SMARTERLANDLORDING

ADVICE FROM EXPERIENCE

Tenants

The “Getting Your Deposit Back” Form

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Tenant turnover is one of the costliest aspects of this business.  You have to advertise and re-rent the property.  Most likely you will also have to do some clean up and repairs after the tenant moves out.  One of our most important goals in this business is to get our properties back from tenants in a clean and nearly rent ready condition.

Getting your properties back in a clean and rent ready condition is not impossible.  To do it you need to do three things.  First, collect a security deposit for the property.  Then provide your tenants with a “Receive Your Deposit Back” form upon their move in.  Lastly, provide the same form again when the tenant gives notice that they are going to move out.

The “Receive Your Deposit Back” form states very clearly what the tenant must do to get their deposit back upon move out by listing the costs to clean and repair various items that were clean and working upon move in.  For example, if the tenant does not replace a burned out light bulb, it is going to cost him $15.  If they do not clean out the stove, that will cost them $75.  If they did not feel like vacuuming or sweeping up, that will be $50.  If they leave a bunch of junk, it will cost them $75 per hour to clean it up.  These costs are not made up; they are based upon actual labor and materials charges.

The goal here is not to make money with this form.  I can make more money if I can quickly re-rent my property so I want it returned to me pretty much the way it was when it was rented and I want to give the tenant their deposit back.  By using this form you create the incentive for your tenants to give the property back in a clean and working condition.  Tenants now know that it will cost them if they decide not to clean the stove when they leave for example.  We do allow for “normal wear and tear” such as small nail holes from pictures, scuffed up paint and very minor issues that come from someone living in the property.

This strategy has worked pretty well.  Plus, as an added bonus there are less disputes regarding deposits after move out.  The tenant was provided a list.  They signed the list and they made their choice upon move out, clean or not clean.

You should use such a form to help you get your properties back in a nearly rent ready condition.  To help you get started, you can download a copy of the form I use here.

Do Friends & Family Mix With Your Rentals?

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The other day on the radio with Holly Swogger and Jo Garner we were discussing some landlording basics.  One of the topics of discussion touched on renting to friends and family members.  Here is the main point and conclusion of that discussion.  Do not rent to friends or family members!

Renting to friends or family members seems like a good idea at first.  You know them.  You do not have to do a background check on them.  You know where and if the work.  You “know” they will make a good tenant.  And just possibly, they might.

But, what if they loose their job?  What if they just stop paying the rent?  Are you prepared to kick them out?  Are you prepared to take them down to eviction court and then set their stuff on the street?  If so, what do you think will happen to the relationship between you and your friends and family?   Who will end up being the bad guy in this situation?  You will.

The best way to avoid the above situation is to simply not get into it in the first place.  Do not mix your friends and family with your real estate business.  It can lead to some real disasters.  My fellow radio hosts and I have all talked with people who own rental properties they want to sell.  When we ask what they are getting in rent the answer is often $0 because the tenant is their son, daughter, niece, whatever and they can’t bring themselves to kick them out.

Is that a position you ever want to be in?  I don’t think so.  So avoid it on the front end.  Be a smarter landlord and avoid renting to friends or family.

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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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!

Finding and Keeping Good Tenants

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What is a good tenant?  It is someone who will pay their rent on time and take care of your property.

Finding good tenants will depend on your particular market, your marketing strategy and then your screening process.  Keeping them will depend upon how you respond to their needs.

First, you as the landlord need to put on your marketing hat and understand how your potential tenants want to communicate and find you.  Different segments of the market find their homes in different ways.  Some will read print ads, but fewer and fewer do.  Some will heavily utilize the internet.  Others will have limited access to the internet.  Some will drive around looking in particular neighborhoods because of school or family connections so yard signs are a must.

In my market segment, the internet is key.  Thus, a website and ads on Craigslist are a must.  I hardly ever use yard signs anymore as they just do not generate positive leads.  I know others in different markets that have to use yard signs, do not have websites and even hand out fliers at major supermarkets and do very well.  You will most likely need to try several techniques before you find the one that best works for you.

Once potential tenants find you and your property, you need to check them out to find the good ones.  “Trust but verify” are the key words here.  You start this process when they call.  Ask questions like “Can I show you the apartment after you get off work?”  Or. “This apartment rents for $x, is that something you can afford?”  These types of questions are designed to pre-qualify prospective tenants.  With such questions you can find out if they have a job and if they can afford the apartment among other items.

