I find that most new real estate investors are too soft on rent collection.  Unless you have training or experience in collecting debt, this is not a natural process for you.  Many people don’t like confrontation and rent collection is about putting someone (the tenant) on the spot.

Here are a couple quick tips when you are “dialing for dollars” to make it easier to collect rent:

1. Be consistent about calling immediately upon the rent being late.  If the tenants sense that you are not concerned about the rent, they won’t be either.
2. If you can’t get them on the phone, drive over there.  There is nothing more important to you and intimidating to them to have the landlord standing at the door at 8pm at night.
3. Impose the late fee every time.
4. Mail statements to everyone that owes anything over $5.  Make sure to get them in the mail or hand delivered immediately upon the rent being late.
5. If you get a partial rent payment, immediately call and find out when the rest of the rent is going to be paid.  Send another statement with the updated balance.
6. When you are talking to the tenant about paying the balance or when they are going to pay, push a little to pay more or sooner.  Most people (the tenant) will give in to authority when asked.
7. If the tenant does not live up to their commitment, start eviction immediately.  It is better to evict early than let it drag on and having them owe you more money.  Most tenants can not recover from being a full month behind.
8. If your tenants tells you they are paying you next Friday, call them a day or two before and remind them that you are expecting rent and how much your are expecting.  Again, if they believe you won’t call or check in, they may/will blow you off.

We own investment properties not because we have nothing better to do, but to make a profit (either short or long term).  Rent collection is the key to being a successful landlord.  You need this rent/income to keep your business solvent.

Roommates add a special twist in that each one is typically contributing toward the rent.  This is good and bad.  You have multiple sources of income, but you also have competing priorities and motivations.  Roommates are frequently my most frustrating rental units.  Often this is what I experience (let’s assume the rent is $999 per month).

• Roommate 1 always pays her $333 rent on time.
• Roommate 2 has some issues paying on time, but always calls and usually pays everything by the 10th.
• Roommate 3 is always late on her rent and often short pays.  It is now the 15th of the month and after repeated calls you finally get $200.  She already owed you $150 from the month before for a total now of $350.

What do you do?

You can’t evict just roommate 3 as all of them are typically on the lease.  Do you want to spend the money to file an eviction?  Can you force the other 2 to make up the difference?

Here are some idea on how to handle this situation (preferrably before it happens):

• I got this idea from Ryan O’Neill over at Minneapolis Lofts.  He has all the roommatees sign the lease, but makes one of the roommates responsible for collecting the rent and cutting one check to him.  If they want to swap roommates or one is having issues, that one is responsible.  Love it!  This expectation needs to be set up in advance.
• When one roommate get’s behind, call a house meeting and sit them all down and explain that the other roommates need to pick up the slack.
• Send all the tenants a Cure or Quit notice.  Although it is not required, it may be enough to get their attention.
• Start an eviction or go to mediation.  This is a more drastic measure, but if the balance is high enough it may be worth it.
• Make sure that all the tenants receive a statement every month.  They should see that roommate 3 is not paying.

Managing this multi-dimensional situation can be challenging.  You just need to get out in front of the problem and stay there!

Let our experience get you started!

Our next Investment Property 101 Seminar is being held on December 16 at 6:30 pm in Burnsville. I look forward to seeing you there.

Register for the seminar by filling out this quick registration form or call 612-281-5419 for more information.

Evictions are a necessary part of being a landlord. Depending where your investment property is located, you may do them once every 5 years or once every 5 months. Ultimately, though, I see an eviction as the last resort. At the same time, I can’t allow my tenants to push me around and simply never pay me. But unfortunately, 95% of my evictions result in me collecting ZERO dollars from the tenants. I am left with a big bad debt right off.

Two weeks ago while I was down at Hennepin County, filing another eviction (5th one for 2008-not a good year), I read about doing Pre-Filing Mediation. This is a procedure in which a neutral third party, at the request of the parties to a dispute, assists them in reaching a mutually satisfactory settlement. In mediation, both parties need to agree to meet with each other and the mediator. The mediator is not a judge and will not decide the solution, he is more like a facilitator to help the parties find a agreeable solution.

