Ethics & Discrimination…. A question of Right vs Right!!

Ok so I was having this debate with a local landlord and I’d like to hear your opinion…. You charge $25 for your application fee. You show the house to a nice couple and they want to apply but they don’t speak, read or write English. They have an interpreter there to help them fill out the application and the interpreter would also be there to help them understand and sign your lease agreement if they’re granted the rental. And of course you don’t speak their language. Would you automatically disqualify them? If so, would you still take their $25 application fee knowing that they’re not going to get the rental? Let’s keep in mind that we’re all ETHICAL investors AND we don’t want to be sued for DISCRIMINATION.

I posted this question on the BiggerPockets Forums and got a HUGE response. Please chime in on here or on the forums if you have an opinion. I love a good debate!

Here's the link to the BP debate: http://www.biggerpockets.com/forums/52/topics/154214-ethics-and-discrimination-a-question-of-right-vs-right

4 Ideas To Fill Your Rental Vacancies During The Winter Months

It’s that time of year again and landlords are franticly trying to place tenants in their vacancies before the cold weather hits. We all know that the pool of prospects looking for rentals drastically diminishes during the cold weather months. This is the time when many landlords start making catastrophic mistakes in tenant screening.

During the spring, summer and early fall months, most good landlords are experts at tenant screening. We do credit checks, criminal background checks, eviction history checks, call former landlords, employment references and personal references. Well usually around the month of November all of that stops because landlords are so afraid of carrying a vacancy for a few months. Well let’s think about what you’re risking here. If you’re not properly screening your tenants, you may have the property rented, but you open yourself up to much more risk including nonpayment of rent, property damage and expensive legal fees trying to evict a bad tenant.

Here are 4 alternative options to conceding on tenant screening:

Reduce the rent: Many landlords don’t want to reduce their rent because of course this takes away from their bottom line. But think about it, would you rather lose $1,000 a month by having a vacancy during the entire cold weather season ($5,000 / 5 months) or discount the rental by $50 ($600 / 1 year).

Offer a Step-Up Lease: A step-up lease would have a tenant paying a certain amount for a period of time and then the rent would increase at a certain point. So you could have the tenant paying $900 a month from November until April, then in May the rent shoots up to $1,000. You could even include a provision that the tenant can opt out of the lease (and leave the unit without penalty) at the end of the April if they don’t want to pay the rent increase. If they do decide to leave in April it would actually be a benefit to you because from then on, all of your leases on that unit will end in the spring time instead of the winter.

Offer An Early Payment Discount: I actually do this all year-round.  I’ll have the tenant sign a rental agreement saying that the rent is $1,000 a month, but they will receive a $25-$50 discount if the rent is paid BEFORE the 1^st of the month. This way, I can advertise the apartment at $975-$950 as long as I disclose that this includes the discount. And yes…. If they pay between the 1^st  and the 10^th, they have to pay $1,000. Oh yeah, and if they pay after the 10^th, they’ll have to pay my $5 per day late fee until it’s paid in full.

 Be Flexible: If you’re one that doesn’t want pets or smokers in your rental. Now might be the time to be a little flexible. I would definitely suggest getting a one time or monthly pet fee or simply asking smokers to not smoke in the house. But turning these people away might just be the difference between keeping your building fully occupied and running vacancies throughout the winter.

These are just a few options that I consider when placing a tenant during these Connecticut winter months. But the one thing that you DO NOT want to do is to relax your standards in tenant screening.

What is Cash on Cash Return (CCR, COC, IIR)?

Post by  Ben Leybovich

The most easily understood metric of investment return in real estate is Cash on Cash Return, usually abbreviated either CCR or COC.  The concept is rather simple – CCR juxtaposes the cash investment that has been made to the Cash Flow (Income minus Expenses) being received.

For example, let’s say you invest $100,000 cash to buy a 4-plex which generates $2,000/month of Gross Income which results in $1,200/month of Cash Flow.  Since CCR is usually thought of in terms of annual return, we must multiply all of the monthly numbers by 12.  Thus, this $100,000 4-plex is generating $14,400 of Annual Cash Flow.

Now, CCR is simply the answer to the question – if I invest $100,000 in this 4-plex, how quickly, or at what rate, would I recover my cash?

Framed in this way, all we basically aim to find out is what percentage of $100,000 does $14,400 represent.  In mathematical terms, if $100,000 is 100%, then $14,400 is x – at which point we solve for x:

X (CCR) = $14,400 / $100,000 = 14.4%

 

Thus, having paid $100,000 and received $1,200/month of Cash Flow, our achieved CCR is 14.4%.
Let’s just say that in lieu of paying $100,000 cash for this 4-plex, you instead make a down-payment of 25% ($25,000) and finance the rest.

