So I had a thought the other day about items which make my life as a landlord easier. Not all of them are super high-tech but they can come in really handy and save a lot of time when you need them.

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Kwikset SmartKey Lockset

This is one of the “higher tech” items. I have changed so many entry door locksets between tenants more times than I care to remember. These ingenious devices make that job a complete breeze. These locks can be “re-programmed” to accept a new key in about 30 seconds. So, if a tenant decides that they’re moving out and taking the keys with them. It’s not a problem, except trying to collect the appropriate fees that is.

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A Good Bolt Cutter

This can be an indispensable tool for when tenants decide to chain or lock things that they’re not supposed to. I’ve had tenants chain a tire to a tree branch to make a swing for their kids and then… leave without removing it.

I’ve also had tenants lock a storage shed containing all their junk belongings…and you guessed it..break the lease without taking it with them.

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Master Combination Lockbox

This is great for vacant units needing to be shown. More than once I have found myself half-way on the way to show a property and realize that I’ve forgotten the keys. It’s also good if the unit is listed in the local Multiple Listing Service (MLS) and an agent needs to show it.

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Digital Camera

This tool is great for when you encounter the products of the many wild and wonderful activities your tenants may engage in. It’s also great for showing these activities to the judge when you’re trying to get a money judgment for the damage. Just be sure you have “before” pictures to go with the “after” pictures.

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Duct Tape

Oh, Larry The Cable Guy would be proud. This is actually excellent to have on hand when something is leaking in the middle of the night and the tenant delights in getting you out of bed to come fix it. Tape it up and call the plumber in the morning.

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5 Essential Landlord Tools

Keeping records for a business is usually a must what with draconian government agencies like the US Internal Revenue Service constantly breathing down our collective necks. However, record keeping becomes a necessity for other reasons as well.

Recently, I had a tenant contact me to tell me that her ex-husband had temporarily stopped paying her child support due to an injury and please could she pay the rent late including late fees. I agreed.

Two months down the road, I expected an amount including current month’s rent and late fees for the last two months. Well I received an amount, but it was short. It was less than $100 short but still, no explanation followed. This seems to be happening a lot recently with certain tenants. They will send in an amount that is less than the amount they owe and wait to see what I do about it.

When I press them on the matter, they tend to make some lame excuse and pay the remainder with the rent in the following month. I tend to think that if I never questioned the amount they sent in, I probably would never see the full amount owed.

Well, let’s see what happens when, upon lease renewal, I raise the late fees. I’ve always thought, more so recently, that the tenants have rationalized (and budgeted for) the existing late fees. Late fees are not meant to break the bank, but they are designed to hurt enough that you shouldn’t want to pay them again next month.

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The Importance Of Recordkeeping

I recently read a blog post about enabling tenants to interact with you, the landlord, in a ’self service’ sort of way. This blog post espoused the benefits (cost and otherwise) of providing tenants more than one way to make contact in order to place a maintenance request, for instance.

The blog post suggests a scenario where the the tenant logs into a web site where she places a maintenance request and is updated every step of the way during the maintenance process (processing, scheduling, completion, etc.) via email thereby eliminating phone calls which are, according to the blog post, more expensive to process.

This idea sounds really good in theory but I seriously doubt that it works very well in practice. In my experience, tenants feel more confident that you got the message when they’ve left a phone message.

If the landlord is “running the show” solo, he’s going to want to go inspect the maintenance issue himself to possibly avoid sending an expensive repair person on site to determine that the tenant is clueless as to how an electrical panel works, for example.

In my opinion, as a landlord, you would have to have a large number of units and incredibly “connected” tenant population to make this effective from your point of view.

I’m curious as to how the other landlords who read this blog feel about this subject. Please feel free to leave your comments below and thanks for reading.

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Providing Tenant Self-Service Options

Last month, while having lunch with an old friend, we had a discussion about the merits of buying condo units as a real estate rental investment. Having been a condo owner in the past, I can positively say that I will never do that again.