Continue the process by having them fill out an application so you can verify all of their information through a credit, criminal and work history check.  This is a vital step.  Do not take their word. We once had an applicant that looked and dressed professional, had a decent car and said all of the right things.  He filled out his application and paid the application fee in cash.  When we checked him out, he had the lowest credit score we had ever seen and from what we could tell had never paid a bill in his life.  Even the phone company was looking for him.  If we had taken his word and not checked him out and let him move him, he would have lived in our place up to six months rent free before we could have evicted him!  Another gave us his work info but neglected to tell us he had been fired that morning.

As a matter of fact, simply telling prospective applicants that you will conduct these checks will weed many of the bad ones out, but not all of them.  So check them out!

Once your find them and get them in, you want to keep them.  One of a landlord’s biggest expenses is tenant turnover.  When a tenant moves not only are you not collecting rent, there are expenses as well.  Often the apartment will need to be repainted.  Minor repairs may need to be made and carpets will have to be cleaned.  These items can really add up.  So you need to be proactive on the front end and do what you can to keep the good tenants.

How do you keep them?  It is simple.  You respond to their needs and maintain your properties.  You need to spend a little money upfront to avoid spending a lot more on the back end.  If they need something fixed, fix it as quickly as possible.  If they are concerned about crime, maybe you can offer to put in an alarm system for a few dollars more rent per month.  Reward long term tenants with new ceiling fans or other small amenities.

You should also be professional, respectful and fair at all times.  That does not mean you do not read tenants the riot act if you need to, but that you do it in a professional and respectful manner.  Tenants will appreciate this because so many other landlords can be just plain obnoxious.  They have lived under those landlords.  A professional and respectful manner will get you referrals and sometimes my tenants move back after leaving.

So in sum how do you find and keep good tenants?  Figure out your market and how they want to communicate.  Pre-qualify prospective tenants and have them fill out an application.  Verify all of their information.  Be prompt to requests for repairs or other issues from them and always act in a professional, respectful and fair manner.

Till next time, 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.

 

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Pets or No Pets?

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Everyone has different feelings about pets.  Some can’t live without them.  Some can’t stand pets. There are dog lovers and there are cat lovers.  You know the drill.

No matter your own personal feelings on pets, should you allow them in your rental properties?   That depends upon your own feelings as well as an examination of the pluses and minuses on allowing pets.

 

On the negative side:

  1. Pets will cause more wear and tear on your property.  Untrained dogs like to chew on window sills.  Cats like to mark their territory.  Claws scratch up hardwood floors.
  2. Pets create noise.  Especially large dogs.  Noise leads to tenant complaints.
  3. Pets smell.  Ever step inside that cat lady’s house?  Inconsiderate dog owners leave smelly poop all over the property.
  4. Pets bring in unwanted guests such as fleas.
  5. Pets can make handling repairs difficult, especially if there is a large dog that growls at every stranger.
  6. Could be a legal issue if a pet bites someone on your property.

On the positive side:

  1. Pets can generate more income.  You can require a non-refundable pet deposit and even extra rent.
  2. Many landlords do not allow pets. You can get an edge on your competition if you do allow them.
  3. Pet lovers may be longer term tenants because they cannot find other properties that will accept their pets.  Thus, creating less turnover expense for you.
  4. Many pet owners are responsible and their pets will not cause much harm to your property or other tenants.

I am a pet lover and lean towards the more income side of the equation, so I do allow pets in my properties.  However I do not allow all pets and I have a well crafted pet policy (and you should too if you allow them) that you can read here.  This pet policy requires a non-refundable pet deposit, extra rent; it outlines pet size standards and sets other rules.  I like to remind tenants that pets are luxuries and I do not have to allow them.  So follow our rules and everyone can remain happy.

I also inspect my properties every once in a while to make sure everyone is following the pet policy, thus trying to nip potential problems in the bud (and they told me this would be passive income!).

One last thing, whatever you decide, remember that you have to allow companion animals such as seeing eye dogs.

So until next time, work smarter no harder.

Does It Pay To Place “For Rent” Ads Anymore?

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There was a time not too long ago when it was a must to advertise your vacant properties in the “for rent” portion of the classified ads in the local daily newspaper.  While local daily newspapers are still around, today thanks to the internet there are many more choices out there that are available to us to get the word out about our rental properties.  Even with all of this competition, the local dailies are often the most expensive venue to advertise in.  Does is still pay to advertise “For Rent” in the local daily paper?

The answer to that question depends on one factor.

