The Minnesota Supreme court overturned a lower court ruling this week that could hurt the many cities that are now requiring rental inspections.  The case involves a Red Wing city ordinance that requires that all rental properties have on-site inspections performed by the city.  Any landlord that was unwilling to allow the inspection was issued an adminstrative warrant (like a fine).

According to the Court’s decision, the law as overreaching.  It could be used to violate residential privacy rights and “could become the tool of choice for governments to enter people’e homes”.  The supreme court remanded the case to the court of appeals for further deliberation.

The lawsuit was brought by the Institute for Justice.  Here is the all the details.

I am not sure where this came from or who starting teaching it.  I have heard many old-school landlords say that they use a PO Box for their rent checks.  I guess the theory was that you don’t want your tenants to know where you live.  I suppose in case of a zombie apocalypse that would be a problem or if you are a real jerk landlord I can see why you want to hide.  Now days, using a PO Box to hide your location really doesn’t work.  Using the Internet and Google, you can find out a lot about a person.  Plus, the county typically has your address on your tax statements and those are on-line also.  You would have to go to great lengths and expense to be invisible from Google and your tenants.

A more recent example is one that Kevin Stevensen from The Cleanout People.  I always knew this rule, but never found anyone that missed it and got caught by it.  Kevin sent this message:

Scott

Here is a good fyi to pass on to other landlords, we took a tenant to housing court for non payment of rent. Well she got legal aid and they found that on our lease we have a PO box for the mailing address for rent.  Well I guess as a landlord we cant do that we need a physical address.  

Minnesota state law requires that you have a physical address for you or your rental company on your leases.

504B.181 LANDLORD OR AGENT DISCLOSURE.

Subdivision 1.

Disclosure to tenant. There shall be disclosed to the residential tenant either in the rental agreement or otherwise in writing prior to commencement of the tenancy the name and address of:
(1) the person authorized to manage the premises; and

(2) the landlord of the premises or an agent authorized by the landlord to accept service of process and receive and give receipt for notices and demands.

I am 90% sure that you can still have the checks mailed to a PO box (which can be useful if you have an accountant or business partner doing the books), but you need to list a physical address per the above statute.

Here is how I handle this.  As I mentioned previously, I buy my leases from the Minnesota Multi-Housing Association.  While they cost me about $2 per lease (they are 2 part carbon), they have been approved by the Minnesota Attorney General and all Section 8 programs.  This tells me that I should not get myself into any hot water over anything in that lease.  They have a provision in the lease that handles the above law.

Here is a snapshot of that section of my lease:

I am not an attorney, but the 2nd section speaks to accepting service of process, which can never be done to a PO Box (they need to serve a person).  I am uncertain if I could put a PO box in the first section.  Probably to be safe, I would put a physical address in there and then in the Notes section of this lease write:  Mail all rental payments to:  PO Box 123, Minneapolis.

If you have only listed a PO Box on your leases, you may quickly want to post a physical address at the property and/or send a letter to all your tenants to get into compliance with this Minnesota statute.

For as long as I have owned properties in Minneapolis, I have always been confused by the occupancy limits per unit.  The official language of the housing rules and standards for occupancy is:

The maximum occupancy for a dwelling unit located in in these zoning districts [R1, R1A, R2, R2B, R3] is one (1) family plus up to two (2) unrelated persons living together as a permanent household, provided the family plus unrelated persons shall not exceed a total of five (5) persons.

Ok.  Seems straight forward enough.  So what does this mean?

• Family is defined as:  An individual or two (2) or more related by blood, marriage or adoption, including foster children and domestic staff employed on a full-time basis.
• 6 guys living in a 6 bedroom house do NOT qualify under this ordinance.
• 12 family members living in a 6 bedroom house DO qualify.
• 3 family members and 3 couch sleeping friends, do NOT qualify.

So this is a new one for me.  In the last 30 days, two different customers lost their rental properties to house fires!  I swear I had nothing to do with it.

One happened because of faulty wiring in the attic which caught fire.  I passerby saw the smoke and called the fire department.  No one was hurt.

