6 Reasons Nice Guys Make Broke Landlords

empty walletSuccessful property management takes more work than simply buying a house or condo and sticking a “For Rent” sign in the front. Being a landlord takes many skills, from handyman, to ambassador, to collection agent. Unfortunately, would-be landlords often make mistakes that cost them big time in both headaches and cash. Lots of these mistakes stem from operating their business as a nice guy.

Now, that doesn’t mean landlords should forgo being cordial and helpful to their tenants. Property management best practices dictate there are boundaries that property managers need to recognize and respect. Crossing these lines can result in renters taking advantage of the situation.

Here are six reasons nice guys make broke landlords.

They take applicants at face value.

Landlords who believe they can go with their gut in choosing a renter will often end up paying dearly for that mistake. Failing to perform a tenant background check, review the credit report, and speak to the current landlord can result in renting to someone who is unsafe or won’t pay their rent.  Avoid becoming a broke landlord by ordering a thorough criminal history records search, credit report, and reference check. Review every tenant background check to ensure a successful property management process.

They ignore negative information on the applicant.

A property rental best practice is to weigh all the information about a potential renter, and make a decision. Sometimes, landlords will try to be nice by ignoring  pieces of information that may be embarrassing to or reflect negatively on the applicant. Beware! Landlords who let a previous eviction slide or disregard bad credit or a shoddy work history can end up with an expensive disaster on their hands. Be consistent. Red flags in the tenant background check that make you not rent to one person should also be a factor in turning down another.

They break the rules for tenants.

Nice guys make broke landlords when they begin bending rules to help tenants out. Allowing a cat when there is strict no-pets policy. Making room for an extra vehicle when the lease says otherwise. These actions seem like no big deal, but they set bad examples. Soon, other renters will push the boundaries, and chaos will ensue.

They become too personally involved in tenants’ lives.

Saying hello during a property inspection is one thing, visiting for poker night and pizza is quite another. Fostering a professionally cordial relationship and communicating effectively with a renter is a property rental best practice, but draw the line. Personal friendships with tenants can go awry fast, leaving the landlord with a lost rent, an empty property, and possibly even a lawsuit.

They rent to friends, family.

It’s tempting to rent to a buddy or cousin who is going through a hard time. Landlords must keep in mind, however, they aren’t running a charity. Renting to a friend or family member sets a landlord up to not only lose rent, but the horribly stressful idea of evicting them. Family poses an especially big issue, as this can permanently damage existing relationships. Aunt Edna will never forgive you for kicking her baby son Joe out on the street. If this situation presents itself, the best best is to assist the friend or family member in finding a residence. But don’t let it be on your property.

They forget it’s business.

The overall goal of a landlord is to make money on their rental property. As we mentioned above, successful property management is achieved when the landlord operates in a professional, businesslike manner. Issues arise when landlords forgo business protocol and forget it’s business. By always running a rental business as you would any other business, you can avoid potential tenant pitfalls that can be costly in time and money.

By ordering a tenant background check, landlords protect themselves from renters who won’t pay or will damage the property. Additionally, while landlords don’t need to be monsters, they must maintain a professional stance when communicating with tenants. Avoiding these six behaviors will minimize your chances of becoming a broke landlord

Source: AAOA

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6 Mistakes That Make Good Landlords End Up With Bad Tenants

oopsBad tenants are bad news!

Renting to a person who refuses to pay their rent can cost a landlord thousands of dollars. A destructive tenant may end up damaging your property and racking up huge repair bills. Other nightmare renters can fight eviction, and the worst case is a renter who harms other tenants or even you!

A landlord’s lackadaisical approach to tenant selection can end up biting him in the end. Here are 6 common mistakes that cause good landlords to end up with bad tenants:

#1: Failing to run proper tenant screening checks. This error can cause you to miss big red flags that would steer you away from certain rental applicants. A tenant criminal background check can show you the applicant’s potential for being dangerous or destructive. A tenant screening credit check could alert you to a person’s problems with huge debt, or overall financial instability. Eviction records can return evidence of a person’s past evictions. All of this information is important in determining whether or not you want this applicant as a renter. Foregoing tenant screening opens the door to bad tenants who would otherwise have been weeded out.

#2: Not taking the time to examine the tenant screening checks thoroughly. Simply ordering the proper tenant screening background checks is not enough. A smart landlord must review them closely, and take note of any information that could point to an applicant who would not pay his bills, be destructive, or dangerous. Look for bad money management, overwhelming debt, and recent criminal convictions. If any of these are present, ask questions before you rent to the person.

