Tenant Moved Out on Your Sublet Agreement & Left You Holding the Bag? December 13, 2011

Maybe your tenant skipped out on the remainder of his sublet agreement and now you are left with a vacated, non-producing room or property.  What do you do now?

1. The first thing you do is make sure you keep emotions out of it, stay objective and goal oriented.  Gather your ex-tenants files (i.e. rental application, sublet agreement, etc.) and make sure you have concise, organized records.

2. Maintain all receipts of monies spent maintain the property.  Complete a move-out inspection checklist, preferably with the tenant so they can sign the document.  Also, make sure you do a move-in inspection with the next tenant before you sign a sublet agreement.

3. A sometimes confusing issue for some landlords is whether or not you may charge through the sublease.  If your tenant your tenant signed a 1-year sublease and left after 8 months, does he owe for the last 4 months?  The answer is, if you cannot re-rent it; the tenant owes you for each month missed as they become due.  In other words, you cannot attempt to collect on money until the month it is owed.

4. Is there a termination clause in your sublease? Termination and no notice fees may be legal in your state, and your tenant may be held responsible for them.  If legal in your state, termination and no notice fees may be a good way to calculate all charges at the time of move-out, without having to add future rent as it comes due. Be sure to talk with your attorney about this before proceeding.

5. Simple but important; take pictures.  Have move-in pictures and move-out pictures to document the condition of the unit.  The tenant may try to lie about the condition of certain items in the house, always have yourself covered with pictures of at least the big tickets items (i.e. refrigerator, stove, bath, etc.)

6. Maintain a log of all communications with the tenants, specifically with regard to rent payment on each sublet agreement you have.  If you haven’t used a log in the past, it is highly advisable that you begin now.

7. Once you have all your documents together and have mailed your move-out statement, be sure to keep the files someplace handy.  You never know when a tenant will come back and try to settle their debt.  Keep a positive attitude, and with a little effort and patience, you may end up collecting what you are owed.

Motivation is the Key to Success November 18, 2011

Motivation is the key to any endeavor you take on.  Without motivation progress would not be made.  It’s very easy for someone to become unmotivated; for example if they find their goals are too hard to reach they can quickly give up.  The same goes for real estate, when some new landlords find that managing a lease contract  is more than they expected, they quit, rather than continue forward with their investment plan.

The first thing you need to know about motivation, is that you must be goal-oriented.  In other words you must a have a set goal.  That goal may be to sign 10 new lease contract s in 6 months, or it may be to reduce your costs by a specific amount, regardless, the goal must be measureable and attainable.

Secondly, you must know why you want to achieve your goal.  Do you need those lease contract s signed so that you can improve your cash flow? Know why you want to achieve your goal and use that as an everyday motivator to keep working hard.

Lastly, you need to remember that while motivation is absolutely needed, it simply is not enough.  There will be days when you’re simple not motivated, and those are the days you need to know that you care enough about your goal to simply get it done.  No excuses.  If you don’t really care about achieving something, then you won’t.

In closing, motivation applies to every aspect of your life; whether you’re signing a lease contract , or cooking dinner, without motivation it simply won’t be done right, if at all.

How Landlords Should Handle Tenant Complaints October 24, 2011

Happy tenants, who feel as though their landlord addresses their complaints, tend to abide by the residential lease better than those that don’t feel this way.  Whether the tenant files frequent or in-frequent complaints, the bottom line is to always follow up.

1. Promote Pro-Active Tenants.
For any and all maintenance or repairs, continually encourage your tenants to alert you as soon as they discover the problem.  Granted some tenants may abuse the privilege, but most will not.  Be sure your phone number/s are written on the residential lease (or given to the tenant separately).

2. Create an Actual Tenant Complaint Form… and Make Tenants Use It.
Specifically if you own a large number of residences, using complaint forms may be necessary for logistical purposes.  They can be used as past records for upgrades and maintenance, as well as a way to track receipts.  On the form you’ll want to reference the residential lease, date of the complaint, tenant’s name, and what the problem is.  After the problem has been fixed go back and record how it was fixed and the date it was fixed.

3. Fix Problems as Soon as They Arise.
Have a rolodex of handymen and licensed contractors on hand and be sure they answer on short notice.  While some problems may be too large to fix immediately, loyal contractors are a major piece of the real estate puzzle.

4. Follow Up on the Issues After They’ve Been Addressed.
After the complaint or repair has been addressed, follow up with the tenant so that there is closure, even if it seems obvious that the tenant already knows what you will say.  If the problem cannot be addressed right away, clearly communicate that to the tenant, and let them know that you are actively pursuing a solution.