In this case, the presence of a note for $75,000 would require a monthly payment – let’s just say $450/month.  This extra expense would have the effect of lowering your Cash Flow from $1,200/month to $750, or $9,000 per annum.  But, what does this look like in terms of the CCR?
Well – the thing to remember is that while the cost of your investment is still $100,000, the actual cash investment to you is only $25,000 in this case.  Thus, what percentage of $25,000 is $9,000?
CCR = $9,000 / $25,000 = 36%

Infinity ROI

Indeed – the less money you have in the deal, the higher the Cash on Cash Return.
And if we follow this path of thought far enough, we would realize that any return on investment of $0, no matter how small, is actually infinity ROI.  Yes – it’s true; if you managed to purchase this 4-plex with 100% financing, without putting any money into the deal, then even if you were only earning $100/month of cash flow, it is still a return on investment of zero – infinity.
This is the neighborhood where I’ve lived for the past decade and how I’ve bought everything that I own.
Having said this, I must warn you to please not go out and buy a fully financed 4-plex if the extent of your cash flow will be $100; doing so will put you one leaky faucet away from not having the money to keep afloat.  However, it is indeed possible to buy with no money down and this represents the single greatest advantage of real estate as an investment vehicle.  But I’ve strayed, so let’s get to the IRR…

Limitations of CCR Which Are Corrected With IRR

CCR has some inherent to it limitations which render it inaccurate for the very sophisticated investors.  When very sophisticated investors evaluate investment opportunities, they must assign value to things like time value of money and opportunity cast, not to mention that any movement of cash in or out of the transaction significantly impacts the returns, this can not be addressed by simply considering the IRR.  Let’s talk about these one at a time:

Time Value of Money

Time Value of money is simply the reality that money is more valuable today than at any time in the future.

There are many economic reasons for why this is true, but it all comes down to the concept of buying power and erosion thereof over time due to inflation of the currency supply and the resulting price inflation.  Currency held today does indeed store more buying power that it will in the future – this statement is almost always true.
With this in mind, the sophisticated investors have to price this erosion of value into their return.  Let’s say that over a set period of time a given investment produces Cash on Cash Return of 12%.
But, in the same period the inflation clocks in at 3%.  On the day the money was vested, it had buying power equal to 100%, but on the day the return was dispersed the buying power is only 97%.  This has to be accounted for, and the IRR formula does exactly that, while CCR does not.

Opportunity Cost

As they say, there’s a right place and the right time to do everything.
So, if you invest the money now and lock it in for a set period of time, what other, and perhaps better, opportunities might come along that you will not be able to take action upon because your money is locked in…?
For sophisticated investors this is an ongoing problem.  For example, I bring to them my syndicated apartment building.  It looks good today, but what if someone else brings them a deal tomorrow that’s better?  What is the premium ROI that they expect to receive with me today in order to be willing to tie-up funds for a period of time…?
IRR formula addresses this as well.

Movement of Money

Finally, having weighted the opportunity for time value of money and the opportunity cost, IRR also is able to track movement of cash in and out of investment by tagging each movement with a date.
For instance, having purchased an asset, you might receive cash flow for two years, and then you might choose to refinance the building, which would constitute a large waterfall event.
Later, however, you realize that you were too aggressive on your refinance, leaving your DSCR too low, which result in your cash flow being unable to support the CapEx.  Now you have to dip into your pocket to pay for the repairs, which naturally adversely impacts your IRR.
Once this happens, you decide to sell the building.  And, since there are so many idiots chasing yield in the marketplace, you actually manage to sell a money-loosing asset at a profit – so you add that profit into the IRR.

Conclusion

The formula for IRR is rather complex, and I’ll let the mathematicians worry about why it works and how.  I simply use an excel spreadsheet to line-up and time-tag all of the in-flows and out-flows, and the formula calculates the return.
Perhaps some visuals or even a little video would be useful here.  But, I’m busy – may be next time.  I’ll simply tell you that to an individual investor buying long-term hold a 10% – 12% IRR might be quite respectable.  In terms of syndications, however, we shoot for mid-teens to make opportunities attractive to the partners.