This subject could easily fill a book, so here are my reasons in bullet-point form:

• Too many complaints from neighbors. Tenants usually only sign a year lease so if they annoy their neighbors, they can simply move. The neighbors then transfer their frustration and annoyance to the landlord.
• Condo Associations. If you like to invest by committee, condos are for you. Don’t want to afford that fat assessment to resurface the parking lot right now? Too bad. Pay up.
• Condo Commandos. These people are usually retired and have nothing to do all day. Nothing, except get all up in your business that is. They feel that you as a landlord are devaluing their property by renting your unit and they won’t let you forget it.
• No cost controls. Between assessments, community equipment (laundry, elevators, etc) repairs and joint utilities (water, electric, garbage) your monthly condo dues could fluctuate wildly and there’s nothing you can do about it short of buying the majority of the units in your condo complex so your vote has enough weight to tell them you don’t want to pay.
• The condo association can take possession of your unit by law. Besides the county tax collector and Internal Revenue Service who threaten to take your property (unit) if you don’t pay them, surprise(!!!), the condo association can and will do this also if you don’t pay them.

And that’s not to mention the situation where some incompetent condo president decided to allow a few owners to claim on the association’s insurance policy unnecessarily. Now no insurance company will insure the association and they had no choice other than to buy a policy from Lloyd’s of London.

For anyone who doesn’t know, Lloyd’s of London will practically insure anything but you’ll pay dearly for it. Want to insure your cat against being struck by lightning? Call Lloyd’s. You’re Mariah scary Carey and you want to insure your legs (of all things) against damage? Call Lloyd’s.

I’m sure there are other reasons but those are the major sticking points for me. Investor beware.

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Why Condominiums Are A Bad Rental Investment

Happy New Year readers! Things have been here slow here at Landlord-Success.com recently, hence the lack of posts. But, with a new year comes new ambitions. So here’s a new post for your reading enjoyment.

Recently I heard the following story about a hapless landlord who found himself in a pickle because for some reason he did not collect a security deposit from a tenant.

As a preface to this story, I should mention that here in Melbourne, FL there seems to be an unwritten rule about the landlord-tenant relationship. It is virtually impossible to collect first month’s rent, last month’s rent AND a security deposit. I have no idea why that is but normally, only two of the above are collected.

So, back to Mr Hapless who owns a single-family home which is occupied by a tenant. He decides that he has had enough of this landlording nonsense and decides to sell his investment. Everything goes normally with the sale up to the point of having the property inspected by the potential buyer.

The buyer’s inspector finds that there are termite wings present in the house which understandably freaks-out the buyer who requests that the seller tent the property in order to treat for a termite infestation. This process normally takes three days, during which the property can not be occupied by humans or animals.

Mr. Hapless calls the tenant to inform her that she must vacate the property for three days due to treatment for a termite infestation. The tenant mentions that she owns an “antique” chair that has termites and wants to know if she should leave the chair in the house so that it can be treated too.

D-U-H !  Now, by a show of hands, who thinks that there should be an intelligence test attached to the rental application? Anyone? Anyone? Bueller?

Most probably, the seller has to incur the cost of the termite treatment due to the inane actions of his tenant. I don’t think that the landlord would be out of line to claim the tenant’s security deposit in order to defray the cost of the treatment. Except, Mr. Hapless did not collect a security deposit, nor did he collect the last month’s rent at the beginning of the lease.

The moral of the story? Always, always, always collect all the deposits you can when renting a property. It creates a security net for the landlord and causes the tenant to have skin in the game which almost always INCREASES the intelligence of their actions.

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Why Landlords Hold Security Deposits

This is a guest post by the Calgary mortgage specialists at the Purcell Mortgage Team.  For mortgage related tips and tricks, check out their weekly-updated mortgage blog.

The real estate market has had its ups and downs, with the end result being plummeting rents and massive foreclosure rates.  For the savvy investor, this also means sweet deals on respectable properties.  This, of course, leads us to the question of the hour: should you pay off the mortgage(s) on your rental properties, or do you leverage the equity you’ve built in them to purchase new ones?

Understandably, it’s a tough call.