Overall you need to keep you tenants happy and your property safe.  Whether a tenants complaint is petty or the real-deal, always follow up and show them that you’re attentive to their needs.

The Importance of the Rental Application September 3, 2011

You’d be surprised how many landlords in this day of age, still rent out their properties to tenants that weren’t screened and didn’t fill out a rental application.  When the tenant goes on to not pay rent, there is only one person to blame, yourself.

Some landlords try to go about their business with an “old school” mentality.  “Well I know the tenants friend, and he vouched for her”, or, “he seemed to carry himself well when we met to show him the property, so I didn’t think I needed to waste time with a rental application”.  These are not realistic reasons to rent to a close friend, let alone a stranger!  It’s like going to buy a car and just saying “I’ll take that one” without bothering to get more particulars about the vehicle.

You wonder if these landlords don’t know how to screen or compose a rental application?  If that’s the case then there are plenty of resources to help educate them on better business practices to reduce their debt due to tenants burning them on non-payment.

I believe that a certain percentage of landlords run this business sloppily because they don’t care who they rent to, they want the rent money.  Well they won’t get it, debt will continue to mount and there is nothing that can be done to help them unless they decide they want to help themselves.  You cannot run this business as if it were a hobby; it must be run objectively and shrewdly, otherwise you run the risk of being sued and losing thousands of dollars.

Some landlords refuse to spend the time and/or the small amount of money it takes to screen a tenant. This is ridiculous.  You won’t spend a couple bucks for a credit check on a rental application, but you have no problem being down thousands of dollars because the tenant isn’t paying the rent?

In closing, landlords should be encouraged to run their business in a manner that reduces their risk while complying with the local laws.  Doing do will maximize the chance of collecting rent on time every month, and minimize lawsuits.

6 Major Landlord Traps August 31, 2011

All landlords have at one time or another fallen victim to one of the following traps, but with a little foresight they can all be avoided.
1. Improper Screening
If you screen your tenants properly you will eliminate up to 95% of your problems.  Sometimes even the experiences landlords can be too trusting and too comfortable with the “ole fashioned” handshake.  This method of trusting your gut when signing rental contracts can land you in rent court.

2. Advertising
You do not need to spend a lot of money advertising – in many cases you can do it for free!  While it may be worth the fee to list a rental with an experienced agent or real estate professional, there are other resources available to the “do it yourself” landlord.  For example, websites such as Craigslist are a huge boon for the common landlord that wants to expose their rental to the tenant market.  Also, a simple “For Rent” sign in the window as well as making small talk with the neighbors goes a long way in finding a quality tenant.  You also may use the National Tenant Register which lists thousands of prospective tenants in your area looking for a home, and eager to sign rental contracts.

3. Relying On Non-Landlord Agents
Never rely on someone that does not have the experience in landlord-tenant matters to help you rent your property.  Sometimes you may find yourself forced into a situation to use an inexperienced agent, if this is the case, make sure you conduct the screening and rental contract signing yourself.  The last thing you want is someone with no experience making decisions for you.

4. Allowing Tenants To Cross The Professional Line
Almost every landlord has come across tenants that try to take advantage of the good relationship they have with their landlord.  Some tenants truly try to scam their landlord by first becoming close to them, and then attempting to use them for whatever their needs are.  A rule of thumb here, never rent to family or friends, and always keeps an arm’s length from your tenant; at the end of the day you’re still running a business.
5. Using A Substandard Rental Contract
Using generic, and in many cases free online lease agreements is never a good idea.  The reason being is that they are not specifically tailored to the state and municipal laws that govern your neighborhood.  Many of these generic leases protect the renter more than they protect the landlord!  Landlords must use leases that are designed and written to protect them and their property.
6. Paying For Credit Reports
You don’t want to pay for a credit report just to find out that the tenant has bad credit and no chance to rent from you.  Make sure your rental application includes a fee for credit checks.  If the tenant has a problem with the fee, then chances are they are going to have a problem with the much larger monthly rent payment.
The above situations are very common and most landlords fine themselves in them at a few points in their career.  Being aware of the pitfalls is the best defense to keep your business profitable and thriving.

