Tenants

Today I am honored to have my favorite real estate investor and property manager in the entire world write for me… my wife! Heather has been my constant companion on my journey through real estate investing and the reason for my success so far. She is not only the best property manager I have ever known, but she knows the business of real estate investing inside and out and has a heart to help others as well.

 

As someone who entered the world of landlording at the ripe young age of 23, I have had my fair share of dealing with tenants who take one look at me, and use that as ammunition they tuck away for later use when they need someone to walk all over.  Sometimes, it’s written all over their face:

  • Inexperienced
  • Soft
  • Easy
  • Pushover

Great first impression, isn’t it? This is why over the last few years, I have developed a system that not only works for the fresh-faced beginner-landlord, but should be implemented by any and all landlords wishing to have a successful business relationship with their tenants.

 

It Starts with Being Knowledgeable.

 

The best ways to do this? Read. A lot. There are so many wonderful books out there on landlording that offer great ideas, strategies, and tools you can use in all sorts of situations you might suddenly find yourself in. I have three favorite books that I believe every landlord should read, highlighter in hand, at least at some point in their career:

Landlording on AutoPilot” by Mike Butler

The Unofficial Guide to Managing Rental Property by Melissa Prandi

How to Manage Residential Property for Maximum Cash Flow and Resale Value” by John T. Reed

Become familiar with your state’s landlord/tenant laws. I have my Landlord Tenant Act printed and tucked away nicely in a file for quick reference.

Also, the internet has a plethora of information from landlords of all shapes and sizes. The information and perspectives from BiggerPockets.com alone is enough to satisfy anyone looking for landlording advice.

Get together with other landlords. If there is one thing I’ve learned, landlords love talking about their experiences. Listen and learn!

The point is, don’t go through landlording blindfolded. Know what you’re getting yourself into, and have a solid foundation on which to build upon.

Have a Written Policy.

 

All that knowledge you learned? Personalize it to fit your business model and write it down. Cover everything. When a tenant has a question, instead of the answer coming from you, the landlord, it comes from the policy. Example: “My boyfriend got me a puppy for my birthday, can I keep it?” Answer: “I’m really sorry, but our policy states that no pets are allowed at that property.” Having the policy written down helps protect you from succumbing to your sensitive side that thinks on the spur of the moment, “Maybe just ONE puppy wouldn’t be so bad.”

Nope, it’s bad.

Your policy is there to protect you from yourself 🙂 Also, be sure to:

  • Be Up Front. Once you have your policy in place, don’t be coy, make sure your tenants know what those policies are. They should be in your Rental Agreement or Lease, which your tenants should have a copy of.
  • Be Consistent. The Rental Agreement I use with my tenants states that rent is due on the first and considered late after the fifth. On the sixth, if rent hasn’t been received, the tenant gets a $50.00 late fee and a 3-Day Pay or Vacate Notice per our policy and the terms in their Rental Agreement . The tenant is made aware of this when they move in, so it comes as no surprise when on the sixth they receive a late notice. When you are consistent, you are training your tenants to do things on your terms, which if you ask me, is a much wiser decision than doing things on theirs.

Follow Through.

 

This includes everything from completing tenant requested maintenance to enforcing your policies.

We once had a tenant in one of our 2-bedroom apartments that decided to get a young lab. Their Rental Agreement and our policy both stated that no pets were allowed on the premises. As soon as I was made aware of dog in the apartment (it’s difficult to hide a 60-pound dog in a 24-unit apartment complex!), I contacted the tenant by phone and reminded them of the strict “no-pet” policy and gave them a date by which the dog would have to be gone. When that date rolled around and the dog was still residing in the apartment, the tenant was given a 10-Day Notice to Comply with their Rental Agreement or immediately vacate the premises. On the tenth day, we did a thorough walk-thru of the home and confirmed the dog had been re-located.

Now, I wonder what would have happened if we hadn’t followed through? I can tell you: that apartment would still have one fluffy, yellow, 60-pound tenant.

Be Professional.

 

Landlording is a business, and as with any successful business, it’s important to always be on your best behavior. This includes the way you interact with your tenants, your appearance, written correspondence, returning phone calls promptly, etc. If you’ve been in the landlord role for any time at all, I’m sure you found out quickly that tenants can be the exact opposite. You can’t control them though, you can only control you. Set the precedent for your tenants that you are a professional business.

When my husband and I started out we essentially started our own property management company for our own rentals. We have a professional name, separate phone-line, operating hours (10-4 Monday thru Friday, with an emergency number for after-hours maintenance issues that can’t wait), logo, letterhead, standard forms, policies, maintenance crew, signs, etc. We answer the telephone with, “Thank you for calling (Company Name).” By doing this, it gave us the professional face we were looking for, and bonus, instantly gave us a higher authority to refer to.

