Andrew's Blog

What Do Your Rentals Cost You?

Andrew Schultz — Wed, 08 Apr 2009 07:59:01 -0500

Understanding what an income property costs on both a yearly and monthly basis are important considerations for the real estate investor. In addition, knowing the operating cost of each unit is important, as it helps determine the bare minimum rental rate. No one ever said owning income property was cheap! There are many expenses that need to be taken into account, such as:

Mortgage payments
Taxes
Utilities (if included)
Maintenance and repairs
Management
Insurance
Legal and professional fees

Using a spreadsheet, an investor will lay out all of these costs for a year. Adding them together gives the investor a figure known as the Gross Operating Expenses (GOE). It may be necessary to estimate some figures, based on previous years, capital improvement plans, and other factors. An example of this would be the need for a new roof on a property in a previous year causing a higher than average maintenance cost for the year.

Expenses for things such as taxes, utilities, and insurance are probably going to go up every year. This inflation needs to be accounted for in the GOE. Based on data available at the time of this writing, the average inflation rate on a per year basis since 1914 is 3.43%. [InflationData.com] Using a figure of 5% is therefore well within reason.

Once a GOE + Inflation (iGOE) figure is determined, an investor will have a rough idea of what a building will cost to own and operate for a year. This figure will then be divided by the number of units in the building, giving the Annual GOE for each unit (uGOE)*. Further dividing the uGOE by 12 months delivers the Monthly Unit GOE (muGOE)*. This may seem like a headache, but you can’t get where you want to be without knowing where you are starting!

The muGOE should be the absolute bare minimum that would be charged for rent, assuming the property never turns a profit!

Knowing what a building costs to own and operate over the course of a year is important to the investor, for planning purposes, as well as in the event of a building sale. Knowing what each unit costs to operate on a monthly basis is just as important, as it will help determine the minimum acceptable rental rate, assuming the market will support it!

* These abbreviations are not standard, and are used only to assist with the flow of the article.

Andrew Schultz is a real estate agent and property manager located in the Western New York area. His articles on real estate investing and property management can be found at www.andrew-schultz.com.

Dealing With Tenant Utility Disconnect Notices

Andrew Schultz — Fri, 03 Apr 2009 07:23:31 -0500

Having a tenants gas, electric, or water service get disconnected is a serious situation that must be addressed by a landlord quickly, but fairly. A tenant that has let a utility bill lapse to the point of disconnect is probably experiencing a severe financial hardship. If they have not let their rent lapse yet, chances are that is going to be happening sooner than you would think.

In addition, not having a utility turned on leads to the tenant doing whatever they have to to get by. For instance, a tenant without electric will be using gas that much more - in addition to cooking, they may be using it for light, or even for heat if you have an electric furnace. A tenant without gas will be using their electric for all their cooking needs, including open hot plates, and possibly other unsafe cooking devices. In addition, they may overload outlets with electric space heaters. A tenant without water may not be taking care of their own hygiene needs as often as necessary. In addition, in some areas (Buffalo and Erie County specifically), a property can be foreclosed on if there is a large outstanding water bill for too long!

There are some things you can look for to ensure that utilities are on.

Most utility companies will leave several notices and door hangers at the meter or on the door stating the service may be disconnected, or that the service has been disconnected. If you see a door hanger from a utility company, you should check the status of the utility!

On a water meter, you may find a lock in place at the meter if the utility is turned off. However, many areas will simply turn the water off at the curb.

On a gas meter, you’ll want to ensure that the gate is open, allowing gas to flow through. Many utility companies also put a tag on the meter with the date it was installed, serviced, etc.

The picture to the left shows an open gate - one that parallel with the piping. A closed gate would run perpendicular to the gate, and would probably be locked by the utility company.

Electric meters are generally tagged to prevent entry, with the colors of the tags meaning different things. For instance, in the Buffalo / Erie County area, a grey tag means that service is active. A yellow tag means that service is not active.

On an older style electric meter with the dials, you may notice the dial spinning, which inducates the service is active and being used. However, fi the electric main is turned off inside, this dial should not be spinning.

Dealing with a tenant who has had a utility turned off can be a challenge. In your lease, you should outline the requirement of what utilities the tenant is responsible for. In addition to spelling out what the tenant is responsible for, you should also have a clause stating that the utilities must be active for the duration of the lease, and that their bills be paid in timely fashion. If a tenant is failing to keep utilities active, you would then have the grounds for an eviction. It may seem cruel to consider evicting someone when they are at such a rough spot in their life, but the damage they may cause to your rental as a result of the misuse of other utilities should be enough to convince you it is time for them to move on.

Landlord Basics: Tenant Screening

Andrew Schultz — Mon, 30 Mar 2009 08:22:24 -0500

(This post is part of our “Landlord Basics” series, which seeks to help the new landlord / investor understand some of the basics of tenant relations and property management. Click here to view the entire Landlord Basics archive.)

Tenant screening is an important, but often overlooked, responsibility of the investor. Prospective tenants are not always truthful on their rental applications (assuming one was filled out to begin with!). Because of this, it is important to check prospective tenant references. This is a quick and dirty guide to the questions you should ask.