How to Spot the Next Hot Neighborhood January 20, 2011

The best returns in real estate investing occur when a neighborhood “pops” and makes the transition from blue-collar to white-collar, usually spearheaded by young professionals. In Baltimore, for example, the Canton neighborhood went from being crime-ridden and decayed to a yuppie playground complete with “bark parks” for dogs, hipster coffee bars, and quadrupled home prices and lease agreement rates, all in less than ten years. Most real estate investors can rattle off a few neighborhoods they’ve seen this happen to, but how do you spot these neighborhoods before they pop?

Tip 1: Follow Gen-Y
Generation Y, currently in their young adult years, is the later round of offspring from the baby boomers, and their finger is firmly secured to the “cool” pulse. If your 23-year-old nephew starts talking about a brand new artsy hipster bar in a neighborhood you always thought of as the ghetto, perk up and start paying attention immediately. Ask for their opinion of where the “good” part of that neighborhood is, and where the line lies between that and the “bad” section.

Tip 2: Forecast the Retiring Boomers
On the other end of the spectrum, baby boomers are starting to trickle into retirement, and that trickle will soon be a flood. Where will they want to live? Their parents loved Florida and the Southwest, but migration patterns are showing a steadily declining trend towards these areas for retirees, and a lot of vacant condos and lease agreement properties. You can be sure of a couple things tomorrow’s retirees will be looking for: affordability, walkability, and access to affordable services like housekeeping, groundskeeping, etc. As for the rest of what they want, ask as many older adults as you can find!

Tip 3: Trainspotting
Public transportation is being rebranded as something that middle class people can use, and in many cities the yuppies do use it. Keep an eye on where city planners are evaluating for public transportation stops, and keep a particular eye on subways and trains. Young professionals and artists often forego cars in their attempt to afford a lease agreement in an area with access to arts and entertainment, and to do so they need public transportation.

Tip 4: Watch the Artists
Most artists are poor, and can’t afford to live in pricey areas. Artists also like to live near others of their ilk, and will form little artsy clusters in inexpensive and often rough neighborhoods. They open little hole-in-the-wall galleries to showcase their art, and then with a little luck the area develops a reputation as the latest funky art hangout, which in turn attracts cafés, bars, and, of course, interest in living nearby. Soon the artists are priced out of the area, and are forced to sign a lease agreement in another rough area, and the cycle begins anew.

Tip 5: Tailgate
Is there buzz about a sports stadium coming? Stadiums can lead to a host of support businesses, such as restaurants, retailers, and bars, which complete the appeal of the neighborhood for young professionals. Investors beware, however – stadiums are big news, and every developer and real estate investor in the area will be acutely aware of what’s going on regarding stadium construction, so be careful of your competition, and watch lease agreement pricing to measure tenant interest in real time.

It’s not easy to predict where the next yuppie hotspot will pop up, but there’s plenty of money to be made for those who do it successfully. Keep an eye on lease pricing, watch city development plans, and follow the trends of where different groups of people want to live, and with a little luck you might pick up a bargain property, lease it out, and find yourself with triple equity in a few short years.

5 Reasons I’m Both a Landlord and a Tenant December 20, 2010

People are always surprised when they learn that I’m both a landlord and that I lease my current residence, instead of being a homeowner. The fact is, however, I get the best of both worlds: I get the tax benefits, passive income and long-term asset appreciation of owning real estate, and I get the flexibility of being a tenant.

1. Live Anywhere
What happens when the real estate market plummets right before you get a divorce? Or get fired? Or have triplets? Suddenly you need to move, but in a terrible real estate market, you can’t sell. As a tenant, however, you can simply give your landlord notice that you will be vacating at the end of your lease agreement, and find somewhere more suitable to live.

2. Tax Benefits
Homeowners get some tax benefits, but landlords get a lot more. All real estate owners can write off mortgage interest and property taxes, but landlords can write off repair costs, property management costs, hazard insurance premiums, and legal or administrative costs (such as a lease agreement). Furthermore, roughly half of homeowners can’t even take advantage of the tax benefits, because it makes more sense for them to take the standard deduction instead of itemizing, while landlords with more than one or two properties will almost certainly be able to itemize for a lower tax bill.

3. Freedom to Invest
Tenants can take the money they save every month (and the money they didn’t have to use for a down payment) and invest it any way they like: stocks, bonds, futures, options, and even (in my case) in lease properties! In many cases, the area you want to live in has over-priced real estate values, but affordable lease agreement prices, in which case you can invest in areas with better capitalization rates, as simply a sound financial decision.