Paying Off Your Mortgage – Pros

It doesn’t take an accountant to figure out that a property without a mortgage is inherently more profitable.  More of the money that your

tenants pay you go into your pocket, making a mortgage-free property an ideal situation for many.  Not only that, but paying off your mortgage is also much easier to do when the property is rented out- if the tenant is paying the mortgage, you really have nothing to lose aside from a little sweat equity every now and again.

This may all seem quite basic to anyone with a bit of financial know-how, but have you really considered all of the finer details?

• Little/no mortgage payments - Using the income derived from your tenants to pay down the principle owing will lower mortgage payments.

• Lower overall overhead -  Reducing mortgage payments and/or interest payments reduces your financial overhead, making it easier for you to obtain profitability.

• More equity available if necessary - Obtaining loans at an excellent interest rate on the value of a paid-off property is surprisingly easy (it’s amazing the value that financial institutions put into debt-free assets).

Paying Off Your Mortgage – Cons

Many people reach this far and say “really, there are cons to paying off my mortgage?”  Well, in fact, there are.  Quite a few of of them actually.

If you’re the financially creative type, paying off your mortgage does indeed reduce your overhead.  It also increases your profitability for each property, and increases the amount of cash flow that you may wind up having to pay taxes on.  There are many tax loopholes that exist for properties that are still mortgaged, and those options start drying up once there is no lien against the property.

As well, using your working capital and income to pay down your mortgage on your rental properties also means that you have less liquid assets available to you for immediate financial purchase or investments.  For some, this will not be a big problem, but for others it can outright stall their investment plan.  Talking to a certified accountant that specializes in real estate accounting is always a good option in determining which road you should take.

Some advantages to keeping your properties mortgage are:

• Constant new cash flow - In rare instances where the market plummets this can be a problem (owning a home worth less than the mortgage is never a good thing), but for the most part a sound property investment will grow in value.  Leveraging the equity in your rental properties via HELOC’s or traditional mortgages can provide a steady, relatively low-risk influx of cash.  Someone else’s cash, as well.

• Tax breaks and profit reduction - For most people it doesn’t make sense to reduce profit, but for those seeking low-risk tax shelters, an investment property is a great way to tie up cash in an appreciating asset.  Homes that are mortgage offer more in the way of tax credits as well, so talk to your account to see what applies to you.

If you are willing to accept some risk in your investment strategy, leveraging the equity of your current rental properties to purchase some new ones can be a great way to increase your investment portfolio.  There are many landlords who have dozens of rental properties, each remortgaged when their mortgage comes up for renewal.  As always, ensure that you think your financial strategy through before making any decisions.

Good luck out there.

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Pay Off the Mortgage or Leverage Your Equity? It’s a Tough Decision.

So, recently I had the realization that the late fees I charge tenants are obviously not high enough. I have a few tenants who consistently, every single month, are late on their rent.

Of course, the reasons range from car trouble to an occasional dead grandmother but that’s irrelevant. The point is that these people are obviously living month-to-month and do not keep any money in reserve for “emergencies.”

The standard terms in my leases are, “…rent is due on the 1st of the month and late on the 4th…” Additionally, “…late fees are $25 on the 4th and $5 per day after that.” So, basically, if a tenant is 1 week late with the rent, it will cost them $55 extra for the month. I guess $55 is not a lot of money these days and the tenants see this as “no big deal.”

My plan next lease renewal is to raise the fee on the 4th to $50 and $10 per day after that which will put them at $110 extra for being late one week. I mean, late fees are supposed to be an incentive to not pay the rent late and with rents so low, I risk losing the tenant if I raise the rent.

However, the next problem becomes that if you go to eviction court, the judges in their infinite foolishness wisdom, could very well pronounce the amount of late fees “unconscionable”  (the exact term in the Florida state statute) and negate the whole amount.

Well, I’m going to risk it and raise the late fees. In my opinion, these people need to be more responsible.

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New Late Fee Strategy

In the past, when a person stopped making payments on their home, it generally took 3 months before they were foreclosed upon by the bank and evicted from the property.

These days, as any real estate agent will tell you, it could take the better part of a year for the process to come to a close. In the past I have made posts detailing some of the completely unprofessional behavior exhibited by the banks during the “short sale” process.