Obviously not everyone needs to go so far as creating a company to run their business through, but the point is that you control how you appear to your tenants, and that appearance sets the precedent. If you want to be taken seriously, be professional in all situations, even when they’re not.

Offer a Quality Product.

 

Don’t be a slumlord. This doesn’t mean your rental has to look like it came straight out of Better Homes and Gardens, but give your tenants a clean home, something they can feel good in and show off to their friends. Also, generally the better product you offer, the better quality tenants you attract, and the better they will care of it while it’s in their possession.

Be Above Reproach.

 

Act with integrity. Don’t give your tenants a valid reason to complain.

Notice I said valid. Tenants complain, because unfortunately, in the tenants mind the landlord is the big, bad, rich guy taking advantage of everyone and their grandmother. But that doesn’t mean you have to be the stereotypical landlord. Do what you say you are going to do, when you say you’re going to do it. If your tenants have something to hold over you, trust me they will. So, why give them the opportunity? Doing this won’t stop the complaining or the stereotype, but you will always be one step ahead.

Final Thoughts

 

Obviously, these steps aren’t the magic formula for creating and maintaining a successful landlording career; however, they do set you up to have a tough time avoiding it. Simply know what you’re about, have a plan, and follow that plan. Whether you’re a beginner or seasoned, young or…wise (wink!), set yourself up to not only succeed, but exceed in this business.

P.S. looking for hard money loans in California? Be sure to check out my friends over at northcoastfinancialinc.com. They have very competitive rates, can fund within a week and specialize in fix and flip loans and other hard money loans.

I don’t believe in ghosts.

I especially don’t believe in ghosts who apply to live in one of my two-bedroom apartments (I hear they are more attracted to creepy mansions). This is why when poor Miss Abileen’s name came forth on the background check I ran this week, despite her death in 1987, I didn’t immediately call the Ghostbusters. While there are a number of “protected classes” that are illegal to discriminate against, I’m fairly sure being dead is not one of them. Clearly something was wrong with the social security number provided. It was fake, probably purchased by the applicant who was lacking a social security number.

This event has made me revisit just how important screening a prospective tenant truly is. As a young investor, it is easy to want to just let a tenant move in based solely on impressions. After all, throughout high school and college we are accustomed to gauging the integrity of a person based entirely on conversations. However, properly screening tenants is the most important step in decreasing the headaches you will get while investing in Real Estate. I would even be as bold as to say 90% of all management headaches could be avoided by adequately screening.  Nearly every problem I’ve ever had with difficult tenants has been from letting my standards slide when screening for them.  I have learned from my mistakes and hope to teach you to avoid them as well.  The following is a list of the top six things to research before allowing a tenant to move into your property.

  1. Valid Social Security Number: I’ll start with this, as it relates to the story above. There a number of reasons a tenant might have a fake social security number, such as immigration issues or trying to hide their shady history. While you might be tempted to allow a fake or non-existent social security number to slide – this is a terrible idea. Instead, just take all the money from your bank account and just mail it to me. Why? You are almost guaranteeing future financial problems. If they refuse to pay, trash the place, and skip town – you can’t garnish wages. If they hurt someone on your property, you can’t find them. Finally, without a social security number, you have no way of knowing who they really are and what they have done in the past. Do they have several evictions? Do they have seventeen felonies in the past year? Simply put, the risk taken when renting to tenants without valid social security numbers far outweighs the reward.
  2. Job Verification: Tenants may tell you they have an excellent job, but without verifying it from their employer, you have no way of ensuring that they are telling the truth. Even if they bring current pay stubs to you, it is still a good idea to call their place of employment because the job could be just a temporary position ending soon. Renting to tenants without a proper job is just asking for future evictions.
  3. Income Verification: I recommend setting a minimum income level for your property at 30% of the tenant’s gross income – and make this number visible from the start to avoid wasting time. I cannot tell you the number of times I have driven to a property to show a unit, only to find out that the tenant only makes $500 per month in social security and is looking to rent a $495 apartment. It is ludicrous, but it happens all too often. Tenants do not know how much they can afford, which is why you must. I now tell prospective tenants over the phone exactly our qualifications to minimize unnecessary trips to show units.
  4. Previous Landlord References: You do not want another landlord’s trash. Calling a previous landlord is vital to knowing the kind of tenant you might be soon renting your property to. However, do not simply just call the most recent landlord, because more likely than not, this landlord will give a positive review even if the tenant was terrible – simply because they want them gone! Instead, go back to other previous landlords and find out the quality through them. Additionally, a proper background check will include previous addresses for the prospective tenant. Make sure these addresses line up with the addresses they give you. Often times tenants will conveniently “forget” to include landlord information for the property they were evicted from.
  5. Credit – While understanding a prospective tenant’s credit is important, this is the only item on this list that is only necessary depending on the type of tenant you are looking for. Credit checks often just tell you one thing – they have bad credit. However, if you are renting higher income properties – by all means check credit. They way a person has paid their debts in the past is a huge indication of how they will pay you.
  6. Living Style: This includes a number of specific items of note about your perspective tenants that are pertinent to know before renting to the tenant. This includes items such as number of pets, other people who will be living with them, smoking status, and “how much cash do you have”. These questions will help you better determine the type of renter this prospect will be and how they will affect the condition of your home.

