- by Jeff Takle on October 30, 2008
There is a high demand for smoke-free apartment buildings. And, while smoking rates continue to drop off rapidly over the past decade, and public opinion turns - rightly or wrongly - against the remaining smokers, landlords can use this to their advantage.
If you use a No Smoking Lease Addendum and enforce it, consider advertising your property with the tag line "Smoke Free". It gets a surprisingly strong positive response and helps to distinguish your rental from others.
- by Jeff Takle on October 28, 2008
You are normally allowed to deduct expenses for damage to the property, unpaid rents, and unpaid late fees. Some states allow landlords to deduct professional cleaning expenses, carpet cleaners, painters, and handymen. Landlords may deduct labor expenses for hired labor but not for their own time spent repairing rentals. Each deduction must be accompanied by a receipt or an estimate and provided to the tenant. State laws vary and you should consult your state-specific requirements.
You can learn more about your state's security deposit laws in the IREM Data Sheet here.
- by Jeff Takle on October 27, 2008
Many landlords keep sloppy records or don't get the tenant's signed authorization to run credit checks. The rules are getting more strict about when you can run credit, who is authorized to run credit, and how that information can be used:
When You Can — You may only run reports on potential tenants that you are currently screening for a valid vacancy in a rental property that you own, manage, or are the agent for. You are also required to get that potential tenant's written authorization to run a credit report.
When You Cannot — It is illegal to run credit reports on yourself, family members, friends, or for any fraudulent purpose. Your account with the credit-checking agency will be immediately terminated in accordance with the Fair Credit Report Act (FCRA) guidelines if you do so. Failure to comply with the FCRA can result in very serious state or federal enforcement actions, as well as private lawsuits. In addition, any person who knowingly and willfully obtains a consumer report under false pretenses may face criminal prosecution.
Once you have the credit report, you are not allowed to provide that report to the tenant. In practice, most landlords let the tenant see the report but I think that's a bad practice. The report is yours - you bought it - and you're using for a business purpose. Do that business and make a rental decision. Let the tenant know the outcome of the decision and leave it at that.
Finally, once you've approved or denied that tenant's application, since 2006, you're required to destroy that credit report immediately. But, don't forget to retain the rental application and record of running a credit check to protect against Fair Housing claims. You gotta love regulation!
For more information, see the:
- by Jeff Takle on October 22, 2008
It's great to read inspiring, and very true, commentary on the potential of the market we're in. My basic rule of life has been:
When everyone is running left, run right. When everybody sells, buy. When they panic, stay calm.
I've been blessed many times over and wanted to write a short note to the landlords out there who are struggling to keep their heads above water. Maybe you're wondering if you should hold on to your properties or sell. Is this landlord thing even for you? It's a terrible market if you're a seller. But, it's a great market if:
- You're looking to expand and buy a second, third, or fourth rental property
- You're looking for government incentives to rental owners
Basically, the cheap mortgages and real estate hype brought a lot of people into home ownership who should have probably stayed as renters. As a result, there's a shortage of high quality rentals and Congress is currently evaluating several stimulus packages specifically to help encourage the development of a more robust rental market. This could mean accelerated depreciation schedules, tax incentives, and renovation assistance. It's not clear yet, but the trend seems to be moving in our (landlord) direction.
On this cloudy night, there's a lot to look forward to. Hang in there.
"Thank God I've got some of my money in rental property. Otherwise, I'd be in serious financial trouble!"
–Joe T., Somerville, MA at about 9am this morning.
Landlord insurance is often referred to as a "fire policy" by mortgage companies. It covers the structure of the building and can either insure the cash value or replacement value of the property. Replacement value offers a better level of coverage over the long haul, but it also costs a bit more. Fire policies do not cover the personal effects inside or around a rental property like the tenant's clothes, computers, car, etc.
In general, a fire policy on a single family home in the countryside is going to be much cheaper than general homeowner's insurance. For one property in Virginia, I pay about $300 a year for my fire policy and used to pay around $1,200 for a homeowner's policy on a similar home.
There are other types of insurance too, including umbrella policies. A good, all around insurance agent should be able to explain the many different kinds of insurance and find something that fits your situation.
- by Jeff Takle on October 17, 2008
Zillow's announcement today that they, too, are laying off a huge percentage of their workers suggests a couple of things to me:
- they had no strategic plan for how to deal with a changing economy,
- they did not build their business model out sufficiently to adapt to a changing economy
- change happens — if you don't react, there is no insurance, no do-overs, in business
There are a lot of real estate gurus…a lot of companies that have a lot of hype…that were borne in the middle of an explosive real estate market. I remember seeing Kendra Todd (former winner of "The Apprentice") shucking condos in southern Florida in 2006. She said something to the effect of, "I learned the secret to making millions in real estate is condo conversions!" She forgot to mention that she'd started investing less than 3 years earlier…in Naples, Florida, the #1 market in the country. How hard was it to make money in Naples? What did she really know about good investing versus bad investing?
But success breeds blindness a lot of the time. I genuinely like what Zillow does and how they've changed the market. But, losing 25% of your people on one day is gross negligence by the management team. Did they, like Kendra Todd, think that life was going to keep booming indefinitely?
Apparently so.
Just a few weeks after what seemed like the complete collapse of the financial markets, I'm still waiting to see how things shake out in the rental market.
On the one hand, timid buyers and increased foreclosures may help fuel the market for rentals in the coming year–lots of people either preferring to rent, or renting because they've been forced to. It should also help to drive up rent prices faster than last year.
On the other hand, as a country, we're sitting at an all time high level of home ownership. And, with scary financial markets and dwindling home prices, I think a lot of landlords and homeowners will stay put. Demand may be growing, but it's at an all time low…
The next few months should be interesting. November - March is the rental "dead zone" for most rental markets; nobody's looking to move in the middle of winter. I'm curious to see if there's life left out there or if things will stay quiet.
- by Jeff Takle on October 15, 2008
According to Redfin's corporate blog yesterday, they announced the layoff of 20% of their employees. These aren't agents, mind you, but the back end office support for marketing, sales, and delivery of their flat fee brokerage products.
What does this mean for us landlords?
Well, it means that the largest flat-fee brokerage in the country is hurting alongside all the others. It means that the pared-down service they provide will be pared even "downer" in the coming months. Personally, I'm really hoping they pull through because the agent industry is so long overdue in revamping its compensation structure. Here's a few shocking stats about the real estate agent market over the past two years:
- Home prices have dropped 24 percent on average
- Agent commissions have dropped 17 percent on average (from a 6 percent commission on sale down to 4.96 percent)
- Brokerages everywhere are cash poor, losing agents, and in big trouble.
The good news is that times are tough and them's good times to buy rental property. Bad news for the agents, but it's an opportunity for investors. If you've been thinking about expanding your rental portfolio, now might be a great time to start gearing up. Money is still pretty easy to get on smaller residential properties, agents are crying for business, and homes are cheap. I think it's time to start portfolio-building…what do you think?