The second one was little more scary:  Tenants go into attached garage.  Smell some gasoline, but don’t think much of it.  They turn the key to start the car.  It sputters and then boom.  Entire garage erupts in flames.  They jump out of the car, run in the house and grab kids.  Everyone makes it out.  Fire department believes the car had a small hole in the gas tank.

In first case, the duplex is completely doused with water, upper unit is destroyed by water and fire department, no flames.  In second case, fire destroys garage (with car in it), the breeze way that connects garage to house and ran inside the attic so much of house is destroyed.  In first case, insurance does NOT total out building.  In second case, building is total loss.

In both cases, the tenants had to move out (in the first case of the duplex, both tenants were lost).  Security deposits had to be refunded.  Not sure about paying pro-rated rent, though.  Lease is automatically broken.  You as the landlord are not obligated to find a place for them to live.

While I am not an expert at this, nor have I personally gone through it, here are some thoughts I have after talking to my customers:

• Make sure your insurance has a “loss of rent” rider that will pay you the rent while it is vacant and being fixed up.
• Recheck your deductible.  A $2500 deductible may save you some money, but it is going to hurt when you have to pay that out of pocket and refund any damage deposits.  Going to a $1000 may not be that much of an up charge.
• Once per year, have your insurance guy send a letter to your tenants encouraging them to buy renters insurance.  This $50-100 per year can provide up to $25k in possession insurance.  All of the above tenants lost a significant amount of their stuff.  Plus, maybe this would be a defense in court if the displaced tenants sue you for damages.
• Understand if your insurance provides for simple replacement of property or restoration of property.  There is a big difference between replacement and restoration of 100 year old 6″ wide oak trim and Home Depot ranch trim.  If your property has historical significance or if some of the appeal of the property is the beauty of the old stuff, make sure your policy will restore it to original condition.
• If you have some type of damage such as tornado or fire or even a police raid, if possible, try to board/secure the property yourself.  A different customer of mine had a situation where the police broke down a door and a couple windows in a medical emergency at his rental property.  The City of Minneapolis assessed him $3,400 to board 2 windows and 2 doors.  My duplex customer above was able to have the time and materials he spent on boarding applied against his deductible.
• When you do a major remodel or upgrade on your property, make sure to document that work so you can show the insurance company that you just put new cabinets in or new carpet.  Then they can’t try to claim that they are giving a reduced amount because of the age of the property.
• If you have a major claim, consider hiring a private claims adjuster.  This is someone that is in your court that pushes the insurance company to pay you every dime you need to restore this property.  They take 10% typically of the insurance claim, but the couple people that I know who have used them say it was great.
• Dryer fires are almost as devastating as a house fire and they occur 15,000 times per year.  The amount of the damage may be just low enough that your deductible won’t cover it or it only slightly above your deductible and is not worth filing the claim.  Can you find another $1000-2500 for repairs on your property for a neglected dryer vent?  Make this part of your fall projects at your properties.
• Do you have 2-3 fire extinguishers in each building?  These can keep a small fire from getting large such as a kitchen grease fire.
• Are your smoke detectors working?  You can replace your building, but you can’t replace lives.

Next time you are at your rental, take a look around and see if there is anything that could cause a fire and fix it.

The IRS has just agreed with a study that says that they should be doing more audits of rental property owners.  The study believes that many owners will under report their income on their taxes.  In one part of the study it showed that in 2001, almost $12.4 billion was misreported to the IRS.  Read the entire article over at Rob Bonahoom’s blog, the Investment Mortgage Guy.

The IRS also won a case in October of last year against a rental property owner for failure to be organized.  One additional reason to be sure to use a very good CPA that specializes in investment real estate.

These days, probably 90% of the homes that I go into are vacant and foreclosures.  As you can imagine, over the last 3-4 years in this foreclosure market, I have seen just about everything.  From a frozen water bed to a house that maybe could be on an episode of hoarders.

Surprisingly, these houses are not always in the city.  I have shown you some townhouses before, but I was in Apple Valley with an investor looking at foreclosed townhouses.  This one was built in 2004.  Nice neighborhood, quiet place.  Here is what we found when we walked in.  I have seen this before, but what parent lets their kids completely color over all the walls?  Even if they were tenants and/or the house was going into foreclosure, why?  At you can see on the last picture that they were practicing their alphabet.