#3: Not taking quick action. Giving bad tenants a chance to turn it around when you should be beginning eviction procedures is a costly mistake. Currently 35% of U.S. households are renting. The quicker you can get a bad tenant out, the faster you can find a good tenant to move in. Giving the tenant ‘just one more chance’ or allowing them to skip paying the full amount of rent only delays the inevitable. This mistake will stick you with a rental property that isn’t making you (and may even be costing you) money.

Bottom line, if the tenant isn’t following the lease agreement, begin the eviction process.

#4: Skipping the process of verifying their employment.This may be a shocker, but people lie. That is why landlords must verify ALL employment. Not doing so puts you in the tenuous position of renting to an applicant who does not make enough money to pay the rent, or is unemployed altogether. While verifying employment will not guarantee the person will pay his rent, it will go along way to ensure it.

#5: Being lenient on enforcing the lease. Allowing a little leeway here and there may seem like the nice thing to do, but it makes you look like you are not sticking to your guns. Tenants will begin to expect this behavior, and take advantage. The lease agreement was created for a reason! Avoid the temptation of bending the rules, even every now and then.

#6: Having ‘ants in your pants’. Sure, every landlord dreads the thoughts of a property sitting empty. Better, however, to take an extra month to wait for a solid tenant than to hurry and end up renting to someone who trashes the place or won’t pay their bills. Don’t jump on the first applicant walking through the door, or rush your due diligence. Your bank account-and your blood pressure- will thank you for avoiding the headaches down the road that a rash decision can cause.

While landlords are faced with the responsibility of keeping their properties rented, they also need to remember to take their time, screen the applicants thoroughly, and reach a solid decision. Once the renter is in place, the lease needs to be enforced, and the landlord needs to be fair but firm. These practices will minimize the risk of a good landlord ending up with a bad tenant.

Source: AAOA

Legal Aspects of the Tenant Screening Process: Who Can You Refuse to Lease To

accept refuseOne of the greatest challenges of any landlord is finding tenants who will adhere to the conditions of the lease and pay their rent on time. To avoid housing discrimination complaints, it is crucial to abide by federal and state fair housing laws during the tenant screening process. The following guidelines will help you find the right tenants and avoid unnecessary problems.

Objective Tenant Screening Process

Legally, your selection of tenants must be based on a fair and objective tenant screening process. This means you are required to use the same pre-established set of criteria to screen every prospective tenant. Factors you may use to make tenancy decisions include:

  • Tenant Income
  • Credit History (including bankruptcies)
  • Personal and Professional References
  • Rental History
  • Criminal Background
  • Tenants’ Pets

As long as you screen every rental applicant equally, you can avoid unnecessary housing discrimination complaints.

Federal Fair Housing Act

The Federal Fair Housing Act and the Fair Housing Amendment Acts (42 U.S. Code 3601-3619, 3631) make it illegal to base your tenant screening process on discriminatory criteria involving “protected” categories such as:

National Origin You may not make tenancy decisions based on an applicant’s country of origin. This includes offering special discounts or deals to applicants from specific countries, as well.

Race Landlords cannot announce that certain races need not apply or covertly turn away rental applicants of a particular race.

Religion It is unlawful to base your tenant screening decisions on an applicant’s religion. This includes making statements like “wholesome Christian community” in your rental ads because applicants could reasonably conclude that you prefer Christian tenants.

Disability Landlords cannot discriminate against rental applicants on the basis of mental or physical disabilities. You are required to make reasonable accommodations for disabled tenants, so be sure to examine federal and state laws that may apply to your situation.

The law also offers limited protection to recovering alcoholics and former drug addicts. You cannot reject an applicant solely on the basis of alcohol or drug addiction, but you are allowed to examine other aspects of the applicant’s history. For example, if the recovering addict has poor credit or a negative rental reference from a previous landlord, you may base your tenancy decision on these factors.

Familial Status and Age You may not base your rental decisions on an applicant’s family status or age. In addition, it’s illegal to only offer certain units to applicants with children.

Sex and Sexual Harassment Applicants cannot be turned away due to their gender or because they refuse a landlord’s sexual advances.

Your state and local housing discrimination laws may offer further protection for prospective tenants that goes above and beyond federal law. In some states, it is also illegal to make tenancy decisions based on age, marital status and sexual orientation.

Exceptions to the Law for Tenant Screening

Certain types of rental properties are exempt from federal fair housing laws. These include:

  • Owner-occupied rental properties with up to four units
  • Certain types of members-only rental housing operated by private clubs and religious organizations
  • Single-family homes rented without the use of a broker or advertising, just as long as you do not own more than three of these homes
  • Senior citizen rental communities

Even if the Federal Fair Housing Act doesn’t apply to your specific type of rental property, fair housing laws in your state may offer protections for tenants that are exempt from federal law. Be sure to review both state and federal laws before you begin searching for new rental applicants.