Creative Approach to FREE Property Management

I met an investor that has a unique approach to RE investing. He has very little headache with renters because of this win-win philosophy. He looks for people in his community that have a down payment and want to buy a home but cannot qualify for a loan . He offers them a 25% stake in a multi-family that he buys. He puts in his own money for the rest and moves them into one unit in the building. They pay whatever rent is the standard for that unit. They get their share (25%) of revenue from the building later. This way, the building gets taken care of automatically. Since they live in a building they own, they keep an eye on the other renters, no surprises, no trashing. One unit (that they occupy) is permanently rented, no need to pay a property manager. Everyone is happy. This person has several such units he co-owns. Never paid a penny for property management.

I see a few flaws in this concept. But overall, I think it's brilliant. This is why I love real estate investing. There's so much room for creativity!

The best way to pet proof a rental (Q&A)

 

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Question: I am currently looking for more investment property in my town, and in doing my research on the local buy/sell pages it seems like there is an incredibly high demand for rentals that accept pets. I, like most landlords, don't really like the 4 legged friends to be in my units, but this might be a market here to make some money if I can find a way to keep my turnover costs low by "pet proofing" any new units that I buy. Just wondering what are the best ways to "pet proof" a rental?

Answer:  Hi Ken, You definitely want to get rid of any carpet in the unit. Also think about removing screen doors and adding doggy doors. Good exterior fencing will attract responsible pet owners. I feel that the little dogs do a lot of urine damage, so I'd rather have the mid size dogs. Meet, photograph, and pre-approve each dog. Do inspections and act on damage quickly. Charge a higher deposit and maybe even add $25/month extra for each dog.

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If you have a different opinion or just something that you'd like to add, please feel free to leave a comment below.

This is not legal advice. Please contact an attorney for professional legal advice.

Can I Deposit A Post-Dated Rent Check (Q&A)

 

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Question: I have a tenant who unexpectedly sent me the next three rent payments with post dated checks. Apparently she will be traveling a lot and didn't want to forget to pay.
I have asked her to clarify her intent, but I was wondering if I'm obligated not to deposit them right away. It would be easier to do that so I can't lose them, but I could see how that might not be legal.
Thanks for any advice.

Answer: Hi Dan, I try not to get into legalities because I'm not an attorney. However, I probably wouldn't try to deposit all of them simply because they probably won't all clear. I would probably just write her an email or a letter asking her what exactly her intentions are. That way you have it in writing.

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If you have a different opinion or just something that you'd like to add, please feel free to leave a comment below.

This is not legal advice. Please contact an attorney for professional legal advice.



HELP, The Police Destroyed My Condo (Q&A)

 

 

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Question: "Hi Cameron, In 8 years of landlording, I haven't come across this one yet. I got a call from my tenant on Saturday, saying he and his wife are out of state on vacation. Their mother-in-law stopped by that afternoon to feed their fish, and discovered the door had been broken down, and the police were in the parking lot. This is in a condo complex.
The police told her they were called by a woman who said she was being assaulted by her husband, and she had ran out of their condo. The police asked where she was, and in her panic, she gave the number of my tenant's unit, where she had stopped to make the call. The police arrived, no one was outside and no one answered the door when they knocked. Because no one was home....so they proceeded to batter it down.
The officers gave the mother-in-law their cards and a number for me, the owner, to call to discuss compensation. I finally reached someone in their Risk Assessment department today, who said they will file a claim and an adjuster will call me. However, he said what the police did was within the law, and the fact that they were given the wrong address was not their fault.
They not only broke the door, but severely damaged the frame, and this will be at least a $750 repair. Has this happened to you or anyone that you know?"

Answer: Hi Aly, I actually haven't heard that one before. You can talk to an attorney but I'm pretty sure that they were within their rights to force entry into your condo as long as they were under the impression that someone was in danger inside. The fact that it turned out to not be true is irrelevant. But again, I'm not an attorney so you should seek professional advice. With that said, I'm pretty sure that they'll reimburse you for the door and frame. If not, email me and I'll personally contact an attorney for you!!

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If you have a different opinion or just something that you'd like to add, please feel free to leave a comment below.

This is not legal advice. Please contact an attorney for professional legal advice.

