If you think that landlords have little to do after the first of each month, when they make their rounds to collect rent checks, think again. Harry Norton II, 39, of Pembroke Pines, Florida, says that he always sits down with prospective tenants before offering a lease. “I explain what I expect from them and what they can expect from me. That gets the relationship started on the right foot.”
Tenants can expect Norton, an entrepreneur and professional real estate investor who puts on “boot camp” seminars for landlords, to come by every month or two, in order to see if the property is being maintained. In exchange, Norton expects tenants to tell him about little problems, such as faulty electrical sockets, before they become big problems.
“I live by the cell phone,” says Victor Gulley, 34, who owns three rental properties in Illinois and one in Indiana. Gulley also has a full-time job at Blue Cross and Blue Shield. “I try to do what I have to do right away. Otherwise, I might get busy with some other urgent problem and the first call gets overlooked.”
Gulley, whose day job is in technology support, has learned to adapt to the needs of individual tenants. “One of my tenants called recently to report a problem with the gutters on the side of the house,” he says. “This tenant is a contractor who is willing to do some home repair himself, so I told him to go ahead. He’ll provide me with receipts for the materials he needs to buy, which he’ll deduct from his rent.”
Being a landlord is definitely an ongoing commitment, but it does not have to be another full-time job. “If you have the right systems in place and you have only one or two rental properties, it shouldn’t take more than five to 10 hours a month,” says Pierre Dunagan, president of the Dunagan Group, a financial services firm in Chicago. Putting the right systems in place is key to living the life of a landlord — and having a life, too.
Build a firm foundation. The earlier you put this system in place, the better. “It’s worth paying for a home inspection before you buy a property,” says Bob Cain, publisher of Rental Property Reporter newsletter. “Know what you’re buying and how it fits into your plans. If you expect to keep the property for, say, five years, don’t buy a house that will need a new roof, a heating system, or work on the foundation. Those can be very expensive.” On the other hand, says Cain, who runs the www.rentalprop.com Website, if you have long-term plans for the property, expect that you may need to replace the roof, the furnace, water heaters, or repaint at some point.
“If you purchase a place as a fixer-upper,” says Dunagan, “get it fixed up all at once, even if you have to take out an acquisition and rehab loan. You don’t want to rent out a property that still needs a great deal of work.”
Communicating with tenants is essential. “I encourage tenants to tell me when a faucet is leaking,” says Willie Sullivan, 50, a public employee who lives in Pearland, Texas, and owns two rental houses in nearby Houston. “I can get over there and see if it just needs a new washer. Fixing a small leak soon can prevent a big plumbing bill later.”
Sullivan screens prospective tenants to get an idea of how diligent they will be about maintenance. “Before I start with a new tenant, I find a reason to see where they’re living now,” he says. “I may come by to pick up a security deposit. When I go in there, I’m not looking for cleanliness as much as I’m looking for damages. Are the ceiling fans broken? Are the doorknobs all in place?” The condition of the tenant’s current quarters will be a preview of how they will treat your place.
Send the right message. When dealing with applicants, spell out your requirements up front. “If tenants have cats, for example, insist that they keep the litter pan in only one area of the house,” says Gulley. “Once a cat smell is all over the house, it can take quite a while to get it out.”
Some conditions should be put in writing. “When I offer leases to tenants,” says Sullivan, “I have the tenants initial another sheet as well. They sign off that they’ll be responsible for the yard and that their cars will be kept in running condition, among other provisions.” This lets tenants know that they may not litter the property with old vehicles that are being worked on.
Tenants may be required to bear other obligations, too. “Always make the tenant buy the stove,” says Gulley. “If a child burns [his or her] hand on a stove that you bought, you could be liable. When they leave, they will take the stove with them, so the new tenants can provide their own stove.” It should be kept clean, Sullivan tells tenants, if they want to avoid having unwanted housemates. Requiring a tenant to buy his or her own stove, however, is not legal in all states.