Before you start making phone calls, I suggest doing reverse phone number look ups on all references. Whitepages.com offers a reverse search. Generally a business number will come back to the business address, and a landlord will come back to an address as well. However, you may see some numbers that come back to “disposable” cell phones. These instantly throw up a red flag to me, because it could easily be someone covering for a prospective tenant.

Rental applications should, at a minimum, include workplace references and previous landlord references. Some applications also include a personal references section, where prospective tenants can give you the names of a couple friends who will tell you more about them.

When calling a previous landlord, there are several questions you can ask to help you get more information on the tenant. Some landlords will answer questions over the phone, and some will require a fax and a signed release of information from the tenant. You DID include a release at the end of your application, didn’t you?

Were there any other people on the tenant’s lease?
What was their address? (They should know this relatively quickly, or they could be a bad reference)
Was their rent $xxx? (Give an amount other than the correct amount and see if they correct you - otherwise this may be a bad reference!)
Is their rent current?
Are they being evicted / have they been evicted? (If rent is not current, this may be why they are looking for a new place!)
Did they have any pets?
Were there any complaints from other tenants?
Did they cause any major maintenance issues?
Would you rent to this tenant again?

Workplace references are generally going to end up going to the Human Resources department of any larger company, and will have to be sent via fax. You’ll need the signed release from the application for this fax as well. Employers are very limited on what they can give you, but you can request more information (such as pay stubs) from the tenant.

Is the employee’s address _________? If not, please provide correct address. (Give address they are currently using on their application. People tend to update workplace records quickly when they move, so they continue to get paid!)
When did the employee start?
What is their position?
Are they full time or part time?
What is their current pay rate? (Check against the application and pay stubs)

Tenant screening can be challenging, but it is important to check out a prospective tenant fully and completely before turning over a very costly asset to them, your rental property! Not completing a tenant screen can cost thousands in evictions, lost rent, and repairs. It’s impossible to catch every bad apple, but proper screening will certainly reduce the number of bad apples you have to toss!

Time Value of Money for the Investor

Andrew Schultz — Wed, 25 Mar 2009 07:51:53 -0500

Many investors take pride in having a strong sense of “do it yourself” when it comes to maintenance tasks that pop up in their investment property. This isn’t necessarily a bad thing, but when does the amount of time required of the investor outweigh the cost of having a contractor come in and do the work for them?

First and foremost, there are some tasks that should be tackled by a contractor without hesitation, either due to job difficulty, licensing requirements, permit requirements, or hazardous nature of the work. A good example of this would be upgrading an electrical service. In many areas, a certified electrical contractor has to pull a permit from the municipality, and the work can not be completed by the investor or just a handyman.

Figuring the actual time value of money for the investor can be challenging, because there are many variables. Is the unit occupied, and it’s just a minor task that needs to be completed (perhaps a leaky faucet)? This unit is still generating income, and the work isn’t preventing the unit from being rented, so this may be more worth the investors time. The exception would be if it is cheaper to have a handyman do the job while you concentrate on another task, such as seeking a new investment deal.

Another example would be a unit with a bad hot water heater. Some areas require a licensed plumber to do this work. However, many areas do not. If the unit is vacant, the tank needs to be replaced prior to tenant placement. Assuming it can legally be done by the investor, this work could be done in his “down time”, if he was so inclined. However, if the unit is occupied, the tank needs to be replaced as soon as possible. In this instance, unless immediately available to do the work his/herself, the investor is better off hiring a contractor to get the unit back up to par.

Lawn mowing is another prime example. Some investors have tenants mow their lawn. Other investors hire it out because it takes too much time, and would take time away from other activities. I know another investor who always mows the lawns, because it gives him an opportunity to check on the property and he finds the work relaxing. Im this instance, he finds it worth his time to be a presence at the property, even if he is just doing a quick mow.

Every investor needs to decide at what point it is better to let someone else handle the job, so they can work on other tasks. It isn’t always an easy decision. However, in some instances, it needs to be done because of time constraints or money lost completing the task that could be generated completing another task. Taking the time to decide what you can and can’t handle, and not getting in over your head, will save you a lot of headaches, as well as time and money, in the long run!

Landlord Basics: Setting Up For A Showing

Andrew Schultz — Mon, 23 Mar 2009 07:51:04 -0500

Showing apartments can be a headache if you don’t have a system down for scheduling showings and preparing yourself for the showing. Not being prepared can have a negative impact on your showing, and potentially lose a renter. Take these steps to get ready for a showing, starting with scheduling appointments!

Scheduling appointments should be done in such a way that you have multiple people coming to see the apartment if possible. Some prefer to do it one by one, but an open house setting will allow more people to see it in less time, meaning fewer trips to the property with a higher chance of finding a renter. You may want to plan for a couple different times that fit your schedule, and then offer the option to prospects as they plan to come see the apartment. Make sure to take down a name and phone number! You may also want to have prospects bring a pay stub to show current employment.

