over.
  • Buy a few of the more respected “Guru” courses.  As I said you do not have to go it alone and you should not.  Some of these gurus have already invented the wheel and will provide you a sound base to get started that again will reward you many times over what you initially invest.  Some of the gurus I have invested in include:
      • Mike Butler
      • Alan Cowgill
      • Robyn Thompson
  • Once you do the above get out there and get a few deals under your belt!  You have read the books, bought the courses and attended the reia meetings.  Now do it!  There is no better teacher than experience.
  • Once you get a few deals done, then you can begin to modify and refine the techniques you have learned to fit your particular niche.  You may want to focus on a particular area, or a particular form of real estate for example.
  • As you become more and more experienced, you can begin to write your own business systems for your particular circumstances and who knows, maybe you become the guru.

Whatever you do, remember there is no “Right” or “One” way to do real estate investing.  There are so many different deals in so many different areas with so many different customers that the sky is literally the limit.

Until next time work smarter not harder!