10 Ways to Get a Bad Tenant to Turn Good

medium“Someday changing filters, fixing light bulbs, and answering phone calls for plumbing issues at 2 a.m. will cause you to exit self-management.”

“I tried to add up all the hours I worked on my properties but gave up after six and I was only talking about my renovation.”

I get these thoughts often since I am certainly not quiet regarding my self-management or Empire Building status.  Even though I hear those thought often they still make me giggle every time. While self management has had its ulcer-inducing moments, over the years I have learned 10 tricks to make doing it myself (DIY) self management to be much less work. While nothing is quite as passive as hiring an amazing property manager (remember they are not all made equal), since I get two calls (repair man/tenant) to their one (property manager) it has become passive enough that doing it myself is still worth the savings.

1    Clear Concise Contract To Prevent Unneeded Stress – In the beginning one of the worst parts of landlording was everything felt like a debate or a discussion with my tenants.  I was always getting a text that said, “Do you have a moment? I want to discuss something with you and find a solution that works for both of us.” I hate this comment as it was code for “lets renegotiate” or “I want to get out of my obligations”.  Plus it was never in my benefit (if its not in your lease spelled out or not local or state law you have no recourse)!  So I ended that, quickly. I create a 16 page plus page lease and covered everything. Now on the off chance something comes up that isn’t covered I handle it and than I add to it for the next renewal or tenants (you can’t change a binding contract while tenants are currently in place). After that there was no more discussion, mostly no more phone calls. Now it all said see your lease. 3 hour discussions have become 5 min.

2   Institute Penalties – The next important key was to have penalties in my lease for violations. I was always told that without spelled out penalties in the lease, there was nothing you could do when your lease was violated excepted evict. Which the tenant knew was an empty threat. Are you really going to evict because the lawn wasn’t mowed? So I ended up having a tenant who I had to either evict or put up with. Now I have a third option, I charge them a fee for violating (think traffic ticket) and they continue on occupancy.

3   Charge Your Tenant For Your Time – Your time is worth money. One of the most important messages I have learned is not to undervalue yourself. I have starting instituting a handling fee for having to organize carpet cleaning, vent cleaning, landscaping, filter changes, etc at the end of the tenancy.  This was started after too many tenants saying, just take it out of my security despot. So now I have to handle things that should have been their responsibility so they are paying me for it, since my time is worth money.

4   Hold Their Feet to the Fire –  I do not put up with ANYTHING from my tenants that violate my lease. I always equate it to the parents with rules/expectations have the well behaved kids. Once I created a 16 page lease that had all of my expectations AND held my tenant’s feet to the fire, self-management got pretty easy. Most of my tenant management problems went away. Even now the only time I have regrettable tenant interactions were due to not following my own advice and being nice. I have also found that people respect you for holding their feet the fire.

5    Repairs –  I have a policy of my tenants being responsible for the first $100 of any repair. While I wasn’t a believer at first, regarding the repair deductibles, I am now. While this hasn’t prevented any of my tenants from reporting a valid repair, it has reduced the silly ones, like the broken refrigerator call due to not understanding what an ice-maker sounds like. It also puts skin in their game for them to treat the appliances like one should. For example using the trash can and not the garbage disposal.

6   Handy Man –  While we do some large repairs in our rentals (check out our Tip that we learned from doing our Tile Shower Project) day to day repairs go straight to the handy man. We text so its super easy and totally worth not having to do the in and out repairs.

7    Day to Day Maintenance – We have a specific section in our lease that goes over their expectations regarding filter, batteries on the thermostat, smoke alarms, etc. That is not our responsibility and the occasional time we get called over an issue like that, it goes right back to the tenant.

8   Create Efficiency Systems – I have my tenants text not call as much as possible because I can multi task with text much better. It is easier to answer a tenant request while at the vet or on the go. I keep old paperwork and reuse the same wording over and over again. Once I find a system that works amazing, I do it over and over again.

9   Lower Rent for Quicker Tenant Installation – This is the biggest time consuming part personally. Personally, the reason it is time consuming is because I try to max out my rental price. Instead of going for a number I know will rent out within a day, I go for the top market. Meaning more showing, messing with the rents, and tenants who are trying to shop around. On the other hand, if I really want it to be easy, I go a little below market so it’s a deal. It is gone instantly with one showing or maybe even a site unseen tenant and no more issues.

