Rental Value

Here is a simple way to calculate an investment property's value without comparisons. The gross rent multipliers are ok, but the following is a better way to estimate the value of a rental property in my opinion.

1. Get the financials on the property.
2. Calculate the yearly income.
3. Subtract a total of 10% off the top for vacancy and management fees.
4. Subtract the taxes and insurance.
5. Divide by .10, .11, .12, .13, or .14 depending on the neighborhood. .10 would be a very desirable neighborhood and .14 would be a not so desirable neighborhood.

Here is an example: You have a great looking property in a very desirable neighborhood. Say it's a duplex that's on the market for $250,000. The financials show it brings in $1,800 month.

$1800 mo. income
x 12 mo
$21600 yearly gross income
-10%   vacancy & management
$19440
-$2400  property taxes
$17040
-$1500  insurance
$15540
.10___   divide by .10
$155,400 is your estimated high end appraised value

So as you can see based upon the income this property is currently producing it will only support (according to the financials) an appraised value of $155,400. You could potentially be getting in over your head.

This is based on the income approach nothing more. Comparison sales approach may tell a different story. Disclaimer: I am not an appraiser, but this formula did come from an appraiser.

Breaking a Lease

Tenants fail to remember or realize a lease is a legally binding contract, so when the lease is broken the contract is broken. Penalties might be attached to a lease, if not you should revise your lease. Landlords or property managers are human and understand certain circumstances may arise such as a job transfer to another state. Don't try to be slick and sneak out without discussing your situation with the landlord or property manager; they will not be as understanding if you're caught.

Penalties for breaking a lease should be stated in the lease in a clear and concise way. Most commonly the tenant will be responsible for paying the remainder of the lease, pay to find a new tenant and/or lose their deposit. Some areas or states may have laws that govern how breaking a lease will play out. In this day and time people in the military (Reserves or Active Duty) maybe called to deploy. Military personnel have special rights when it comes to breaking a lease. Check with your local recruiting office for more details.

Tenants you should be polite when approaching your landlord about breaking your lease, because you never know when you may need to use them as a reference. Make sure you give plenty of notice (at least 30 days) when your ready to move. The more a tenant is upfront and honest with the landlord or manager the less likely they will receive the full blunt of the penalties. If you are penalized it's in your best interest to follow through on the penalty set forth.

Contact your attorney for the legal ramifications of breaking a lease or enforcing the penalties set forth in the lease.

Roach Control

No matter what you roaches can still return, especially if you live in an apartment building or complex. To help control the return of roaches you'll need to do the following"

1. Reduce the amount of food out in the open, especially at night when they love to hunt.

• Take out the trash every day and place it in a sealable trash container.
• Wash your dirty dishes.
• Wipe down the counters.
• Pick up and seal pet food.

2. Reduce the clutter and especially paper products.

• Remove all paper products from the baths and kitchen.
• Clean your clothes on a regular basis. Don't let them pile up.

Worst Type of Tenants

Most people don't realize that their actions have a direct impact or influence on their neighbors. Here are 2 distinct types of tenants a landlord's dream or a landlord's nightmare. Obviously as a landlord or property manager you want as many dream tenants as you can get. Best advice here is screening your tenants thoroughly to help avoid certain characteristics.

1. The tenant who pays rent late on a consistent basis or not at all. Verify rental history with a prospective tenant's present landlord or pull a credit report. In most cases the landlord will be more than happy to discuss the potential tenant's payment history. Also check with your local city or county court system for recent evictions, writing of bad checks, etc... It's well worth your time.

2. Tenants who cause disruptions may cost you more money in the long run. They maybe causing undo stress with the neighbors, which in turn may force other tenants to leave for a less stressful and quieter surroundings. Take care of this problem swiftly.

3. The tenant who brings unwanted guests i.e. roaches. Regular inspections will help cut down on tenants leaving trash laying around and keeping a cleaner apartment. If roaches are noticed treat immediately with bait or bait traps. I recommend avoiding monthly spraying. In my experiences spraying is a temporary solution and not a treatment.