The day before the showing is scheduled, call the people who have planned to come and confirm that they still plan to attend. When leaving a message, the prospect should be required to call back and confirm. A good sample message is “This is Tom from XYZ Apartments, calling for Jan to confirm the apartment showing on May 7 at 4PM. Please give me a call to confirm at 555-1234. If I don’t hear from you, I’ll assume you are no longer interested, and I won’t go to the appointment, so please call today to confirm. Thank you!” I like to use this message because it forces an action from the prospect. If they don’t call back, you can safely assume that they were not interested, and if you don’t have anyone who is confirmed then there is no reason to go out to the property.

The day of the showing, take a few minutes to put together paperwork that you will need. This may include flyers, signage, rental applications, agency disclosures, etc. Having all the paperwork together ahead of time will reduce your stress because you will know you are ready when the time comes.

Once you arrive at the showing, set up your signage and lay out your paperwork. Take the time to prepare the apartment. For ideas on how to prepare, take a look at these 5 Tips For Improving Open Houses. Greet people as they come in, but allow them to look around the apartment on their own. Answer questions they have, and rate their interest level. Offer the rental application to them, as well as a pen. Many people will want to take it with them, but most of the time these applications don’t end up coming back in. The better bet is letting them know the sooner they fill it out, the faster it will get processed.

A good showing can bring you many prospective tenants! Having a plan before you walk in will help you feel more organized and confident, and this will be picked up by the prospects. Remember that filling the apartment is important, but finding the right tenant is equally, if not more important!

Occupancy Rate and Vacancy Rate Explained

Andrew Schultz — Fri, 13 Mar 2009 09:23:49 -0500

As a real estate investor, you already know that a vacant apartment does not make money. Vacancy rate, the percentage of all apartments in your portfolio that are vacant at any time, is generally figured on a year or more of data, based on the number of units that are occupied and vacant monthly. Occupancy rate is the number of occupied units, and is often used because it is seen as more “positive” than vacancy rate.

An example would be having 20 units total, with 15 occupied in January, leaving 5 units vacant in January. When figuring vacant units, you should include units that are vacant and ready for showing / move in, units that are being turned over after a tenant leaves, and units that are not rent-able due to needing repair or renovation. This will give you the most accurate figures available.

Assuming you are looking at a 20 unit portfolio, that would mean that every month you have 20 units that are potentially available for rental. Over 12 months, you would have 240 unit-months. The formula for this is Number of Units * Number of Months = Number of Unit-Months.

Taking a full year of data, you can figure the total number of units vacant by simply adding up all the units that were vacant each month over the year of data. Using our sample data, our Number of Vacant Units would be 35, over the course of the year.

Once you have your Number of Unit-Months and your Number of Vacant Units, calculating vacancy rate is simple. The formula is Number of Vacant Units / Number of Unit-Months = Vacancy Rate. Using our sample data, 35 / 240 = .1458 or a 14.58% vacancy rate.

Calculating the Occupancy Rate is simple once you have the vacancy rate. The formula is 100% - Vacancy Rate Pertentage = Occupancy Rate. Using our sample data, our occupancy rate would be figured as 100% - 14.58% = 85.42%.

Having a good idea of your vacancy and occupancy rates will give you an indication of how strong your portfolio is performing. It may also help you determine what you need to do to make your portfolio more profitable. For instance, if you consistently have one building that has vacancies, you may consider selling it and reinvesting in a stronger rental market.

Landlord Basics: Collecting Rent & Payment Methods

Andrew Schultz — Mon, 09 Mar 2009 08:30:57 -0500

One of the best parts of being a landlord or real estate investor is collecting the monthly rent check. Deciding what forms of payment you will accept can determine the amount of work you will have to do on the back end. Some payments are more beneficial than others, but ultimately most investors elect to use multiple methods to make the tenant’s life (as well as their own) easier.

Pre Printed Deposit Slips - Set up a deposit only account with your bank, and offer tenants pre printed deposit slips with the account number and all the information printed on them already. You can also print the tenants name and unit on the deposit slip. This method works incredibly well if your bank lets you see the scanned check or deposit slip online, because you can easily see who paid and how much. In addition, the tenant will receive a receipt from the teller at the bank.

Checks - Many tenants will want to mail you a check. The benefits of a check are numerous. The tenant will be able to see that the check has been cashed, so no receipt is necessary. Checks can be mailed to a PO Box or an office, so there is no need to meet the tenant every month. In addition, you can look at the post mark on an envelope to see if the tenant paid the rent late. One major problem with checks is the fact that if it bounces, you will incur a fee from your bank, which you will have to attempt to collect from the tenant. A tenant who is struggling to pay rent and is being hit by an additional fee by the investor is also being hit by non sufficient funds fees from their bank, and they can begin to spiral out of control.

Money Order - Money orders are very similar to checks. They can be obtained at many grocery stores, gas stations, banks, and even the post office. In addition they are time and date stamped at the time of purchase, as well as the envelope’s time stamp, so you will see when the tenant paid and if they paid late. Money orders are paid for up front by the tenant so they won’t bounce, however, the tenant may cancel the money order.