 

What is the demographic you are trying to reach?  Who is your typical renter?

Here is a list of your typical tenant types and ways to reach them.

The Young Hipster/Professional – These tenants are young, just going to college, in college or just starting out at their first job.  They want cool, safe places to live in the “hip” parts of town.  They are generally technologically savvy and their first source of information is the internet.  They never read the paper (I teach at a local community college and for many years none of my students say they read a daily print newspaper anymore).  To reach this demographic you need to have a web presence.

You may be big enough to have your own website.  If not, you at least need to be on Craigslist.org which is free.  Another good source to reach this demographic is your local alternative newspapers.  These newspapers are generally printed every week and are available throughout the city for free.  They often highlight the entertainment scene around town and have a classified section.  By placing an ad in this type of paper, you will reach your demographic as they look for things to do on the week end.  But the bigger plus is that the print ad will also get you an ad on the newspaper’s website, where most of this demographic goes to search.

This website feature may also be true of the daily newspaper.  A print ad may also get you on their website which may be good for people researching your area from out of town.  But it is going to cost you, and the first three alternatives, a website, Craigslist.org and the alternative newspaper are what I have found to be most effective in my area.

The Working Class Tenant/Family – This demographic is going to be looking for value.  They can’t afford more upscale places in the “hip” parts of town but want a clean safe place as well.  Often they will be looking in a particular part of town because of a school location or because they have family and friends near by.  These tenants are not going to be as savvy with technology or their access to it may be spotty at best.  Further they also will generally not read the local daily paper.  So how do you find these tenants?  Signs.  These tenants will generally drive a particular neighborhood makes calls from the car from the various signs in the yard.  Here are a few tips for this type of tenant:

    • Have professional “For Rent” signs made with the name of your company and phone number on them.  Do not use the red and white “For Rent” signs that you can get at the local hardware store.  Why?  A professional printed sign makes you look more professional and the dead beats will move on down the road because they figure you will actually check their credit, criminal and work history.  Trust me, these types of signs are not very expensive and will save you a lot of unnecessary phone calls.
    • You may even want to place a separate sign in the yard describing the unit and the rent, for example 3 BR / 1 Bath $750/Month.  This sign will also cut down on the number of phone calls asking about the size of and rent for your unit.
    • You need to have a system in place in working class neighborhoods so that if someone calls about your rental, you or someone else is able to go right away to show them.  If you make and appointment for a later time, 8 out of 10 times they will not keep it because they have driven down the road and called another one that was able to show up immediately.  I know it is hard, but that is the nature of the business.

The High End/Professional w/Family Tenant – These are professional high income people who are looking for higher end rentals in the nicer portions of town.  They maybe officers in the military who will only be around for a couple of years.  They maybe a business professional that has just transferred to the area and wants to rent for a year or so to get a feel for the area.  These folks are looking for safe, clean well maintained rental properties located in good school districts.

They are very technologically savvy and are often a little more old school and will read a newspaper.  So it may very well pay to place an ad in the local daily paper if you are trying to reach this type of tenant, especially if you also get an ad on their website as mentioned above.  However, they will also find you if you have the web presence that I described above.  A professional sign is also advantageous as these folks will also “explore” their new community.

So does it pay?  I think the answer is generally no.  Print is dying and there are just too many less expensive and father reaching alternatives out there.

Please let me know your thoughts and if you have any tools that you have used to find tenants by leaving a comment below.  Thanks for reading.

Fewer New Households Being Created

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Since the Great Recession began in 2007, the United States has witnessed a drop in the number of new households being created.  Moody’s Analytics estimates that there are about one million less households in the United States than there should be based on current demographics

New households are not being created more slowly in the US.

What’s a household you ask?  A household is simply persons who occupy a housing unit, such as a single family dwelling, an apartment or mobile home.  Households are normally created when children grow up and leave the nest.  Children go out on their own and get their own place.  But in today’s economy people are strapped for cash, so they are doubling up with friends and family.  People are living with roommates, other families or even going back home to live with mom and dad because cash is so tight.

So what?  Well as  landlords and real estate investors, household creation affects us greatly.  If people are doubling up with other people and not going out on their own, that translates into less renters or buyers for our properties.

I know many have said that rents should be increasing because fewer people can afford to buy a home these days and should thus be becoming renters.  However, while the pool of applicants has been steady in my market, I have generally not been able to increase rents due to increased demand (and I

have tried!).  I suspect this drop in household creation over the past few years has something to do with that.

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