4. Minimizing “Stuff”
Statistically, tenants accrue less “stuff,” as they move more often (and therefore throw more of their old junk away). Perhaps (and perhaps not) surprisingly, there’s an increasing body of research that shows that the fewer belongings people own, the happier they are. When in doubt, throw it out, and better yet, don’t even let yourself accrue all that junk in the first place.

5. New to You
When you move into a new house or apartment, everything there is new to you, and doesn’t depreciate in value. The kitchen doesn’t start losing value the minute you install it, and if you want to live somewhere with newer appliances and appointments, you can simply sign a new lease agreement and move as you see fit. As a landlord, every once in a while you will need to update your leased properties to attract a higher caliber of tenant, but doing so is, of course, tax-deductible, which means the net cost to is maybe only two-thirds of the total cost.

Being a landlord is not for everyone, and many people like the idea that part of their housing payment is going towards their equity. Personally, I would just as soon see the world and live with the flexibility of leaving whenever I want, while still increasing my net worth through real estate investment.

The 5 Fastest Shrinking American Cities – And Why Some May Not Be Bad Investments October 21, 2010

Even the least experienced real estate investor knows that pricing for homes and rental leases are determined by supply and demand, and that the primary way demand increases is through boosts in population. But what happens in cities that are shrinking in population? Some of these cities may be great bargains, while they go through a painful (but necessary) transitional period from a manufacturing economy to a more modern one, but others are the real estate equivalents of the walking dead. Here are the top five shrinking cities in America, along with some analysts’ thoughts on their prognoses.

1. New Orleans, LA
This one is a clearer case than most, with Hurricane Katrina’s devastation the unambiguous cause of the population plummet. At the time of the hurricane, over 307,000 families had to relocate from their homes, both owned and leased. Currently, the population of New Orleans is 128,813 people fewer than it was in 2000, but the population is currently expanding, as people slowly move back into the city. Thousands of homes were damaged or destroyed, making the city a renovator’s dream.

2. Flint, MI
Ever since Michael Moore’s documentary “Roger and Me” in the late 1980s, Flint has grown into a symbol of post-industrial economic decline, with the number of auto industry employees down by roughly 90% of its peak in Flint. In an effort to consolidate and salvage the city for its remaining residents, the city government has been buying up outlying vacant buildings and razing them, trying to create a concentrated and sustainable core “downtown” area.

3. Cleveland, OH
Rated the most depressing city in America last year by Forbes, Cleveland certainly has its work cut out for it. It has lost roughly 10% of its population in the last ten years, and before that lost 42% of its manufacturing jobs in the preceding ten years. Particularly devastating has been the loss of its middle- and upper class residents to nearby suburbs and towns, which has caused sprawl and loss of economic vitality in Cleveland proper. In response to these overwhelming challenges, the city has implemented a plan to cultivate urban farms, parks, and green spaces, which is starting to work, and there’s a strong chance that the next ten years will see boosts in rental lease and homebuyer demand, which certainly makes Cleveland a viable option for real estate investors.

4. Buffalo, NY
Buffalo was the 8th largest city in America in 1900, as a major manufacturing and industrial powerhouse. Those jobs are largely gone, as are roughly 22,000 residents in the last ten years. That said, Buffalo has managed to attract burgeoning health, finance, and alternative energy industries, and the affordable downtown rental lease housing in architecturally striking buildings is starting to attract a lot of young professionals to downtown Buffalo.

5. Dayton, OH
Like so many of the cities on this list, Dayton was once a manufacturing stronghold, but those jobs are disappearing like an endangered species. Dayton has lost 7.2% of its population in the last ten years, mostly to nearby suburbs and towns, which sprawl outward and leave the city with vacant homes, office space, and buildings. Most analysts believe it will expand to form a merged megaplex with Springfield and other nearby cities within the next ten to twenty years, which is great for strip mall developers, but not so great for the homeowners and landlords of Dayton.

Several of the cities on this list may prove surprisingly good investments for those looking to buy renovation and/or rental lease real estate, with the dire circumstances forcing them to create long-term comprehensive plans for urban development and space management. When the rest of the country is running from investments in these cities, it may prove a great time to invest.

Spotting the Rotten Apples: A Landlord’s Guide to Avoiding Terrible Tenants February 26, 2010

There are essentially three ways that a tenant can cost landlords money: 1. They don’t pay their rent, 2. They cause damage to the rental property, and 3. They sue the landlord.