4. Tenants leaving uncleanly common areas can also bring in other issues such as mice. Again this could cause you more money by tenants leaving if this issue is not dealt with immediately, but can be dealt with regular inspections.

5. The tenant who purposely damages a unit. A great example is someone with anger problems punching holes in the walls or slamming doors.

6. The overly helpful prospective tenant. Some examples are "I can fix that, it won't be a problem", "I'll clean that", "I can take care of the repairs". Most of these people will hook and crook you to death. They will expect to get paid or deduct the repairs off the rent. Most of them are extremely lazy and will cause you most of the headaches listed above.

Bottom line is screen your tenants, verify employment, rental history and criminal history. If your still in doubt you can always make a surprise visit to their current residence and get a first hand look at how they actually live.

Watch Out

As scams come and go you need to keep your eyes open for the next one. For landlords and property managers the next scam may have arrived. It goes something like this: a tenant who knows they are on the verge of being evicted will come outside and try to start an argument with you while yelling and screaming. This is used to draw the attention of the neighbors so they can be witnesses to assault and/or battery. If the tenant can't get you to attack them verbally or physically the tenant will stand next to your vehicle and say you tried to hit them or someone in their family. This is all a preemptive move to retaliate for a potential eviction and to potentially get a substantial financial settlement for the assault or battery.

Be prepared when a tenant becomes argumentative or irate. Majority of people have camera phones and most of them have the capability to take short videos, USE IT and turn the evidence back in your favor. You may want to carry a small tape recorder to record your conversations. Be very careful depending on state law it may be illegal to tape record conversations without proper notification. Contact your attorney for interpretation of your states laws regarding recording conversations.

Problem Tenants

If you've been a landlord or property manager for any length of time you've probably came across a tenant that causes problems every time you turnaround. This situation may tempt you to bypass the legal system and take matters into your own hands. Well take a deep breath and count to ten before you do something you'll regret.

If you were to change the locks on a tenant who hasn't paid their rent, appears to have abandoned the property while leaving it an absolute mess, verbal or acted aggressively you would have a pretty easy eviction. Making the move to change the locks you as a landlord or property manager could be setting yourself up for a lawsuit based on one or more of the following: trespassing, assault, battery, slander, emotional distress or wrongful eviction. Defending against the lawsuit will cost you hundreds or thousands of dollars more than evicting the tenant through the legal system. Don't take shortcuts such as threats, shutting off the utilities or physically removing the tenant. Anyone of these could lead to a dangerous situation and not to mention illegal.

Tenants may sue for actual money lost, temporary housing, value of food that spoiled or cost of electric if you shut off the gas.  Depending on the state and circumstances the tenant could still live in your property while you pay them for damages. Talk about a costly lesson to learn. When in doubt talk to your attorney or simply EVICT, EVICT, EVICT. This will save you from a criminal record and/or financial nightmare.

Vinyl Mini-blind Makers

Answer Consumer Questions

(Reprinted from Window Covering Safety Council)

New York, NY, June 26, 1996-Reports now airing all over the country about traces of lead in some imported vinyl mini-blinds are leaving consumers with more questions than answers, say industry spokespeople. The following Q & A has been prepared for the press by the Window Covering Safety Council (WCSC), an industry association. It addresses some of the most frequently asked consumer questions.

Q: Are vinyl mini-blinds being recalled?

A: No. The government has not asked for a recall because such a tiny segment of the consumer population is affected. No recall is planned, and mini-blinds in the stores are legally for sale, and absolutely fine for use in nearly all households.

Q: How can I tell if my own window blinds are affected?

A: WCSC says you can certainly throw away your blinds if you like, but it's unnecessary. Parents concerned that toddlers in the household might be touching or licking the blinds regularly, should take them down and wash them in a tub of warm water and some automatic dishwashing detergent at least once a year or more often if desired. A free booklet on proper cleaning of blinds is available from WCSC by calling toll-free 1-800-506-4636.

Q: Where does the lead in vinyl mini-blinds come from?