Meriden Mayor Wants To Eliminate Landlord Fees

A first term mayor in Meriden is coming under fire for his plan to eliminate a program that keeps a close eye on landlords and their rental units. While some renters are up in arms, Mayor Manny Santos said he is sticking to his guns, saying the current program is bad business for the city. 
A student at Middlesex Community College in downtown Meriden, Troy Wiley said as a renter, he's had his fair share of lousy landlords.
"Not bad enough to complain, but pretty bad," Wiley said. "Me I'm the type that would just get up and move if it was that bad."
Wiley said he had some concerns when we told him about Santos' recent line item budget veto.
In an effort to trim the budget, Santos wants to get rid of Meriden's certificate of compliance program and defund the housing division, which he said would save roughly $70,000.
Since 1980, Meriden requires landlords to pay $25 every two years for each of their rental units. The city's housing inspectors then check those units to make sure they're up to the city's codes and regulations.
"At this point, I think it's an intrusive program, having out city inspectors going into rental units, private property every two years is too much," Santos said. "It shouldn't be a function of our city."
Santos said the current program does more harm than good and claimed it discourages investors from town.
"I want a process in place that's efficient, if a renter or a landlord has a complaint, I want that complaint acted on quickly and decisively," Santos said.
Just because he wants to eliminate the certificate of compliance, Santos said this doesn't mean landlords will have free reign. Rather Santos said the city will take a reactionary approach and that renters will need to step forward when there is a problem.
Others said they are concerned though that without that oversight, some landlords will let their rentals go.
It's why Thursday night's special council meeting looking at the veto and also including a resolution to review the current housing code is expected to be packed and contentious.
"Some landlords feel they don't need to do anything because they don't live in Meriden," Wiley said. "They live in New York, so they look at Meriden as their last priority."
Thursday night's special city council meeting is set for 6:30 p.m. at Meriden City Hall.

Story by:

WFSB

5 Smart Ways to Spend More NOW to Save Big LATER as a Landlord

As a landlord and a business person, you should always be striving to improve the bottom line.
Doing so however is not always easy and can actually require you to spend time and money up front for a return later on. For some, spending upfront can be hard to do, it can seem counterintuitive. But I have learned over the years that spending the money and time now really does save in several key areas.

1. Find and Keep Good Tenants

Turnover is a killer. Reducing turnover will significantly reduce your expenses and save you money. Think about it, when tenants move out there are all sorts of administrative and rehab expenses, often running into the hundreds if not thousands of dollars. Finding tenants who will stay long term is one of the keys to this landlording business.
It begins with screening. Watch out for frequent movers. Pay for a credit and criminal history background check. Spend the time to check all references before giving them the keys. Then work hard at keeping them happy. Respond to their requests. Fix any problems quickly and keep your properties neat and tidy. A little upfront here can go a long way later on.

2. Install Energy Saving Devices

Utilities are another major expense. Usually, unless you rent single family homes, the landlord has some utility payments. It is common for the landlord to pay for water. Thus, low flow faucets are the name of the game during rehab.
I have also been amazed at how much less electricity those new fluorescent bulbs use and how much longer they last. These things do cost a little more, but over the long term, they are worth it for the reduced utility costs

3. Challenge Your Property Tax Assessment

I do this on just about every property I purchase. I have found that the local property assessor’s values are often tilted towards the high end.   After all, their unstated goal is revenue. If you buy properties at a discount like I do, you can use your purchase prices to significantly reduce those assessed values, thus reducing your property tax bill and increasing cashflow.
Be forewarned, this is a time consuming, bureaucratic process, but it can be very rewarding as the new value will likely be in place for several years.

4. Maintain

Small problems can turn into large ones very quickly. It is best if you catch and fix these small problems early. The old saying is true about maintenance; it costs money because it saves money. Don’t let a little problem like a sink leak turn into a major ceiling repair. One way to do this is to regularly conduct inspection of your properties. Tenants for whatever reason will not always tell you when there is a problem. You have to stay on top of things.

5. Refinance

Interest rates have never been lower. Commercial loans as of this writing are hovering somewhere around 5.5 to 6.5 percent. That is incredible! There really is only one way rates can go, and that is up. Refinancing and lowering your borrowing costs now can really save you money if you plan to hold a property for any length of time. Yes there will be closing costs, but remember to look at the bigger long term picture.

How to Evict a Tenant Without Losing Your Mind

Today we’re going to talk about that subject that no one likes to discuss. It’s the topic that no one even likes to think about. It’s so miserable that, well, we would all feel better if we pretended that it didn’t exist. I’m talking, of course, about evictions.

One of the sad realities of being a landlord is that no matter how well you perform your tenant screening, and no matter how good of a manager you are, there is always a chance that you might have to evict one of your tenants. This sucks.  There is no gentle way to say it. It just totally sucks. The media unfairly portrays landlords as being greedy, heartless misers. But in reality, the vast majority of us are compassionate human beings who hate to put our tenants out on the street.
As a human being, on a purely emotional level, we feel their pain. But we also have mortgages to pay.  We have tax bills and insurance bills and repair and maintenance costs and management fees. We just can’t allow people to live in our houses for free.  Besides, if we did allow that, we would be unfair to all of those hardworking tenants who pay their rent in full and on time.