Credit or Debit Card - In today’s day and age it is becoming more and more common for people to not carry cash, and use a debit or credit card for their day to day transactions and in some cases monthly bills. The biggest pro to using credit/debit cards is the convenience to the tenant, and to the landlord. There are a few cons, however. The landlord will have to set up a merchant account to be able to accept the credit cards. If you have a physical office, you’ll want to be able to swipe cards. This generally means an equipment charge will be incured. You may also want to be able to take cards over the phone, which may cost more per transaction. In addition, every transaction will be hit by a 2% to 3% fee + $0.20 to $0.30 transaction fee. This is a decision that a landlord really has to put some thought in to, as the number of fees incured effects the bottom line.

Cash - Cold hard cash is always nice. You don’t have to wait for the funds to clear, and it’s an instant payment. Make sure to double count the funds to make sure it is all there. In addition, you need to issue a receipt to the tenant so there is proof of payment. There are a few cons to consider. For instance, carrying large sums of money can be dangerous, especially if people know that you make a monthly collection run around the same time of the month. In addition, landlords incur the expense of traveling to collect the rent, taking it to the bank for deposit, missed appointments with tenants who were supposed to be home, and more.

Sample Move In Move Out Condition Inspection Form

Andrew Schultz — Fri, 06 Mar 2009 08:51:34 -0600

As promised, I’ve come up with a Condition Inspection Sheet which can be downloaded and used for your rentals! This form breaks every room down into detail, and also includes information for electric, gas, and water meters, as well as appliances.

Condition Inspection Report

Determining Cap Rate

Andrew Schultz — Fri, 06 Mar 2009 08:49:28 -0600

Cap Rate, short for Capitalization Rate, is a formula used to help determine the value of rental property. Investors will use the cap rate of a property to help determine a good or bad deal, since it is based on market values (recent sales of similar properties) in the area.

Cap Rate is determined by dividing the net operating income (NOI) by the sale price (SP). The result will give you a percentage, which is your cap rate. For instance, a duplex in buffalo bringing in $450 per month per side has a gross operating income of $10,800. After taxes and some minor repairs, it is determined that the NOI is $9,000. The property is listed at $65,000, but having a shrewd real estate agent, the final sale price is $60,000. Using our sample figures, we come to a Cap Rate of 15%.

To determine a cap rate prior to a sale, have your real estate agent pull recent sales figures for similar properties within the last few months. This will also help you and your agent determine the amount you want to offer for the property.

Determining a good cap rate is influenced by a few factors. First and foremost will be the local market. Real estate is localized, so a good cap rate in Buffalo may not be good in Miami. Sometimes, you may find a difference in cap rates from one area of the city to another!

In addition, buyers and sellers want to see differences in cap rates. A buyer is looking for a higher cap rate, because that means they are getting more net income out of a property for less of an investment.

Sellers are interested in a lower cap rate, because they want to receive more value for their property. However, too low of a cap rate may cause a property to sit on the market for an extended period, so the seller is working on a slippery slope between fast sale and best sale price.

Cap rate is not the only thing that needs to be considered in the purchase of an investment property! Investors must be careful to evaluate each property purchase based on itself as well, considering factors such as structural soundness and operitability of the mechanicals (electrical, plumbing, etc).

Landlord Basics: Move In Move Out Condition Inspection Reports

Andrew Schultz — Mon, 02 Mar 2009 08:00:42 -0600

Tenants come, tenants go. Over the course of your career as a real estate investor, you’ll likely see a lot of tenants come and go, both good and bad. Being able to protect yourself when a new tenant comes and an old tenant leaves is important, especially when it comes to returning the security deposit. Having a move in and move out condition inspection reports will help you document the state of a rental before and after tenant use.

A condition inspection report will cover the status of every room in a rental, in great detail. Everything from walls, floors and ceiling, to windows, doors, and closets should be inspected for damages, to ensure working order, and cleanliness before a tenant moves in and again after the tenant leaves. Discrepancies can then be charged against the tenants security deposit, to help cover the cost of repairs, cleaning, and replacements. Appliances should also be

In addition to a condition inspection report, photos should be taken of each room, and those photos should be saved digitally and preferably prints made as well. Comparing photos before and after is often easier than comparing two sheets of paper, sometimes several years apart, to determine what you meant when you wrote something down. In addition, photographic evidence of the unit before and after may be admissable in eviction or small claims court if the need arises.

Move In and Move Out Condition Inspection Reports are an important part of any landlord or investor tool kit, and should be implemented as part of your move in and move out systems. Later this week, I’ll be posting a sample report which you can use!

10 People You Need To Succeed In Real Estate Investing

Andrew Schultz — Wed, 25 Feb 2009 07:52:30 -0600

Before you jump in to real estate investing, it's a good idea to take some time to put together your real estate "Dream Team". These are the professionals that you will reference when it comes to buying, selling, researching, and handling day to day operations of your investments. Having a strong team behind you will help ensure your success throughout your time as a real estate investor.

The important thing to remember here is you don't want to wait until you have a deal brewing to start piecing together the puzzle. By then it's too little, too late. You'll want to look into the practices of these team members, and try to establish a connection before the first transaction. Even something as simple as a phone call or a short meeting can help you determine if their goals will align with your own.