Screening tenants does not have to be a scary task, and can easily be subcontracted out to either a screening company or simply a trustworthy college student looking to make a little bit of money. I also strongly believe in charging a tenant for the cost of the background check. It is generally common practice and it will help weed out the tire-kickers and only get serious renters.

P.S. looking for hard money loans in California? Be sure to check out my friends over at northcoastfinancialinc.com. They have very competitive rates, can fund within a week and specialize in fix and flip loans and other hard money loans.

 

Management of Tenants can be tough work if you don’t manage properly. Here are 5 of my favorite tips in minimizing the work it takes to manage your tenants.

 
1.) Do Proper Maintenance.

Don’t be a slumlord. When things are broken, fix them. Not just because it will make your tenant happy and paying (it will), but it will keep up the value of your investment and keep you from larger hassles. Real Life Example: A tenant called once about a slow draining toilet. Rather than fixing the issue, I proceeded to put that on the bottom of my priority list, right below “fix global warming” and “find my missing sock”.

Bad idea.

Tenants don’ think like us. We think “broken toilet, stop using”. What do tenants think? “Hmmm… the toilet stopped draining… so… um… lets smoke some week and continue using.”. Three weeks later, I get a second call. The toilet has not been draining since the first call, but the tenants CONTINUED TOUSE THE TOILET EVERYDAY. They only called the second time because it began to overflow.

You cannot imagine the smell.

That day I learned three significant lessons:

1.) I will never fix another toilet again (perhaps the best choice I’d ever made)

2.) I will always address maintenance issues promptly and

3.) A toilet filled with human feces weighs too much to successfully dump upside down in the bathtub without losing 90% down the front of my body.

 

2.) Have A Policy To Refer To.

Just as the above tip involves having a “higher authority” to refer to, it is also wise to have a “policy” to refer to. That late fee that can’t be waived? Sorry, it’s our policy. You want a maintenance guy to come fix your  at 8:30 on a friday night? Sorry, our policy states that non-emergencies are only dealt with monday through friday, 9-5. Customer Service departments have used this technique for years, and with good reason. People will tend to argue with anything you say, but if its part of a policy, arguments tend to end there.

 

3.) Never Give In (if You Give A Mouse A Cookie).

One of my favorite books growing up was called “If You Give a Mouse a Cookie”, which teaches kids not to give change to the poor because they will only want your Playstation next (or something to that effect). Tenants are that mouse. If you waive that late fee one time, they will be late again. If you allow them to park one car on blocks in their front yard, soon you will be the proud owner of the towns new scrap yard. Tenants will take what they can get. Set a line, stick to it, and don’t give in.

 

4.)You Are Not The Owner (Higher Authority).

This is one of my favorite tip in dealing with tenants. You are not the owner. You simply work for “him”. This tip revolutionized the way we manage tenants and our own time. The landlord is always, and will always be, the “bad guy”. He’s the money grubbing guy who tries to steal christmas presents from kids and bathes in the torment of good, hardworking people. By introducing yourself as simple “the property manager,” you are given a “higher authority” by which to refer to.

Additionally, it also allows you time to think when a question is asked of you that you don’t know the answer to. “I’m sorry Mrs. Johnson, we asked the owners about you keeping that new litter of pitbulls (you moved in secretly,) but they just won’t allow it in your studio apartment”. Notice who the bad guy is? The owner. The real fun begins when the tenant begins trash talking the owner. Go ahead, join in.

5.) Get a Resident Manager.

Tip number 5 is indispensable if you are looking to hack real estate and use it as your ticket to wealth and freedom.

You need to let go.

A resident manager is someone who manages the day-to-day operations of your empire (i.e. toilet repair, complaining tenants, renting units) in exchange for reduced or free rent. Obviously, there is an economy of scale issue when dealing with this, as you would not need a manager to manage just one single family house. However, perhaps offering $50 a month to a tenant to answer phones and show units at any of your properties or $100 to get a unit prepped and filled would tickle a tenant pink and keep you lying on the beach in Maui. The point is: look for ways to outsource all the mundane, boring, filthy, and cumbersome tasks so you can focus on building your empire and saving the world.

P.S. looking for hard money loans in California? Be sure to check out my friends over at northcoastfinancialinc.com. They have very competitive rates, can fund within a week and specialize in fix and flip loans and other hard money loans.