What reasons might you have for evicting your tenant? Failure to pay the rent is one of the most common reasons, but in addition you can evict your tenant for:

• Destroying the property
• Violating the law (for example, if you suspect that your tenant is selling illegal drugs from the property)
• Disturbing other tenants (for example, if the tenant is frequently throwing loud parties)
• Hosting unauthorized tenants or sub-tenants (for example, if only two people are on the lease but there seem to be eight people living there)

What should you do if you have to endure an eviction?  Here is my three step process for how to evict a tenant.

1. Learn the Landlord Tenant Laws in Your State on How to Evict a Tenant

Pretend that you are back in high school or college, and you’re about to take a massive final exam in which you will be quizzed on every detail of your state’s landlord tenant law.  Study it with that degree of discipline and scrutiny. You should have done this already, by the way.  If you’re a landlord, you should know your state’s landlord tenant laws like the back of your hand. But take a moment to review this carefully so you can make sure that you don’t make any missteps.

2. Document, Document, Document

Over-document everything.  Take photos, take videos, make duplicate copies of every form.  Send everything through certified mail, and make copies of all of the confirmations.  Backup all of your data into a cloud service like DropBox, so that in case your hard drive crashes, you can still access all your records.

3. Ask Landlords in Your Area to Recommend a Good Eviction Company

In many cities across the U.S., you’ll find companies that specialize in handling evictions.  These are referred to as eviction service companies.  They are incredibly knowledgeable about the eviction process and local eviction laws. They also often tend to have close relationships with the police marshals and the sheriffs in your locality.  After all, this is what they do, all day, every day. They can handle the service for you, so that you can make sure that everything is being processed “by the book.”

You don’t want a judge to throw out your eviction because of some type of “i” you didn’t dot or “t” you didn’t cross.

Local real estate investors in your area should be able to recommend an eviction company that they’ve worked with before, so ask around.  If you don’t know any local investors, Google the name of your state plus the words “real estate investor’s association,” or Google the name of your city or state plus the words “eviction services companies.” Yes, you can handle the eviction yourself, but remember that you’re dealing with a highly regulated legal proceeding.

If you overlook some small detail regarding the proper procedure and format, then the eviction might not be granted.  You’ll have to start the process over again, and that will take up even more time. And when you’re not receiving the rent money, that time is incredibly expensive. Furthermore, using an eviction service company will spare you from many, many hours of frustration, headaches, and anxiety.  I would gladly give somebody a few hundred dollars in order to substantially increase my peace-of-mind.

The bottom line is that evictions are never fun.  They stink for both parties; the landlord and the tenant. But using a professional eviction services company can help you minimize both your risk and your frustration.  

Renting To Military Personnel (Q&A)