Source: AAOA

80 Questions to Consider When Interviewing Your Next Property Manager – Part 3 of 4

shake handsAs a self-managing landlord I pride myself on being able to manage my properties myself. Unfortunately, self-managing is not for everyone for various reasons whether it’s not your thing OR you are not in a position to do so, or anything in between. Even myself, the self-proclaimed self-manager will someday use a property manager.

Over the years I have learned that not every property manager is made equal. Therefore your job as the owner, is to find a property manager to find that amazing property manager who will make your house into an amazing asset not a financial liability.

As a self-managing property manager my lease is my bible that has 38 addendums and is 16 plus pages long (http://www.reluctantlandlord.net/create-a-rock-solid-lease/). Your property manager should be treated the same way. You, the owner, are ultimately the one who has to answer for all that happens with your investment, so you need to make sure you are hiring right manager. You can do this by properly vetting your manager.

Here are the next 20 questions to ask yourself when you are vetting your property manager. View Part 1 and Part 2 for additional questions.

Author’s Note: Many of these questions can be solved by examining the lease/property management contract first. Personally, I would want a copy of the property management contract before my first interview so I could put together all my questions from that BEFORE I talk to the property management. This way, you are not asking questions that are answered in the contract AND you can follow up directly from the contract. Remember: it doesn’t matter what they say, it comes down to what is in writing, i.e your contract.

  1. Do you recommend any work to be done to get top dollar? You want to know if they have any recommendations to get the best rental price from the unit.
  2. How long do you think it will take to rent out? You want to know how long it will take to rent out. Vacancy is lost revenue. Often times it’s better to go cheaper than vacant.
  3. How quickly do you schedule showing/return calls? One of the things I found is important is to get people into the home as quickly as possible. For property managers that are not quick, this can be as much the issue as the price.
  4. How long does it take you to approve and get a lease signed? I have found that this is also very important because I have had many people find other units when I have not been quick enough to get them approved and qualified.
  5. What is your schedule for payments when installing a tenant? I personally do not accept a signed lease until I have all of the deposits. Then first month’s rent is due with keys. It is important to know the process so there are no surprises.
  6. Do you have a termination clause if it is not rented after so many months? Also, does a vacant unit qualify as just cause to end the agreement between you and the property management company? Make sure you know what qualifies, so you don’t get stuck in a contract that isn’t working out for you.
  7. Do you have a trial period? Be sure you know under what circumstances you or the manager can end the relationship prematurely and what penalties or costs you will incur. Also, inquire as to how much notice you need to give if there is an option to end the agreement.
  8. Do I pay any fees when the place is empty? Some companies may charge you while your unit is empty or charge seasonal fees (opening/closing pools, winterizing homes) even if the home is not occupied.
  9. What is your termination policy? Ideally, you want a contract that allows for termination without cause with 30 days’ notice. A company’s termination policy will provide you with a clear exit strategy.
  10. What is your late policy? The key to keeping tenants on time with rent is to have consequences. Therefore, it is very important to enforce the late policy. You want to know their exact process.
  11. What is your late fee amount? I personally charge a 10% late fee, but based on the state and the company this can change. A late fee is one of the biggest incentives for the tenant to pay on time.
  12. Who keeps the late fees? Depending on the company many will keep the late fees for themselves. This is a negotiable item, there is no standard that is industry wide.
  13. If fees are not collected from the tenant will you still charge the owner for them? I have heard of owners that get upset when they are charged for fees because the tenants didn’t pay. This is crazy I know, but it has happened.
  14. How many “late” payments does it take to have a fee assessed? I give my tenants one late payment, and then after that I ALWAYS assess the fee. You want to have the company’s policy so you are not surprised when the first late fee is waived.
  15. How many evictions have you had last month? I would want to know how many evictions the company handles on a regular basis. This indicates how thorough the company is when selecting tenants.
  16. How do you handle eviction process? You want to know when the company will start the eviction process. Do they do it in house or hire someone? What is their procedure?
  17. Is the eviction part of the cost or is it additional cost? When I was first looking for a management company, I found that some charged $20 an hour on top of their monthly fee to handle an eviction. This can really hurt you financially if you are evicting for nonpayment of rent and therefore also not receiving income.
  18. What is your application and screening process?  This process is extremely important for selecting the right tenant and reducing the possibility of damages or an eviction. Other than a credit, criminal and eviction check, managers should also be contacting references and interviewing tenants to make a solid decision.
  19. What are your screening requirements? Do they accept someone even if they have foreclosures, short sales, 400 credit scores, evictions, etc.? Remember you are picking someone that you can trust, so you can be hands off. This is why it is very important that you agree with who they are picking.
  20. Do you run it by me before you approve a tenant? Some companies just place the tenant and others get final approval. If you want to be more involved, this is the time to ask.