In return for requesting that tenants take on such responsibilities, a landlord should make certain commitments. “I promise them that they will get a response to any calls within 24 hours,” says Sullivan. “If it’s just a faucet leak, the work might wait until the weekend. If the commode is stopped up, I’ll be there that night. And if I can’t fix it, I’ll have someone who can do the repair working on it the next day.”
Line up a winning team. Being able to call for skilled help is critical for a landlord. “You should have a list of contractors so that you can send somebody out to do a job at your property if you’re unable or unwilling to do it yourself,” says Dunagan.
Who should be on your team? Norton suggests a plumber, an electrician, and a roofer. Sullivan adds an air-conditioning specialist to the list. “If my pager goes off when I’m
away on vacation,” says Sullivan, “and the tenant wants someone to come over right away, I know who to call.” Be sure to pay the contractors promptly if you expect them to give you the immediate response you’d like.Decide whether you’re a do-it-yourselfer. Rather than keep a list of contractors on hand to do repairs, you may prefer to turn over maintenance responsibilities to a professional. “If you have enough rent coming out of investment properties, it may be worthwhile to pay 6% or 7% of that income to a property manager, especially if you also have a full-time job,” says Tony Rogers, managing director of the LaSalle Financial Group, a retail firm of MetLife Insurance, in Coral Gables, Florida.
Whether you hire a manager or fix the toilets yourself, Rogers says that you must know the local market to be a successful landlord. “You can buy in an area where you live,” he says. “If you own property out of town, there should be a close friend or relative who can let you know what’s going on there.”
Rogers recalls when he was a full-time commodities trader in Chicago. “I invested in a duplex in Ohio,” he says. “Looking at the numbers, all I had to do was keep one side rented to break even. With both sides rented, I’d have an excellent return on my investment.”
Being a long-distance landlord, Rogers had no choice but to rely upon a property manager in Ohio. “I received a call one day,” he says, “telling me that both sides were empty. In fact, it had taken three months to get rid of one tenant who had done so much damage to the property that it took $15,000 to repair.” The message, therefore, is do your homework. Find a property manager with good references who can be relied upon to keep an eye on your property.
Be vigilant. If you own rental property close to home, you can do your own scans. According to Rogers, even if you have a full-time job, and you hire a management company, you should still take steps to protect your investment. “Go by and check on you
r property,” he says. “Go on your lunch hour, your nights, or your weekends.”
If you do assume responsibility for maintenance, it’s especially important to find reasons to visit the property. “As part of my agreement with tenants,” says Sullivan, “I used to cut the grass, so I was over at my properties regularly, doing a visual inspection. I don’t do that anymore, but I’ll still swing by from time to time to see how things look.”
One reason to “swing by” is to collect the monthly rent. “I also do things such as change the air conditioner filters,” says Sullivan. “Then I get to look around the house with a flashlight.”
Keeping your rental property in good condition not only preserves your investment, it will help you retain desirable tenants. “When I lived as a tenant,” says Debra Poe-Hartsfield, vice president of planning at Barrington Financial Advisors in Houston, “I was upset by a landlord who took profits but did not put anything back into the property. We moved out as soon as we could.”
If you do make necessary repairs, it may pay to go first class, rather than cut corners. “For example,” says Gulley, “most people just use vinyl tile when they have to replace a kitchen floor. I use ceramic tile instead. That way, I won’t have to keep buying new vinyl tile every three to five years.” However, Gulley warns against loading up a rental house with expensive amenities that are likely to suffer wear and tear from tenants’ use.
Try not to court trouble. No matter how carefully you screen tenants, or how much hands-on maintenance you provide, it’s still possible to wind up with unruly tenants. What’s the right way to deal with them?
Norton usually uses a month-to-month lease for the first year to see how a tenant works out. Then he can decline to renew the monthly lease for a troublesome tenant. “After a year,” he says, “I’ll offer longer leases to good tenants.” However, even proven tenants can sometimes present problems before their leases expire.