 
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Question: Do you know anyone else that has had significant problems with military tenants?
The story: First off, I am as red blooded as one can get, I love my country and my military. I served ten years in the Army, during which I spent 3 years deployed and was medically discharged in 2010. When I was exiting the military, I was also dating a wonderful woman.
She and I decided to start a family, and the house that I purchased before we were married (3 bedroom, 2 bath, SFR) was no longer sufficient when we were ready with child number 3! So, we went through the very fun/stressful times of getting another loan approval for a larger house. So, we purchased a 4 bedroom, 3 bath SFR with about 1300 more square feet and some acreage. How did we do this with a home we already owned? Of course, we had to rent it out! So, we put it on Craigslist and within days we had multiple offers.
We were going to manage this property ourselves and selected a military tenant. He didn't have the best credit, but for his pay grade and the cost of living around the base (this is New London, CT), the numbers matched, so we went ahead and signed a lease with him. He paid the security deposit, pet deposit, and the first months rent right there on the spot, so everything seemed like it was working out. We started the lease in November 2012, which was stressful enough, however, the lease took us through December 2013 so we figured this was no big deal. We would renew the lease and there wouldn't be any problems. The house was built in 2009 and there were no deficiencies noted so we were all in at this point. So....after I decided to educate myself on property management strategies and general real estate investing (in which is how I found your blog), I've seen the error of my ways! I have nothing but love for our military, but when my military tenant uses the military as his excuse for missing his rent payments, I started to worry. I served myself, and I know that since 2001 I was paid on the 1st and 15th every month without any problems for ten years.
**This was/is our first rental by the way**
Our military tenant was sometimes 3, 5 14 days late with his rent payment. Some months we showed empathy for him, and didn't charge late payments. This allowed for more late rent payments, without any notice. We called him, sent letters, texted, emailed, tried every means of communication we could. We told him that we just needed to hear from him, let us know what was going on and we would support him, and rarely (or never) got a response until he paid. Then, he would send a small text saying something like "sorry, military paid late this month". He would blame it on Congress, Obama, etc. Don't get me wrong, I do NOT like Obama, and would like nothing more than to blame every problem I have or had on the Regime. However, this was not the case, I am a Federal employee, and know that no matter what, Congress would pay our military before paying us, so no way did they screw up their pay. That stuff would make the news anyways.
Regardless,. it was a bad situation, so come November, we sent a letter notifying him that we would NOT be renewing his lease. He and his new fiancé (nope, he didn't provide her information) didn't protest, they moved out. We had about 14 days to get the house rent ready. This time, we hired a property manager in the area that was/is actually pretty easy to work with. We aren't making any money, but, we aren't dealing with a bad tenant now either. We thought this would be easy, lets get the make ready knocked out and get a tenant.
Well, the first time we walked the property after this guy left was with our new property manager. We walked in the door and were blown away with the number of little pin holes in the walls. We had to spend 2 days patching tiny holes, then painted the whole house. After that, we had to replace the master bedroom door (which he or someone punched a hole through). We had the carpets shampooed twice, cut the grass and found a year's worth of dog poop and cigarette butts, and scrubbed the garage so it didn't smell like smoke. All in all, this was exhausting, and a very good lesson for us!
This experience actually pushed me to start researching property management and real estate investing. I know we made pretty much every mistake in the book here, and we learned from it. This hasn't deterred us from renting to military, we want to acquire more properties in the area and provide great homes for our service men and women to live in while they serve in Groton. This experience however, has taught us MANY valuable lessons in renting/leasing.
The most important factor here is, yes, we love our military, but, remember, they are people just like anyone else. They get paid housing allowances. Know the going rate for your area, and build a relationship with the base/post housing office. They can tell you whether or not military got paid. Also, they can be a pretty good resource when looking to invest outside a military installation. Many soldiers/sailors/airmen look to the housing office for available housing off-post.
Sorry for the long drawn out email, but back to the original topic/question: Have you or any of your clients had significant problems with military tenants? And, how did you/they deal with those problems?

Answer: Wow Joe, well first I'll say to you "Thank you for your service to our country"! Sorry but I actually haven't come across this issue before. However, like you said, Military personnel are regular people just like anyone else. When it comes to renting to them, I'd just do due diligence like everybody else. If they have bad credit then I'd be hesitant to rent to them. I would also recommend that if you decide to rent to a military person that you get his/her unit phone number/contact info. Then call it later before he/she moves in to verify it's his/her unit. Most of the time it's safe to rent to a military person or family but there are many military people who have never rented a home before or will cause some damage due to negligence or inexperience. Obviously military people can move between units, even on the same post, but it helps to at least have a starting point. You could also try contacting their commander and letting them know of your tenant's delinquency. They may "lean" on them a little and encourage them to get their act together.

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This is not legal advice. Please contact an attorney for professional legal advice.




Illegal Rental Clauses That Could Land You In Court

IOWA CITY, Iowa (AP) — Several provisions commonly included in Iowa City apartment leases are illegal because they unfairly shift costs from landlords to tenants, a judge ruled this week in a case that could affect thousands of tenants.

 

Judge Douglas Russell's ruling, issued Tuesday, is a victory for the Iowa City Tenants' Project, which is bringing class-action lawsuits against landlords on behalf of current and former tenants.

Russell ruled that landlords cannot automatically charge tenants for carpet cleaning when their leases expire, cannot charge tenants for damage caused by others to common areas and cannot remove the landlord's liability for injury and damage to tenants, among others. All of those provisions are illegal under Iowa law and should be removed, he wrote in a 13-page order.

 

Russell certified the case as a class-action, but the exact size of the class and the amount of any damages would have to be determined later. He said a trial should determine whether landlord Tracy Barkalow included the provisions "knowingly and willfully," which would qualify the class for punitive damages meant to punish and deter wrongdoing.

 

Christopher Warnock, a lawyer for the Iowa City Tenants' Project, said the ruling should have broad effects in Iowa City. Barkalow, a mid-sized landlord with about 80 tenants, uses the same lease as the Clark family, which has long been the dominant player in the Iowa City rental market. Warnock is pursuing a similar class-action lawsuit against the Clarks.

 

Warnock said Friday he expected both sides to appeal aspects of Russell's ruling to the Iowa Court of Appeals. He believes the ruling means landlords are likely to have to refund some fees, such as those assessed for carpet cleaning and other unjustified or excessive fees assessed against tenants.