A: Lead in min-blinds is not associated with paint. Small amounts of lead are used in the manufacturing process to add rigidity and color retention. But there is also lead in all household dust. Any dust-gathering surface should be washed regularly as part of responsible housecleaning.

Q: Are vertical blinds affected?

A: No. Vertical blinds are manufactured in the United States using a tin-based process.

Q: Have there been any reported deaths from lead dust on mini-blinds?

A: There have been no reported cases of death associated with lead from mini-blinds, and only a handful of cases alleging elevated blood levels. However, death by accidental strangulation in window-covering cords remains a real threat. Parents should obtain free information and safety tassels from the WCSC by calling 1-800-506-4636.

Q: Can sickness result from lead dust on blinds being inhaled?

A: No. According to the CPSC's tests, lead dust must be ingested (taken by mouth) regularly over a period of weeks in order to cause elevated lead levels in children under the age of six.

How do you know if you have illegal activity?

As a landlord or property manager you should occasionally inspect your properties either by doing a drive by and/or walk through inspections. This could save you a lot of money on basic maintenance and repairs, but it also allows you to spot illegal activity if present.

Here are a few things to look for during your inspection that may indicate illegal activity:

• If the smell of cat urine is present, but there is no cat, you may have a meth lab
• Chemical odors or a hospital smell might mean drug activity
• People smelling like cat urine, rotten teeth or brittle bones
• Check for wiring that bypasses the electric meter, this may mean you have marijuana growers
• High traffic in and out of the unit may indicate the selling of either stolen merchandise or drugs
• The tenant coming and going several times throughout the day

Dealers will often use a respectable looking person, usually a female, to rent a unit and then move in with them. Without regular inspections you may not find out until it's too late that you have a dealer. You can reduce the possibility of a drug dealer moving in by asking the applicant for a most recent pay stub verifying the company's license with local and state government, asking who will be living there and if they have a criminal record. Watch for people who say they don't have a bank account, living a wealthy lifestyle or pays cash for everything so they won't leave a paper trail. Don't become paranoid or overly cautious simply pay more attention to the clues and you won't get burned.

Holding Tenants to a Higher Standard

When you have a vacancy do you find yourself asking should I rent to this person. Well each property is unique just like every landlord or property manager. So in order to keep yourself from an emotional tug of war you must set requirements for all your properties or individually i.e. those hard to rent units.

Once you've established your standards pick what will automatically disqualify renters and stick to your guns. Posting this policy in the property, company website, Blog or hand it directly to the applicants when they apply. By doing so will automatically filter out some unwanted renters. If you stay consistent with your turn down policy it could save you from discrimination lawsuits in the future.

Here are some examples of an automatic disqualification:

• Open bankruptcy (The tenant could move in, not pay rent then and add the delinquent rent in the bankruptcy).
• An eviction
• Collections filed by a landlord or property manager
• Not having a certain income tom rent ratio

These items are not as serious, but could lead to potential problems:

• More than 30 days late on accounts
• Collections from creditors
• Judgments or liens
• Providing an improper moving notice to the landlord
• Temporary employment
• Late rent

As always if you have any questions on handling these issues contact your attorney for legal guidance.

The Landlord Tax Reminders

As a property investor you may be paying too much in taxes if you're not taking advantage of the following deductions:

1. Interest you've paid on a mortgage whether from a lending institution or a seller financed deal.
2. Depreciation: decreasing a property's value over time, normally 27 ½ years.
3. Repairs can be fully deducted in the year in which they occur.
4. Local travel: (Example) You drive to a hardware store to pick up supplies and then driving to a property to complete the repair.
5. Long distance travel: (Example) Overnight travel for your real estate investing business. You may deduct hotel, meals, airfare, etc... But be careful the IRS may scrutinize these deductions.
6. Home office is only devoted to workspace.
7. Employee and independent contractor wages.
8. Casualty and theft loses: The entire amount of the loss can not be deducted. Contact your accountant or tax professional for more information.
9. Insurance premiums on your rentals and employees.
10. Legal and professional services (accounting and property management) can be deducted as operating expenses.

If you have any questions about what you can and can not deduct you should contact your accountant and/or attorney.