Compassion and Cash Flow – Can They Mix?

January 10, 2010 · Posted in Landlord Tools · Comments Off 

It was a cold and rainy day when I walked into the apartment. The door was unlocked and ajar. And while I shouted “hellloooo” through the crack, I already knew no one was at home. My tenant had left in the middle of the night without paying his rent. Lucky for me I had a security deposit; I’d need it to clean up the mess.

I’m a compassionate person, always trying to believe the best about people, and while I continue that philosophy, there have been times (this being one) where I was taken advantage of. There are two schools of thought; one being the tough and tenacious one, always keeping a certain distance between you and your tenant. The flip side is the compassion one, where you get to know the renter and their family (that’s the one I’d practiced in this scenario). While one will rarely allow a social interaction, the other can cause its own set of headaches.

What I’ll aim for in the future is a blend between the two. I refuse to change my philosophy about life (its keep me sane and happy) still I realize there are those who would take advantage of anyone’s kindness. In other words (as heard in political circles) “trust but verify”.

No matter whom the person is; family, friend or stranger, always get references and a security deposit. In my case, if I hadn’t had the deposit, I’d have been out the money to get the carpets cleaned, not the end of the world, but not good business either.

Here’s the policy I’ve adapted and while sometimes difficult, it’s kept me out of financial trouble and it’s really pretty simply. Be upfront with the renter and tell them what you expect. Is the rent due on the 1st? Then make certain they know you expect payment on or before that date. Do you give grace periods? If you do, then expect them to be used. Do you charge late fees; again make that fact known in the beginning. If you’ll do this, then it will be you who sets the rules and there will be no misunderstandings later.

Now this next one is very important and probably (depending on your personality) the most difficult. Stand behind what you say; if you charge late fees, then charge them, don’t let it slide. No one likes to pay extra. For example, when you get your bill from the electric or gas company, have you noticed if you pay you bill on time it’s one number, and if you pay after a certain date, the figure is higher. They are letting you know, emphatically, exactly what you owe and what you’ll save by paying timely. Read more

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So You Want to be a Landlord?

December 2, 2007 · Posted in Landlord Tools · Comments Off 

The residual income from owning rental properties may bring more money into your life than the fast flip in the long term. If nothing else, the stress is reduced because a well-chosen investment will pay for itself until you the market is ready for you to sell. In order to make this idea work, you must plan carefully. Choose your property, choose your management approach, and choose your tenants carefully to make the most of your investment.

Choose your property.

Not every house is going to bring in the money you need each month. Some considerations:

Will you be financing? How much you finance is going to have to be factored in to how much you need to cover the monthly expenses. Up to four units is considered a residential loan by most banks; beyond that is commercial, which means that the lender may factor in the rent more easily as income, but other, more stringent requirements must be fulfilled to secure a loan. The more equity you have now, the more able you are to weather periods of vacancy.

How many units? Not only is the number of units a factor in lending, it’s also very important for income. More units means less drain when you have a vacancy (a two-family house loses half the income when one tenant leaves!), it’s also just plain easier to get enough rent to at least cover your expenses.

What rents can you charge? Find out how much the rents for the current tenants are, if any. If you don’t know the rental market well enough, consult with your real estate broker or a professional property manager to determine what fair market rent for each apartment is. The monthly rent should be at least one percent of the value of the building for it to be a profitable investment.

Will major work be needed? If you’re getting a place cheap, you probably are expecting to do some renovations. This has to be budgeted in, because you’re spending money and not getting rent for that period of time. Contractors often break both deadlines and budgets, because hidden problems become apparent as you dig in to the project. Make sure you have a cushion to cover your mortgage, insurance, taxes and other expenses.

Choose your management approach.

Once you’ve found a winner of a property, it’s possible to just sit back and let the money roll in . . . or you could make a part- or full-time job out of being a landlord.

If you’re handy, enjoy paperwork, like working with people, and don’t mind being available pretty much all the time, you should be a landlord. Many people have left their old jobs behind to manage their own rental properties full-time. Read more

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Inspect Your Tenants’ Apartment Before You Re-Finance

December 2, 2007 · Posted in Landlord Tools · Comments Off 

Low interest rates continue to encourage homeowners to re-finance their property. Owners use the extra cash to pay off credit card debt, complete outside repairs, replace porches, upgrade electrical wiring, install a new roof, de-lead the house, renovate kitchens and bathroom in their apartment, and similar large maintenance work.

When or if you have a large sum of money to invest in your real estate, you need to think about upgrading your tenant’s apartment, as well as your vacancies. The condition of your tenant’s unit is part of the market value of your house or building. If it’s in bad shape, it could lower the potential sale price. If it is good condition, it adds to the stability of your financial investment.

You also do not want to be in the position of having to do a complete renovation of the tenant’s apartment after a move-out. When you have the money, consider upgrading key areas of the apartment building.

When was the last time you saw the inside of your tenant’s apartment? Do you know what condition it is in? How long has the tenant lived there? The answers could impact how much money you will need to request to the bank.

Homeowners have an obligation to review and maintain the upkeep of their occupied and vacant units. Doing an annual apartment inspection helps you stay abreast of the condition of your investment. Once you give advance written notice to your tenant, go in with a pen and notebook, and write down what repairs need to be made. Also write down large replacement work needed. For example:

Are there illegal bars on your tenant’s windows that need to be removed or replaced?

Do you have an elderly or disabled tenant who could benefit from hold bars in the bathroom by the toilet and tub?

Are the ceilings and walls cracked from building settling? Does the apartment need any patch and paintwork?

Are there a lot of extension cords, indicating a need for additional electrical plugs? Is there a GFI electrical (safety) switch in the bathroom and kitchen, which may be a part of your state’s housing or building code? Read more

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