“I try to avoid going through eviction proceedings,” says Norton. “It’s an expensive process.” You could lose rental income while the matter is in dispute, or a disgruntled tenant might cause extensive property damage. “Instead,” continues Norton, “I’ll sit down with the tenant to find out what the problem is. If the problem isn’t solvable, I may go into my own pocket to help a tenant relocate.”
One of Norton’s tenants, for instance, was a woman with two children. “She lost her job and had to go back to school to re-train,” he says. “She had been a terrific tenant, but it was obvious that it would be awhile before she’d be able to pay the kind of rent she had been paying. So I let her stay, rent free, for a short time period while I helped her make other arrangements. She wound up in a less expensive home, one that was managed by someone I knew.”
Poe-Hartsfield agrees that it’s better to resolve a problem with tenants as quickly as possible. “Otherwise,” she says, “they can drag out an eviction. In the end, all parties will loose.”
Dispose of the bad apples. Nevertheless, a landlord has to let tenants know that he or she means business. “If you don’t have the heart to evict people,” says Poe-Hartsfield, “you shouldn’t be a landlord.” Moreover, your actions shouldn’t come as a surprise to tenants.
“You should have a zero-tolerance policy on late rent,” says Dunagan, “and you should let your tenants know about it. If the rent is due on the first of the month, for example, and it’s late, you should give notice right away.”
Evicting an unwilling tenant can be done without delay in most areas, according to Cain, if it’s done properly. “Be sure to follow the guidelines,” says Gulley. “If a five-day notice is required before you can ask for an eviction, be sure to give that notice. Otherwise, the judge will dismiss the case and you’ll have to start all over.”
Unfortunately, not all landlords observe the steps to a successful eviction. “Too often,” says Cain, “a landlord just shows up in court, unprepared. One landlord, for example, tried to evict a tenant who had not paid rent. The tenant claimed he had paid, so the judge said to the landlord, ‘Show me your ledger.’ The landlord did not bring the ledger into court, so the process had to start all over.” [See sidebar: To Evict or Not to Evict?]
You can avoid such mistakes by investing a little of your time. “Go to the local court that hears disputes between tenants and landlords,” says Gulley. “You’ll learn a lot by sitting and listening.” As a landlord, you may wind up in that court some day, so it is important to have an idea of what separates winners and losers.
TO EVICT OR NOT TO EVICT?
Every landlord’s nightmare is the problem tenant — the one who doesn’t pay rent and whose guard dogs terrorize the neighbors. Such frustration, though, should not tempt you to try the “self-help” eviction: changing locks while the tenant is out, shutting off the water, or putting the tenant’s property out on the curb. “Self-help evictions generally are not permitted,” says Aaron Larson, an attorney in Ann Arbor, Michigan. “Such actions might give a tenant grounds to sue you, and you have assets to lose.” Instead of the above actions, Larson offers these pointers for getting rid of undesirable tenants:
Serve written notices of any lease violations. If a tenant keeps a dog, for example, in violation of a lease, a string of notices can support your story in case the issue comes to court and the tenant claims he was just dog-sitting.
Your notices should specify a fixed amount of time for the tenant to remedy the problem and invite a written response. A judge may be sympathetic to tenants who claim they immediately complied with the lease once the nature of the violation was known, but it becomes harder for tenants to make such an argument if they ignored a prior notice and deadline.
Don’t accept partial payments during the eviction process. In most jurisdictions, the acceptance of any rent payment will result in the dismissal of an eviction action.
If your action goes to trial, make sure that you have all of your documentation, and copies, before you go to court. Identify any witnesses that you wish to call to the trial and subpoena them to appear.
“Novice landlords probably should hire an attorney the first few times they bring eviction actions,” says Larson. “A local landlords’ association can refer you to a lawyer who’s experienced in these matters; an attorney who’ll be in court anyway, representing a commercial landlord, may give you a break on legal fees.” After you’ve been through the process once or twice, you might be able to save even more money by handling the paperwork on your own.