While this list seems very long and complex, many of these things will be answered in the lease and property management document/contract. This is not supposed to be a complete list, but rather a starting point to begin your interview and selection of the best property management. Be sure to read Part 4 next week for 20 additional questions you should be asking your property manager.

Happy Property Manager Hunt!

 

ElizabethBio: Elizabeth is an entrepreneur who is turning her love of rental properties into a work-from-home positions that she self manages anywhere in the world. Follow her at Reluctant Landlord. Looking for a jump start to writing your perfect lease? Check out her book, The Everything Lease Addendum: How To for Landlords. It includes all 37 addenda with wordings and the explanations. Elizabeth hopes her passion for turning her ulcer inducing moments into a solid lease helps you learn these lessons vicariously and not through the trials and pains she experienced.

11 Reasons You Might Not Need a Property Manager

Happy HouseTo make sure you actually need a property management company to manage your property, answer these below questions…

 

1) Do you have plenty of time on your hands? Being a landlord is a 24/7, 365 day-per-year responsibility. It does not stop when you are at work or on vacation.

2) Are you available and willing to show the property to prospects? You pay for an advert in the paper or you post a link on Craigslist. Prospective tenants often have a limited time frame and expect the landlord to fit in with their schedule. Are you prepared to take time to work or plan your weekend around showings?

3) Do you possess the knowledge to consider an application according to the Fair Housing Act (FHA)? Your gut feeling is telling you the prospect is bad news, but do you know what grounds you can deny the applicant? An FHA violation on the grounds of discrimination can be very costly.

4) Do you have the resources to thoroughly screen tenants? A thorough screening process results in reliable tenants that pay rent on time, rent for longer terms, leave less wear and tear on the property, and generally cause less problems.  A thorough screening process includes Employment and Wage Verification, Consumer Credit Reports,  Nationwide Criminal Records, Nationwide Eviction Records, and Residence Verification.

5) Are you skilled in all areas of maintenance or do you have a licensed contractor on speed dial? From plumbing to A/C repairs and cleaning to painting, these expenses can quickly add up. Failure to address these issues in a timely manner can cause property deterioration and costly vacancies.

6) Are you familiar with the North Carolina Landlord Tenant Act? Tenants can be litigious and likely know this legislation better than most landlords. Your asset is at risk if you cut legal corners.

7) Are you able to receive and/or collect rent easily? For some owners, it’s as easy as sitting back and counting the money, but what happens when the check bounces or doesn’t arrive at all?

8 Are you able and prepared to post required notices? Maybe the rent is late or the tenants have parked their truck on the grass again causing a HOA violation? Regardless, the situation needs to be formally addressed. Even if you live close by are you comfortable with potential confrontation.

9) Are you able to perform periodic inspections (at least every 6 months)? The house was in great condition when the tenants moved in, but how are they looking after the place a few months down the line? The ability to stop by unannounced is a great incentive for tenants to keep the property in good shape.

10) Are you able to apply the law objectively without getting caught up in emotion? Tenants come up with all sorts of reasons as to why they can’t pay rent, and often a firm stance will nip this in the bud. Tenants often see landlords as property moguls and consider their own financial woes to be more important than the property owner’s.

11) Are you familiar with the eviction process?  There are tremendous amounts of red tape surrounding the lawful eviction process, and no, changing the locks while the tenant’s out just isn’t an option. A good property manager is on the ball and able to handle evictions for you — quickly, efficiently, and in compliance with state code and regulations.

If you answered “Yes” to ALL of these questions, congratulations, you do not need a property manager. If you answered “No” to ANY of these questions, find out how Bev Roberts Rental & Property Management can help you.

Should You Rent the House or Sell It?

for-sale-for-rentNewly married couples who came into the relationship with their own real estate face a big decision: Keep both properties and turn one into a rental or sell it and take whatever equity is available.