Every "Dream Team" should include:

A lawyer. Your lawyer should understand the ins and outs of a real estate transaction. Many offices have a lawyer that specializes in these types of transactions. You may also want to consider finding a lawyer who understands asset protection methods, such as land trusts and Limited Liability Corporations.
An accountant. Having a strong accountant will help you uncover various tax write offs that you are unaware of. of. In addition, they should understand the asset protection that a land trust or LLC provides.
A mortgage broker. Making sure that you have a mortgage broker who understands the needs of an investor is important! It's harder than ever to find someone willing to finance a real estate venture, so having a solid mortgage broker before you find the deal will save you a lot of headaches.
A title or escrow company. Make sure your escrow company is comfortable with and understands short sales, double closings, and putting property under an LLC or into a land trust.
An insurance agent. Leaving your new property uninsured is not only a fool's move, it is also illegal in many states! Tenants should have their own insurance (usually called Renter's Insurance or Tenant Insurance), but the property should also be covered. Talk to an insurance agent and make sure you get a policy that covers income property.
A contractor. Actually, I would consider having a few contractors around. Usually a general contractor will be able to handle most of your needs. Sometimes, however, you may need an electrician or a plumber to be licensed and certified in a particular city in order for them to inspect a service, pull specific permits, etc. Your general contractor may be able to refer you to the specialized contractors you need.
A real estate agent. Depending on how you complete sales, you may not need a real estate agent. However, agents generally come with MLS access, which can provide a wealth of information with just a few key strokes. In addition, their market knowledge of an area may help you spot a great deal before it gets snapped up by another investor. Finding an agent who is used to working with investors is important, as they can often give you references to other key members of your Dream Team.
A property manager. This is especially important if you live outside the area of your investments. Having a property manager to handle your day to day operations is important. Often times they will be able to handle situations faster than you can, because they understand how all the wheels turn in the local government.
A partner. This one is optional, however, I suggest knowing someone that has "private money" that you may be able to work with to get a deal to happen. Private money can sometimes come at a better interest rate, or at better terms, than bank financed money. In addition, private money lenders usually rely less on credit and more on a strong business relationship.
A mentor. Your mentor should be there when a question arises, advice is needed, or just to provide some insight on a topic.

Finding members for your "Dream Team" can be difficult. Talk to other real estate investors in your investment area, attend real estate investor club meetings to network, and ask your mentor who they use. Having these people on your team early, and ensuringyou have strong relationships with them, is vital to your success as an investor.

Landlord Basics: Contact With Tenants

Andrew Schultz — Mon, 23 Feb 2009 08:13:46 -0600

Contact with tenants is an integral part of ensuring your investments are taken care of. As a real estate investor, you may have a varying level of contact with your tenants, depending on whether or not you use a property manager, and how much that manager handles for you.

If you are handling tenant contact yourself, you should have a separate phone number for all phone contact with the tenants. If you are holding the property under your personal name, you may want to consider filing for a DBA for ficticious name, at the bare minimum, and use that name on your answering machine or voice mail. This gives you the ability to sound more “official”, especially in the early stages when you may only have one or two properties. You should also use this name on all the postal correspondance you send out.

Postal correspondance should be used for all official letters that your tenants need to recieve, such as updates on policies, copies of served notices, and other important documents. Using your business name on all correspondance will help create that same official look and feel as with the telephone conversations.

Property Managers will often handle your communications for you. You should find out the policies they have regarding both oral and written communications. If possible, request that a log is kept of pertinent oral communications (both in the field and on the phone), and a copy of all written communication should be kept in the tenant file. Maintenance requests, discussions regarding rent collection, payment agreements, and other pertinent conversations should be logged and saved, in case there is a need for the information in court.

Communicating with tenants is vital to your success. Whether it is being handled by the investor, or a manager, steps should be taken to ensure that tenant communications are logged, protecting your assets for many years to come.

Landlord Basics: Tenant Payment Agreements

Andrew Schultz — Mon, 16 Feb 2009 07:01:41 -0600

In a perfect world, every tenant would pay all their rent on time every month. Unfortunately for the real estate investor, we don’t live in a perfect world. A tenant’s failure to pay rent on time is a violation of the lease, but do you always want to move for eviction? The tenant payment agreement can help you stay on top of your tenants, while at the same time giving them the opportunity to catch up.

Case 1: Betty White, a 68 year old long term (7 year) resident of one of your duplexes, had a larger than average heat bill for the month of December and calls you a week before rent is due in January asking if she can pay on the 10th of the month. Her payment history is solid, having been late only one other time during her tenancy. This is a prime situation for a tenant payment agreement, because Betty is a solid, long term tenant who is just trying to catch herself back up. In addition, she called early because she anticipated a problem, giving you a heads up on the situation.