When screening tenants, most landlords only consider the first of these ways a tenant can cost them, and particularly prudent landlords verify their income (to see whether they CAN pay the lease agreement) and their credit history (to see if they WILL pay the lease agreement). Choosing a tenant with a stable job history, sufficient income, and strong credit history goes a long way in weeding out the tenants who are likeliest to default on the lease agreement, but doesn’t even consider the other two potential problems.

When interviewing the rental applicant for the first time, ask indirect questions; most potentially bad tenants are smart enough to lie and give the landlord the “right” answer, but as a landlord you can arrive at the information you need indirectly. First, after asking what the tenant does for a living, ask them “how they got into that,” instead of asking how long they’ve been doing their currently line of work. A tenant who apprenticed with his uncle to become a master carpenter will tell the story about how his uncle was a wizard with anything made of wood, and how they always wanted to learn how to do the same, so they apprenticed with him ten years ago and learned the trade. A tenant who fell into being a handyman to pay the bills will say something about just falling into it “a few years back to make ends meet,” and will be a far less reliable tenant.

Ask rental applicants about their current landlord. If they say “Oh yeah, Bill’s all right, the house just got to be a little small for our family,” that’s an extremely promising sign, and shows that they are not inherently antagonistic towards landlords. Rather, if they answer “That @#%hole wouldn’t fix anything, and that house was a dump, blah blah blah,” then you’ll know right there that they have a history of antagonism towards their landlord (warranted or not is irrelevant), and they will be more likely to be antagonistic towards you.

Also ask rental applicants about their current residence. How long have they lived there? How’s the house? What made you decide to move? If they complain a lot, beware. If they mention anything that smacks of a lawsuit, do NOT sign a lease agreement with them. Watch for words like “mold,” “lead paint,” “unsafe” or “unfit,” and anything else that sounds litigious.

Before signing a lease agreement, demand to walk through their current residence. How does it look? How have they kept it? How much “wear and tear” have they caused? Does it look like they take pride in it? Would you want your property to look like this one, a few months after signing a lease agreement with the tenant?

Finally, run a civil case search on the rental applicant, to check for any civil cases they’ve been involved in (whether as the plaintiff or defendant). As a general rule, avoid signing a lease agreement with any rental applicant who has ever been involved in a lawsuit, unless it’s both unrelated to landlord-tenant issues and doesn’t say anything about their character.

It takes years of hard work to build up a rental property portfolio, and only one bad tenant to ruin all of it with a lawsuit. As a closing anecdote, a recent trend in Baltimore City was for tenants with young children to sign a lease agreement on an older home, and if the landlord failed to give them a copy of the lead paint inspection certificate (an easy mistake to make), they would feed their child a lead paint chip and then run them off to the emergency room, claiming that the child has lead poisoning from the rental property. Landlords lose these cases with no exceptions – literally no exceptions. If a child has lead paint poisoning, and the landlord forgot to give the tenant a lead paint certificate, the landlord will be taken for everything they own. Screen your tenants well, and when you make a mistake (as everyone does, from time to time), your tenants won’t sue you, because you made sure not to sign a lease agreement with sue-happy, opportunistic tenants.

Resources:

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Real Estate Networking: Summary January 17, 2010

Conclusion: Assemble the A-Team

The simple fact is, you can’t do everything on your own, nor would you want to. You need an appraiser, you need a real estate agent, you need contractors, you need lenders, and so forth. And, just as important as recognizing that you need these people (and others), is learning how to differentiate between good and bad team members, competent and incompetent, trustworthy and untrustworthy.

To summarize, start by networking among fellow real estate investors, and collaborating wherever possible. Ask them for referrals on different types of lenders, who they use for property management, where they get their real estate forms, who the best real estate agents are in your given geographic area, and if at all possible, convince them to share their contractors. In the process, you’ll be surprised how many interesting and unique people and perspectives you’ll discover, and how many long term friendships you’ll initiate.

Many people shy away from networking, and avoid it like the plague. One of the greatest lessons you’ll learn from real estate networking is just how valuable, rewarding, and most of all EASY networking is, and it’s a skill that will help you in every personal and business endeavor you undertake for the rest of your life. The first person you strike up a casual business relationship with will be the hardest connection to make, and with each successive connection the process grows easier, as you grow more comfortable and your network expands exponentially with each addition.

One of my closest friends, who happens to be a mortgage broker, said it best when he said “Without people I don’t have a business. My business isn’t money, or loan programs, or houses, or creative financing. It’s the people in my life.”

Real estate investing is about people. Get out there and meet some, and you’ll be more successful for it. And, of course, closer to retirement.

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