10 Move Out – In my lease I have gone into great detail on what I will charge and expect on move out. I have fewer issues because it is all laid out. Steam Cleaning, Vent Cleaning, Housekeeping, Pet Damage, etc. This way if any of those items are needed, I am not thinking about it. I simply write the letter referring back to the offending items.

As a self manager I have learned there are no guarantees or promises. No matter how great my lease is I anticipate always having challenging moments. My goal is simply to reduce as much as the unnecessary stress as possible.

What are your tips to making self-management as easy as possible?

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.

Late Paying Tenant

AttorneyThe Landlord Protection Agency® presents John Reno, Esq., a highly experienced Landlord – Tenant attorney based on Long Island, NY.

Q: Dear Mr. Reno:
I have a slow paying tenant. The tenant admitted he is having trouble paying rent on time. The first time he was late he left a hand written note indicating he would be 9 days late. Now, a month later–his second month no note, no payment. I thought it is time to send him the pre-eviction notice. After that, what would be my next move?
Doug S.

A: In most states, you can go directly to eviction court if it’s a non-payment situation. You can send him a notice of your intention to commence proceedings, if you think that will help. You may be just delaying the inevitable.

Replaced Door; Tenants Not Satisfied.

AttorneyThe Landlord Protection Agency® presents John Reno, Esq., a highly experienced Landlord – Tenant attorney based on Long Island, NY.

Q: Dear Mr. Reno:
I have tenants who are good tenants in that they always pay on time, and keep the house very neat and clean. They do have a cat (their lease states no pets) but I am willing to overlook since they pay rent on time. Recently they demanded a new front door be put on because the old wood one had a small crack in it. I obliged, however they didn’t like the way the contractor I hired installed it, and threatened to hire their own contractor and take any expenses incurred out of their rent. Is that legal?? I want to keep them happy and keep them in there, but at the same time do not feel I should cater to their every demand. Please advise! Thanks.

A: Tell them any further “door work” will be at their expense. Don’t let them deduct it. They’re out of line!

3 Things You Should Know About Rental Income

money houseBuying an investment property can be an excellent way not only to generate income, but to build wealth over time. However, as with any other investment, it’s important to know exactly what you’re getting into before you buy your first rental property. With that in mind, here are three things you may be surprised to learn about rental income.

Matt Frankel: As a former rental property owner, I would have to say that the biggest thing to keep in mind about rental income is that it isn’t the consistent income stream many people believe it is.

There are several variable costs of owning rental property that can cut into your net income. For example, property taxes and insurance costs change every year — and usually not in your favor. Maintenance expenses can vary dramatically over time, as you can have several trouble-free years and then suddenly be forced to complete an expensive repair, such as replacing an HVAC system.

In addition to the variable costs of property ownership, be sure to consider unexpected breaks in your income stream, such as the possibility that your property will sit vacant between tenants for longer than you anticipate. Hopefully, you’ll never need to go through the process of evicting a tenant, but I can tell you from experience that it can be lengthy and costly.

The point is that the money you collect in rent can produce varying amounts of net income from month to month and from year to year. Be sure to plan for the unexpected when buying a rental property — not just the best-case scenario, as many rookie landlords incorrectly do.

Dan Caplinger: One aspect of rental properties many people don’t know about is that if you rent out real estate on a more casual basis, you might not have to pay any taxes on the income you earn. If you rent out a vacation home or other property that you use for residential use, then you can qualify for a special exemption that prevents you from having to report the income that your rental generates. The maximum period for which you can rent the vacation home over the course of a year and still qualify is 14 days, but if you stay at or below that level, then the ordinarily extensive reporting requirements essentially disappear. Many people take advantage of the 14-day rule with second homes, especially if they happen to be located in areas where certain annual events regularly happen.

One thing to keep in mind with this rule is that you’re also not allowed to take any deductions for expenses related to the rental of your vacation home. However, with most vacation homes, your personal use of the property precludes you from taking deductions for losses in any event. The 14-day rule lets you get a taste of rental income without all the hassles involved in committing to making your property available year-round.