Case 2: John Stone and Adam Dopermeiser, 22 year old residents of one of your complexes, call you on the third of the month and ask for an extension for their already late rent. Since the tenants moved in 6 months ago, you have received 2 noise complaints, and the rent has been late once. In addition, there is a lot of late night foot traffic in and out of their apartment. In this instance, you may want to look at processing and serving a 3 day or 30 day notice. There are multiple lease violations with this set of relatively new tenants, and the increased foot traffic may be indicitive of other activities taking place on the property.

The Tenant Payment Agreement can help you save a good tenant who pays on time from facing a eviction. These notices should be filled out with the tenant, and the tenant as well as owner / landlord / manager should sign and keep copies of the agreement for their records. Be judicious in choosing what tenants receive tenant payment agreements, and you can save yourself a lot of headaches.

Consider a tenant payment agreement for tenants who:

Call before the rent is due, because they have anticipated a problem.
Have a strong payment history (usually at least 6 months with no late payments).
Have not violated other sections of their lease.

Some landlords will disagree with this article, saying that “the rent needs to be paid like any other bill” which is true. However, the cost of evicting a tenant, preparing a unit for rental, marketing, screening, and placing a tenant are generally much steeper than the inconvenience of waiting a few extra days for a good tenant to pay their rent.

In deciding how long to give a tenant to pay, a good rule of thumb (at least in the Buffalo area) is the 15th of the month. This gives you time to process a 3 day notice and get into court before the end of the month. You also have the option of preparing a 30 day notice and serving it prior to the first of the following month, terminating the tenancy and asking the tenant to leave.

Later this week, I’ll be posting a sample Tenant Payment Agreement, so be sure to check back!

Tenant Move Out Cleaning Instructions And Procedures

Andrew Schultz — Fri, 13 Feb 2009 10:27:25 -0600

Making sure that a tenant leaves a unit in good condition when they move out should be a priority for any landlord. The more work the tenant does, the less work the landlord has to do. Providing the tenant with a detailed and explicit list of cleaning instructions and move out procedures gives them a step by step guide to follow, and allows them to understand exactly what the landlord is looking for. I’ve included a sample Move Out Cleaning Instruction and Procedure for your use.

Sample Move Out Cleaning Instructions And Procedures

Landlord Basics: Discussing Lease Issues

Andrew Schultz — Mon, 09 Feb 2009 08:47:06 -0600

A lease is a legally binding contract between a tenant and a landlord. As such, you should limit your discussions of issues in the lease and rental property to those on the lease. It may not seem like a big deal, but you could become legally liable for any third party disclosure.

Some people need information regarding the lease or tenancy, including lawyers, Section 8 agencies, Department of Social Services, or other rental assistance agencies. If this is the case, you should have the tenant sign a written release specifically stating who can have access to their information, what information they can have, and when the release expires. Once signed, you can turn over the information requested as long as the release is still valid.

You should not discuss issues of tenancy with parents or friends of the tenant! This may seem pretty simple, but you may get a call from a concerned parent of a college student, or a friend who wants to be involved in everything. The best line you can ever learn is, “I’m sorry, but I can only discuss matters regarding a tenancy with the tenants.” Once exception to the rule may be a parent who has cosigned on a student’s lease. It is up to you and your lawyer how much information, if any, you want to share in this instance.

Dealing with tenant issues can be tricky at times, but by thinking before you speak and taking the time to cover all your bases, you will be doing yourself and your tenants a great service.

3 Simple Ways To Improve Service To Your Clients

Andrew Schultz — Fri, 06 Feb 2009 10:46:03 -0600

Real estate agents are always striving to improve the level of service they provide to clients. Every thing that they do that the competition doesn’t do makes them stand out that much more. But what about the basic things that often get overlooked, and lead to an early breakdown in the service provided to clients? Take a look at this list of 3 little things that improve service to clients, with minimal effort necessary to the real estate agent:

1. Your MLS listing should have more than one photo. And the photos should be quality! The number of listings on the MLS system here in Buffalo with only one photo is ridiculous. How can you possibly begin to provide quality service to a client with only one photo of the front of a property? Even if a seller doesn’t want to have photos of the inside of the house taken, there are still 4 sides to a house! What about the pool, garage, yard, etc? The quality of photos is also important. Lights should be on, and window blinds should (optimally) be open when photos are taken. The MLS is generally your first impression to other real estate agents and their clients. Making sure that you have multiple, quality photos will set you apart from many!

2. Your MLS listing should have a well written description. Once again, this is a common complaint that I have about the Buffalo region MLS. Agents will often produce a non-descriptive one or two line “descriptopn” that does not help sift through property. If you have trouble finding the right words, keep a file on your computer, and when you come across a well written description that makes YOU, as a real estate agent, want to see a house, then copy it, along with the MLS number, so that you can reuse the juicy parts of it later. Is this sneaky or unethical? I don’t feel that it is, because providing a better service to the client also provides a better service to other real estate agents. I also wrote an article on key words for marketing an apartment, but many of them also apply to the MLS. Once again, the MLS is generally your first impression to other real estate agents and their clients, so you want to have a high quality description to entice showings.

3. Be sure to get feedback on showings. When another agent calls to set up a showing, make sure you get their name and number, as well as the time that they went. The next day, give them a call and ask what their client thought of the property. Ask specific questions about what they liked, what they didn’t like, and what they felt showed well as well as what needs to be changed. Giving this feedback to your client will help you service them better, and in turn, help you sell the property!