For the uninitiated, a “short sale” is when the bank agrees to discount the loan amount due on a property usually due to some financial hardship on the part of the borrower. Whereas, a foreclosure is when the bank takes possession of a property and evicts the previous owner with the intention of selling it at market price to re-coup its losses.

I have also heard stories of people basically squatting in homes where they live there but are only paying utilities and not rent or a mortgage payment. In this case, if the property is actually foreclosed on, they will be given 30-days notice to vacate the property. Not a bad deal for a short time anyway.

Recently, I heard an interesting news report about why the banks are doing everything in their power to delay a short sale or foreclosure. Surprise! It’s for their own benefit, of course.

Basically, when a bank forecloses on a property, they typically take some kind of financial loss which affects the bank’s balance sheet. This is not usually a problem for the bank if it’s a few hundred properties.  However, when the number of foreclosures is in the millions (like is happening today) it causes a big problem for the banks in that those losses are large enough to affect the bank’s stock price which in turn affects their market capitalization.

Suddenly they’re not so rich and can’t operate like they used to. So, their answer is to delay, delay, delay so as to spread the losses over time which in turn reduces the hit to their stock price.

Take a look at this interesting interview of former bank regulator William Black, author of The Best Way to Rob a Bank Is to Own One.

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Why Banks Aren’t Foreclosing on Schedule

Recently I made a post directed at tenants about how NOT to inquire about a rental property. This post is sort of a follow-up to that one:

This SHOULD be a common-sense-type concept but from my recent experience fielding phone calls about one of our vacant rental houses, the point is obviously lost on many tenants seeking new accommodation.

People do not seem to understand that the rental application process starts at the first phone call. Along with looking good on paper (i.e. the actual rental application) you must be able to communicate effectively and somewhat professionally.

From a landlord’s perspective:

- If you cannot be reached by phone because you gave your friend’s number while inquiring about the property and your friend can’t be bothered to be courteous when I call…..you will not get approved.

- If you are demanding and inflexible when scheduling to view a rental property. For instance, you call and say that you absolutely must see it right now, within the hour and your tone-of-voice is threatening in any way…..you will not get approved.

- If you seem overly desperate to rent a place for whatever reason and you don’t seem like you have your life/money/mental “act together”….you will not get approved.

- If I return your phone call and you are half-asleep and have no idea who I am and why I’m calling …..you will not get approved.

- If you seem clueless for any reason, as in you may have a problem determining when you should turn off a water shut-off valve or a circuit breaker in the electrical panel….you will not get approved.

And finally, if you balk at the prospect of scraping together the money to cover first, last and security and I get a whiff of that….you will not get approved.

Also, for extra dis-credit, if your vocabulary is not wide enough to include the word “balk”….you will not get approved.

In other words, if you seem like you’re going to be a problem to deal with within the first few times we speak on the phone, why would I want to enter into a legally-binding year-long contract with you?

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Tenants: How To Get Your Application Approved

Currently have one detached single-family house on the market for rent. When the last tenants moved out we had to hire a landscaping crew to come in and perform a complete makeover on the yard.

The tenants had “maintained” the yard by cutting the lawn about once every 2-3 months which in Florida, in the summer, is a big no-no. For those readers not familiar with Florida lawn care, you have to cut the grass every week in the summer to prevent the grass from growing as tall as your waist.

The lawn crew we hired consisted of three men and this job took them 7 hours of work so you can get an idea of how overgrown the yard was.

Before the tenants moved out, they hired some local yahoo to cut the grass so they would not be charged for lawn care come move-out inspection day. He did not do a very good job. That is, he did not edge or weed-whack. He just cut the grass.

So, it’s now 3 weeks later and the local yahoo calls me up to “complain” that the yard is looking terrible and that maybe I should come down to the property to take a look. Also, if we didn’t want to be fined by the city, he could cut it for us.

I let him know that we had it covered and all was well. He again complained that the grass was getting too tall and I should reconsider who I got to cut the grass because “I need to come down there to check the work.” I finally had to hang-up on the guy because he wouldn’t take “No” for an answer.

Nice sales technique buddy!

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Fruit Cake Lawn Care