3 possible outcomes to pre eviction mediation:

1. An agreement is reached and signed by both parties, no court case is filed, no fees are paid, and no record of this action exists. Good for everyone.
2. The parties can not agree during the mediation session, they are served right then to appear in court in 7 days. This case will be one of the first ones heard by the judge in Hennepin County eviction court.
3. If one of the parties is not willing to use mediation, the case is referred back to housing court and the eviction will proceed as normal. This case will be one of the first ones heard by the judge as a reward for attempting mediation.

Benefits to Mediation for the Landlord:

• No filing fees if the case is settled
• Priority status on the Hennepin County Eviction Court Calendar if the case does not settle

Benefits to the Tenants:

• If the case is settled, there is no court record of an eviction action being filed against the tenant.

In my case, I decided that the tenants just needed an authority to wake them up to the fact that they are not living in Mom & Dad’s house any longer. They have signed a lease and they have obligations to pay. Although we did not go to mediation, the letter from the mediator quickly motivated them to work out a payment plan with me. As of now, they are on their way to paying off their back rent!

Although I may not use this in every situation, I think mediation can be a softer approach that may get you your past due rent paid, instead of just clearing out your apartment.

Have you always wanted to own investment properties, but never knew where to start?

I have not been posting much lately as I have been buried with multiple apartment turnovers. As I mentioned previously, several years ago, I moved many of my lease end dates to May 31. Subsequently this can be a busy time of year for me.
While I was helping my handyman on a overhaul that we are doing to one of my units (new carpet, paint (ceilings, walls, and trim), new doors, and every last maintenance issue), I thought about some maintenance tips and tricks that I use to make my life easier and make my investment properties more bullet proof. Below is a list of ones that I do during an apartment turnover.

• I am not sure why, but I always find the door knobs in my units are loose when we do a turnover. I bought a small tube of Loc-Tite”, which most mechanics use, that will almost glue the screw into the knob (do not buy the permanent product as you will never get the knob off!).
• The only locks in the entire unit are the deadbolts on the doors. I do not like keyed knobs anywhere in the unit or on the front doors as it is just asking for someone to lock themselves out of their apartment or room. I confirm we do not have any stray locking knobs.
• I always run drain cleaner down each drain to insure they are operating correctly. I bought a product called “Thrift” at the plumbing supply store. It is extra strong and used by most of the drain cleaning experts.
• If the toilet is not working correctly or is more than 5 years old, I replace it. Yes, the parts only cost $8, but I don’t trust them as I had an $800 water bill on a single family house after my plumber just replaced the parts. I could have bought 8 complete toilets that month for the cost of that water bill!
• I leave a box of cheap furnace filters during the turnover to help the tenants know to change the filter occasionally.
• Even if the tenants have never complained about mice, I put a few fresh mouse bait pouches in the basement and under the stove. This insures we are ready if any of the critters gets into the building.
• Remember to replace batteries in the smoke detectors.

Most of these items are inexpensive, but they can save you taking a maintenance call later. Find your small repair items and do them at the turnover.

Amy Dickinson is a great read over at the Star Tribune. She writes a column called Rent in the Homes section and takes email questions from readers and answers them.  I suppose you could say she is kind of like a Dear Abby for renters and landlords!

A recent one article I found funny and tragic at the same time. It seems the landlord is actually a little too quick and helpful to fix things. He barely knocks before he uses his key to enter the apartment (one time catching the renter in a towel, just out of the shower). See the question and Amy’s response here.

I hope I am “preaching to the choir” when I remind everyone that in Minnesota, you must pay your tenant interest on the security deposit they have on file with you, when they move out. As a landlord, you must return a tenant’s security deposit plus interest or give a written explanation why the deposit (or any portion of it) is not being returned, within 21 days after the tenant moves out and gives the landlord a forwarding address.

Below are the interest rates that apply depending upon when the tenant moved in:

• From August 1, 2003 through present, interest is figured at 1% per year.
• From March 22, 1996 through July 31, 2003, interest is figured at 3% per year.
• From April 28, 1992 through March 21, 1996, interest is figured at 4% per year.
• From October 1, 1984 through April 27, 1992, interest is figured at 5.5% per year.

If a tenant’s residency spans more than one interest rate change, you will need to figure the interest for that period until the change (round to the month) and then calculate the total. For example, if your tenant has lived in your investment property since August 2002 and moved out on July 31, 2007, they are entitled to 3% interest for 12 months and 1% for 48 months.

Using the above table will help you easily comply with state law when calculating the interest on your Minnesota investment property security deposits.