Being a great agent starts with the basics. Did these tips help you? Do you have any other suggestions? Let me know with a comment!

Sample 30 Day Notice or Termination of Tenancy Notice

Andrew Schultz — Wed, 04 Feb 2009 08:51:40 -0600

To go along with the Landlord Basics article I wrote on 30 Day Notices or Termination of Tenancy Notices, I've whipped up a sample form which you can download and use.

Termination of Tenancy Sample Form

In the near future, I'll be doing some other forms, including an Installment Payment Agreement, and a Move Out Instruction sheet. Keep watch by subscribing to our RSS feed, just click the giant orange button on the left sidebar!

Landlord Basics: 30 Day Notice or Termination of Tenancy Notice

Andrew Schultz — Mon, 02 Feb 2009 09:43:53 -0600

At some point, it will be time to tell a tenant that it's time to part ways. The 30 Day Notice, or Termination of Tenancy Notice, must be issued to the tenant to begin the process of removing a tenant from the property, unless you are evicting due to non payment. If you are evicting due to non payment, you will want to issue a 3 Day Notice, or Notice to Pay Or Quit, prior to issueing a 30 Day Notice.

Before we get into the meat of how 30 Day Notices work, please note that this is written based on the laws in my local jurisdiction. Please consult your lawyer prior to initiating any legal action against a tenant!

The 30 Day Notice will be similar to the Letter of Violation, becuase you are expecting the tenant to complete an action based on their violation of the lease. In this instance, however, you are asking them to remove themselves from the premesis as opposed to pay a fine or some other such action.

Read the rest of the article here.

Update: You can now download a sample Termination of Tenancy Form.

25 Strongest Real Estate Markets

Andrew Schultz — Fri, 23 Jan 2009 14:32:24 -0600

Forbes recently released an article revealing the 25 strongest real estate markets in the nation. Among the top on their list? Buffalo and Rochester! Because Buffalo and Rochester didn’t experience the housing boom that many other areas in the country faced, today their markets are still strong.

These areas are especially appealing to investors, because of the low base cost of housing, strong rental market, and appreciation on property values.

From the article [here]:

…housing markets in upstate New York never had the ups and downs of some hot markets in the rest of the country. In Rochester, the birthplace of industrial ancients Xerox (nyse: XRX - news - people ) and Eastman Kodak (nyse: EK - news - people ), real estate values have climbed at a steady 3% rate for the last five years. They don’t have far to fall–about 2.4% according to Moody’s forecasts. In Buffalo, Syracuse and Albany, prices should also remain steady this year.

If you are interested in investing in the Buffalo or Rochester area, feel free to contact me at any time.

Sample Letter of Violation

Andrew Schultz — Fri, 23 Jan 2009 10:40:16 -0600

After I posted the entry on Letters of Violation, I had someone ask me if I had a sample form that I could post. I did a quick form up for you to use. Click the link below to grab it (.doc format.)

Notice Of Violation

Response To House Flipping Rate Decline

Andrew Schultz — Wed, 21 Jan 2009 13:23:56 -0600

Warning: This is an rant editorial!

Recently, the Buffalo News published an article [here] about the declining rate of home flips in the Buffalo, NY area. The article sites stricter regulations for out of area purchasers as well as other "anti-flipping measures" that have been put in place to prevent someone from purchasing cheap real estate and immediately flipping it for a large profit.

Having worked in real estate and property management, I have seen this happen a few times. There are even some companies and agents who are well known for such practices. I'm not calling out anyone on their ethics here, but this is a practice that should rightfully be stopped. These are the people who give out of area investors a bad name, usually slumlord.

My problem is the limits the new systems put on out of area investors to buy in Buffalo. It isn't shocking that there are areas of Buffalo that need rehabilitation work. This happens in every large city overtime . Out of area investors bring cash money into the local economy to purchase real estate, as well as building supplies, and rehabilitate it intolive-able space for families, and then either keep the property for their own portfolio or sell it, usually to other investors (either in town or out of town) who hold it in their portfolios.

I can already see the next complaint - the rent money isn't staying in the local economy if an out of area investor owns the property. In actuality, a good portion of the money DOES stay local. Out of area investors typically have a property manager who handles the property needs, such as maintenance, which generates income in labor and material sales. In addition, out of area investors typically reinvest in areas they have success in. Meaning more real estate sales in Buffalo.

Out of area investors have the capability to breath life back into Buffalo neighborhoods. There should be some monitoring, to ensure that slumlords don't take advantage of the property markets in the area, but there should not be a wall barring out of area investors from participating in our economy!

Landlord Basics: Letter of Violation

Andrew Schultz — Mon, 19 Jan 2009 09:56:38 -0600

It should come as no surprise that occasionally, a tenant won’t do what they are supposed to. It could be something as simple as not moving the garbage bins back from the curb (which is a $55 fine in Buffalo, last I checked), to not mowing their lawn (also a fine in Buffalo, but I can’t recall the amount.) If these are things that the tenant is responsible for in the lease, you should write and serve a Letter of Violation.