 

"The carpet cleaning and penalty fee rulings are the most important," he said in a statement. "Many landlords in Iowa City and throughout the state have been illegally charging tenants non-existent damages and charging for carpet cleaning without proof the carpets are even dirty."

Barkalow's attorney, Rob Hogg, didn't immediately return a phone message.

 

Connecticut Post

Should Landlords do Property Inspetions? (Q&A)

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Question: Good morning Cameron, I'm just wondering how often other landlords do a walk thru of the property to make sure they are not trashing it? I normally walk thru every other month but lately it drives me nuts the way some or my tenants live. Stuff everywhere, can't see the floors, clothes thrown everywhere, dishes piled 2ft high in the sink, etc. That's not a real big deal because you can't tell them how to live. All have great references and the money up front, go figure. Sometimes I wonder if its better not to walk thru as long as the money keeps coming in.

Answer: Hello Nate, some landlords that I work with do inspections once a year, some do it once per quarter and some don't do it at all. I'm sure that it frustrates you to see your apartment in shambles but that really shouldn't matter as long as everything is in working order.  Remember that you are looking for issues that will cost more if ignored. As frustrating as it may get, DON'T STOP DOING YOUR INSPECTIONS, it may be your only chance to remedy a small problem before it gets bigger. Some landlords that have concerns of their tenants not being very receptive to inspections simply call it something different such as "Seasonal Maintenance" or "Safety checks". While they're in the house they check the HVAC and change furnace filters, check the smoke/CO alarms, check plumbing, and add other tasks as needed.

 

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If you have a different opinion or just something that you'd like to add, please feel free to leave a comment below.
This is not legal advice. Please contact an attorney for professional legal advice.




Acceptable Tenant Income Ratio (Q&A)

 

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Question: Good Afternoon Cameron, What is the general rule of thumb for approving a tenant on income? Say the rental rate for an annual is $1150 per month. How much would be the minimum income you look for to feel comfortable the tenant could pay the rent?

Answer: Hi John, Monthly income has to equal 3x rent. That's pretty much the standard.

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This is not legal advice. Please contact an attorney for professional legal advice.



Collecting Rent After a Tenant Moves Out (Q&A)

 

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Question: Hey Cameron I had a tenant get a job suddenly in another city and had to move. He put in proper notice and left the house in great condition. The only problem is that he got behind on rent after losing his job shortly after moving in. All in all he was only behind about half a months rent. After moving out we agreed he would pay $200 a month until he got caught up; he made the first payment and then nothing. I can't reach him by phone or email. I have no deposit left to draw from so my question now is, what are my options? Do I go the collection agency route, just chalk it up to experience, or is there another way? Help is much appreciated.

Answer: Hi Paul, it really depends on how much time and effort you want to put into this.  Consider small claims court. The collection agency route is also an option. If you decide to do it, go with an agency that specializes in tenant debt and has contingency based fees, but just so you know, the rental industry is statistically one of the lowest recovery rates in the collection business from what I hear. So with that being said, I think that you should not realize that there is a good possibility that you won't ever see that money. Even with a collection agency. But at least putting this on his credit might make you feel a little better. I have seen landlords get the judgment and wait hoping the tenant eventually wants to buy a house and needs to clean up their credit. That's when you get paid in full with interest. They say the few times they have collected made it worth learning the process and doing it.

Click Here to email me your real estate investing question

If you have a different opinion or just something that you'd like to add, please feel free to leave a comment below.

This is not legal advice. Please contact an attorney for professional legal advice.

The Worse Tenant In History!!

I just finished reading one of the most incredible and shocking articles for landlords.  It is about a "professional tenant" who may just be the worst there is. If you are a current landlord or are thinking about it, please take the 5-10 minutes it'll take you to read this article. And pray, Pray, PRAY that you never get a tenant like this!!

Click Here to read the article

 

 



"Buildium" Product Review

Ok I have to be honest, I haven't actually tried this software myself, but after I continue to see rave reviews of this product across the internet I felt that I should at least make a little blog post about it.

• Complete Accounting
• Electronic Payments
• Maintenance Requests
• Tenant Screening
• Easy Reporting
• Effective Advertising
• Automated Mailings
• Mobile Apps 

Here's a video to describe the software in greater detail

 

 

Find out more at www.Buildium.com

 

Connecticut Judge Rules That Security Deposits Cannot be Discharged in Bankruptcy

In the November, 2012 US Bankruptcy case In re: Anthony Hall, the judge decided that a landlord filing for bankruptcy could not discharge the debt of an unreturned security deposit. The court noted that a landlord holding a security deposit pursuant to Conn. Gen. State. 47-21 does so in a fiduciary capacity, as such, that debt cannot be discharged under bankruptcy codes.