Jordan Wathen: All real estate investors aim to make money on their property, but there’s an upside to losing money, too.

Depreciation is a real estate investor’s best friend. Over time, the tax code allows you to depreciate the value of a home to zero, even though it is more likely to have gone up in value than gone down. Thus a home purchased for $150,000 would create $5,455 per year in depreciation expenses against the rental income it generates for the next 27.5 years.

Rental income is classified as passive income. However, depending on how much you earn each year, you may be able to use passive paper losses from real estate investments to offset income from other sources. Those who earn less than $100,000 per year in adjusted gross income can use up to $25,000 of losses from passive investments like real estate to offset other income. This benefit eventually phases out for the highest earners, but it can be a significant advantage to investing in real estate, as paper losses can help shield more of your returns from the tax man.

Source: fool.com

80 Questions to Consider When Interviewing Your Next Property Manager – Part 4 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 1Part 2, and Part 3 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. What do you charge for your application process? Some companies charge a high amount to applicants, others charge the owners, and some may include it in your monthly fee.
  2. What form do you use for the move in/move out inspection? Personally, I would want to see the forms as this is what you can use to prove the tenant did damage.
  3. Do you take video or pictures? What is your criteria for what you put down on the forms? The more detailed the company is, the easier it will be if you ever need to go to court.
  4. How often do you do inspections during a tenant’s term? Many property management companies do yearly or quarterly inspections.
  5. How do you document the inspection and do you send it to the landlord? If they are supposed to do inspections you want to make sure you receive a copy. You also want to make sure the inspections are documented.
  6. How do you handle the security deposit? You want to know where the security deposit will go and who holds on to it. Will it be given to you or will they be holding on to it?
  7. How do you charge for tenant’s damage during their lease term? You do not want everything to wait until the security deposit is due at the end of the leasing term. You want it to be taken out as the damage is done because the security deposit is their incentive to not cause an issue.
  8. If there are damages upon move out who does the accounting (you or the owner)? If the tenant does a ton of damage you want a property manager who is going to pursue the tenant for you. First, by taking it out of the deposit and then by sending them a bill for the rest.
  9. If the tenant has damages that exceed the security deposit do you come up with the documents and pursue the tenant? Every company does this differently, so it is important to know who is responsible for what.
  10. When do you return the security deposit? Do you get approval from the landlord first? There has been a lot of issues with property managers returning the money too soon and missing deductions for tenant damage. Personally, I use almost the entire time provided by law so I can make sure there is nothing missing before I return the deposit. I do not return the deposit at the move out or even during the first week.
  11. Do you do a pre-inspection prior to the tenant move out? I only do one in California as required by law, but requirements and standards may differ among companies and states.
  12. What is your maintenance minimum/policy? A lot of companies have a number, say $200, in which they will approve any repair under that amount. It is important to take note of this as these can really eat your profit.
  13. Do you charge for an additional fee for maintenance? Some companies charge 2% or more on the repair costs or maintenance.
  14. Do you get multiple bids from vendors?  I personally like multiple bids, especially when the scope of the work is large.
  15. Is your maintenance in-house or from a vendor? This could determine cost of maintenance and also could indicate how well they are able to handle spur of the moment emergencies.
  16. How do you handle off hour emergencies?  Does the company’s staff receive the calls 24/7 or do the calls go to an answering service? Also check if there is a surcharge if there is a night or weekend emergency.
  17. What do you consider emergencies? What is their definition of an emergency? This will tell how quickly a tenant’s problem will linger or if they will get service right away.
  18. Do you ask permission or just fix and bill? Some emergency repairs can cost a small fortune. If you want to decide what gets fixed and know how much it will cost you, you should make sure that communication will be present.
  19. How much time do you leave between tenants? I try to schedule things as quickly as possible so my downtime and therefore vacancy is as close to zero as possible. The key to this is being on top of things. Some people schedule weeks in between tenants, so you’ll make sure this amount of time is at a minimum.
  20. Do you show the house while the current tenant is in the home? One of my ways to keep costs down is to show the house while the tenant is still in the unit, instead of waiting for them to move out. Although scheduling may be more difficult, it helps fill a vacancy quicker.

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.

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.