A Letter of Violation outlines to your tenant that they failed to hold up their end of the lease, in some form. This isn’t necessarily something you will want to void their lease over, but having a permanent record of the violation will help you determine how you want to handle a tenant when their lease expires. Based on their conduct, you could let them stay at their current rate, go for a rent increase because they are a “problem”, or just tell them that it’s time to move on.

Writing your letter should become easy after the first one or two. Put the letter on your letterhead, and form it similar to how you would form a business letter. After you list both the tenants address, your address, and the date, you will want to make it obvious that this is a Letter of Violation. Use a bold print a size or two larger than the rest of the text, in the center of the page, and print “LETTER OF VIOLATION”.

Address the tenants by name as listed on the lease, and state the section and subsection of the lease that was violated, and how. If you are applying (or passing on) a fine for the violation, that should be clearly outlined in the letter as well. Give the date that the fine is due to be paid, so that there is no confusion. Using language such as “within 7 days” or “within 7 business days” can become confusing because of holidays and weekends, so you are better off saving yourself the hassle and just issuing a date.

Under the text of the violation letter, you should document how the letter was served. For instance, if you are mailing the letter, state that the notice was served in the mail. If you send the letter certified, include the article number. Since you and the tenant will both have a copy, there is no argument that can be made.

Serving the letter should be done the day the notice is issued. If you served the letter personally to the tenant, document the date and time the letter was served, and to whom. Keep in mind that in most states you must be 18 to accept service of a notice. Your best bet is to serve it directly to the tenant and not a child in the household. Since you and the tenant will both have a copy, there is no argument that can be made.

If you post the notice on the property, document the date and time the letter was posted, and where. You may want to take a photo of the posted letter so there is no wiggle room. Since you and the tenant will both have a copy, there is no argument that can be made.

Make sure you keep a copy of the letter in your records! If you need to show cause at a legal hearing (eviction, small claims, etc.) the documentation that you have will be your proof!

Keeping your records in line will help you in the long run. If you missed our article on keeping property records, read up on that here.

Secured vs. Unsecured Debt

Andrew Schultz — Wed, 14 Jan 2009 10:28:00 -0600

In speaking to a friend recently about credit cards, mortgages, and personal finance, he confided that he had very little knowledge of most things finance related. The question he eventually asked me was “What is the difference between secured and unsecured debt?” Since I feel the answer could benefit more than just my friend, I decided to post it up here for all to see.

Secured Debt is debt backed by something tangiable. Good examples of a secured debt are your vehicle and your mortgage. There is a physical good that can be reposessed or foreclosed on to recoup losses by the lender in the event you fail to make the payments.

Unsecured Debt is debt without a tangiable asset to back it. The best example of this would be a credit card. A regular credit card has nothing to back it, so the creditor can only attack your credit score and not your home.

There are secured credit cards, where you pay a specific amount up front to the creditor, for instance, $500. You are then given a credit card with a credit limit of $500, secured by the money you have already fronted to the creditor. This would be considered a secured debt.

Hope this helps!

Landlord Basics: Entering Occupied Apartments

Andrew Schultz — Mon, 12 Jan 2009 07:26:53 -0600

Entering an occupied apartment can be a challenge for a landlord. Many tenants will not have an issue with the landlord entering their property as long as they are notified. However, uncooperative tenants insisting that you can’t come in, even to do maintenance, can be a real headache. And the tenants do have their rights. Generally, as long as the tenant is quietly enjoying their apartment as defined in their lease, you must provide notice before entering their unit.

If a tenant calls in a maintenance item, be sure to clarify a few facts with them to make the process run smoother.

Will anyone be home to meet the maintenance personnel?
Is it alright for the maintenance personnel to enter the apartment while you are not home?
Ask if there are any animals that you need to be concerned with.

How much notice is necessary? In most states, a landlord must give 24 hours notice before entering a unit, except in the case of an emergency. This should be defined in your lease with the tenant, to make sure that the tenant understands. The amount of time necessary differs from state to state, as well as the method in which you must notify. In some areas, a simple phone notification is ample. In other areas, you must post a notice on the door. Speak to your lawyer regarding the requirements for entering a unit so that you don’t wind up in hot water!

Scanning A Signature

Andrew Schultz — Fri, 09 Jan 2009 08:47:11 -0600

I recently read an article over at Productivity501 about scanning your signature into your computer, so you could easily attach it to documents. This can be incredibly handy when it comes to signing files and sending them back. You won’t even need to print it out in most cases - just insert the image, and align it where you need a signature. This is also incredibly handy if you use an online fax service, which I have been looking into extensively as of late in the interests of a “paperless” office.

One of the biggest objections that many people have to the scanned signature concept is that of privacy and security - what if someone gets their hand on my signature? Think about it from this perspective: You sign so many papers that if someone really wanted to, they would find a way to get your signature. Public documents contain signatures, and the pages can be copied for usually under a quarter! Security of your signature can be a real farce!

What’s your opinion? Would you scan your signature to save time?