Specific circumstances of this case was that the landlord admitted to the court that he had withdrew the security deposit prior to the termination of the tenancy and had used those funds for personal purposes. The facts also showed that the debtor had twenty five years of experience as a landlord and  should have been aware of his fiduciary responsibilities.
 
This case is a reminder that security deposits much be carefully managed by landlords since judgments against landlords for security deposit related matters exceed the threshold of personal debt and may not be dischargeable with bankruptcy. As a landlord, you should have a solid management practice in place for the accounting of security deposits and be extremely conscientious about meeting the statutory requirements of returning the deposits in a timely manner.

Yona Gregory

4 Alternative Income Sources for Landlords

Even when getting top dollar for a rental property, many landlords still find rising taxes and insurance costs squeezing their bottom line. Well here's some good news, you may already have ways to increase your bottom line with little or no investment using the space and resources that already exist at your property.

Coin-Operated Laundry - Putting coin operated laundry machines in your property can really increase revenues. Your initial investment can range anywhere from $700 - $3,000 for a unit but depending on the size of your property, you could make that up pretty quickly.

Storage - Buy or build lockable storage lockers in a common area and rent them to your tenants for an extra $10-$20 per month.

Pet Fees - If you're not renting to tenants with pets then you're missing out on a great source of extra income. I know that animals can really ruin your rental unit if the owners don't keep up with them. But that's why we charge a fee. Charge your tenants $25 a month for one pet and $10 for each additional pet.

Advertising Space - If your building is on a corner lot or on a busy street, you might be able to charge local businesses for billboard or mural advertising (photo above). Make sure that you check with the town first to make sure that this type of signage is legal. If not, no problem, just apply for a variance with the board of appeals.

Just remember, to begin charging existing tenants, you may need to create a lease amendment at renewal time to add new changes. With month-to-month renters, give a 30-day written notice to advise them of any increase in charges.

How to Find The Right Price For Your Rental Property

Rent is simply a price.  The price someone is willing to pay to use your property for a set period of time.  This price is determined by hundreds (if not thousands) of individuals – landlords and tenants – coming together and agreeing on a rental amount.  As landlords, we want our rents to be as high as possible, while our tenants want exactly the opposite.  Somewhere in the middle is where the price is set.
Rents will be determined by a number of factors.  These factors include:

1. Location
2. Location
3. Location
4. Amenities such as central heat and air, appliances, covered parking, etc.
5. Size of the property, 1 bedroom versus 2 bedrooms, etc.
6. Type of property.  A 2 bedroom single family home might rent for more than a 2 bedroom apartment in the same market.

Every landlord should on a fairly regular basis evaluate their rents.  Are you getting all the market will bear?  If not, it might be time to raise rents.  So how can you determine what the market rate rents are?  Here are 8 tips.

1. Constantly scan your local papers.  I say papers because many markets are served by more than one. It may seem old school, but a lot of landlords and tenants are old school.
2. Check out Craig’s List every so often.  Many big and small landlords advertise their properties here and you can get a lot more information than from the newspapers.  This is a great resource for almost every part of the county.  Plus you can do keyword searches for your specific market and type of property.
3. Check out your competitors’ and local property management companies’ websites.  They will often have several listings near you and will show all of the amenities.
4. For rent signs. I don't use signs but in some markets you have to.  If you are in one of those markets call the number on the signs and act like a potential tenant.  This is a great way to find out what properties in your area are going for.
5. Talk with other landlords.  You can find them at your local REIA meetings.  Rents are not a big secret and if a landlord has been able to raise their rents they are often almost boastful about it.
6. When your unit goes vacant, try and bump up the rent.  See if the market will bear the increased price.  If you do not get any takers in a week or so, start easing down on the price until the unit rents.  You will eventually find the market rate.
7. Too many applicants? Conversely, if you have multiple applicants on the first day of availability, your rent is likely too low.  Renters are flocking to a deal.  Backup, do a little research and set the price higher.
8. Check the MLS. Many landlords and realtors now also list their available rental on the local Multiple Listing System (MLS).  If you are also a R
   
   
   ealtor, you should check out this searchable database.  If not, you may want to find one to help you.

Finally remember that rents do not always go up (just look at Detroit.)  You may need to lower your rents depending on your market conditions.  Either way, hopefully these tips will help you keep your rents at market level.
Surly there are other techniques unique to the various markets around the country.  If you know of a technique that works well where you are, share it in the comments below.