Here are some questions these homeowners need to ask themselves before deciding whether to rent or sell:

Do you really want to be a landlord? Keeping a rental property can be advantageous to your long-term investment plans if you are consistent in keeping a quality renter in the property. Even if your cash flow is neutral after paying all of your bills, you have the long-term potential of having someone else pay off the mortgage on your rental property. This means that, at some point, you will have a debt-free asset to sell or an income-producing asset to keep in retirement.  However, if you run into a situation where you have bad renters or cannot find a consistent tenant to pay rent, you run the risk of negative cash flow, which can be a drain on your family finances.

What kind of upkeep will the house need? The property will ultimately need some level of upkeep. I’ve maintained a position that your home will need somewhere between 1% to 2% of its overall value for ongoing maintenance and upkeep. This means if your rental property is $200,000, you’ll need a side cash fund of $2,000 to $4,000 annually. Most people who own rental properties don’t plan for emergencies, such as a broken water heater, that may come up.

Is there equity in the house? Real estate in general is a long-term asset. You generally shouldn’t buy real estate unless you have five years or more to hold the property–and in today’s market it may be more like 10 years.

There are people who know how to property flip, but the odds are it isn’t you. If your spouse’s property is under water, it may make sense to hold on to the house for several years to see if you can get a rebound in the home’s value. This is preferable to a short sale, which can damage your credit as a newly married couple. If the property has equity, consider the overall trajectory of growth of the value of house compared to you having the cash in your hand to invest in other areas.

Can you refinance? Typically, interest rates are a little bit higher on rental properties than on a primary residence.  With rates still around all-time lows, you should check into a refinance to see if you can lower your overall costs before you explore the idea of renting.

Can you actually rent the house?  Some homeowners or condo associations only allow for a certain number of homes or condominium units to be rented out within a development or building.

Will you get any additional tax breaks? Check with a certified public accountant on this one. Depending on your overall adjusted gross income and how the property is structured, you may or may not be eligible for a tax break. Most people will use straight-line depreciation on the property over the life of the property, so you may run into a situation where you are cash-flow neutral and actually have a tax loss on paper. This is a critical piece of the equation when you start looking at the math.

Ted Jenkin (@tedjenkin) is the co-CEO and founder of oXYGen Financial, a financial advisory firm focused on the X & Y generations. He also blogs at yoursmartmoneymoves.com.

Source: Wall Street Journal

The Number Of Renters Is Exploding And It’s Not Because Of Millennials

America is quickly becoming more and more a nation of renters – but it’s not Millennials who are leading the charge.

While 20-somethings still make up the largest single cohort of renters, the 40-plus crowd now accounts for a majority of all renters, according to a biennial study from the Harvard Joint Center for Housing Studies out Wednesday, underscoring the changing face of America’s renters.

Over the last decade, the rise in Millennial renters has paled in comparison to the surge in older renters. Consider that the number of renters under 30 has increased by almost 1 million in the last ten years. Now compare that to the 3 million more Gen X renters and 4.3 million more renters in their 50s and 60s over the same period.

The_rise_of_renters_by_age,_2005-2015__chartbuilder

“Rentership rates among gen-Xers and baby boomers are also rising, changing the traditional profile of the renter population,” note the authors of the report. ”While the conventional image of renters is groups of young unrelated adults living together, these types of non-family households make up a relatively small share of all renters and their numbers have grown only modestly in the past 10 years.”

Part of the sluggish rise in Millennial renters can be attributed to the number of young people who have continued to live at their parent’s houses in the wake of the 2008 financial crisis, rather than find their own place. There’s also still a wave of younger Millennials who will become renters in the coming years.

Yet, the report is more of a reflection of the people of different ages and walks of life who are increasingly choosing to rent. For instance, the number of families with children who are renting has swelled by 2.2 million over the last decade. There are also 3.3 million more people with incomes of $50,000 or more who are renting, including 1.6 million who are pulling in $100,000 or more.

For many, it’s not a matter of choice. With the bursting of the housing bubble, almost 8 million homes have been lost to foreclosure since 2004. Mortgage credit has also tightened and home prices have continued to rise, making it more difficult for those who would like to become homeowners to actually do so.

One problem with more and more people joining the ranks of renters is that it has contributed to an affordability problem. As of mid-2015, there were 43 million families and individuals who were renting, up by nearly 9 million from 2005. This “unprecedented” gain has never before been seen in any 10-year period on record.

With rising demand and extremely low vacancy rates, rents have been going up. At the same time, incomes have been stagnant and declining. What that has meant is that last year there were more people struggling to make their rent than ever. According to the report, nearly half of all U.S. renter households (equivalent to 21.3 million) spent more than 30% of their income on housing in 2014. Of them, about a quarter (or 11.4 million) spent upwards of 50% of their income on rent.

Source: Forbes