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How to Make Maintaining Your Investment Properties Easier

Who mows the grass and shovels the snow at your investment properties? Maybe you do. Eventually you may want to ask one of your tenants to take care of the work. Here are some tips on how to make this a winning situation for you and your tenant:

Find a tenant that takes [...]

Who mows the grass and shovels the snow at your investment properties? Maybe you do. Eventually you may want to ask one of your tenants to take care of the work. Here are some tips on how to make this a winning situation for you and your tenant:

• Find a tenant that takes pride in where they live. Someone that is often just making their rent payment is a good candidate. They will appreciate the extra money.
• Do NOT reduce their rent. Keep the rent at the standard amount and instead, pay them by check for the work they do. This allows you to stop paying them if they stop doing the work. If you discount the rent and they stop doing the work, you would need to have them sign an updated lease for the non-discounted amount which may be impossible to do (resulting in you getting less rent than expected and needing to find a new caretaker-or do it yourself). The only exception is for single family houses where yard maintenance (grass & snow) are part of the original rent amount.
• I have seen some landlords pay as much as $100 per month for simply mowing the grass and shoveling, both of which take less than 2 hours per month. I normally pay the caretaker $25-30 per month all year. Again, I do not pay anything at single family houses.
• You should provide all tools (shovel & mower), gas, and salt for the tenants. This is only fair considering what you are paying them.
• Never give your caretaker a set of keys to the apartments unless they perform maintenance duties and/or leasing as you can open yourself up to liability if they steal or break something or assault someone. If your caretaker has access to apartment keys, you should make sure you have run full employment-type screening on them (including background checks). Consider having them bonded for additional liability protection.
• You may need to provide your tenant a 1099-MISC form as this caretaker work could be considered income. Check with your accountant.

Finding a caretaker can lower your time requirements at your properties. Done correctly it can be a great situation for you, your tenant, and your building.

8 Tricks to Getting Your Offer Accepted on that Foreclosed Property

Making offers on foreclosed properties can sometimes be a daunting task even for seasoned real estate agents and investors. Each bank can required different and very specific requirements that must be submitted before they even look at your offer. Recently, we have been seeing multiple offers on these homes and above asking price offers on [...]

Making offers on foreclosed properties can sometimes be a daunting task even for seasoned real estate agents and investors. Each bank can required different and very specific requirements that must be submitted before they even look at your offer. Recently, we have been seeing multiple offers on these homes and above asking price offers on many REO (bank owned) properties. Here are some tips and tricks that we have learned to get our offers accepted:

• Pay cash-REO banks love cash buyers. Although this may appear impossible for you to do, see if can move some equity or money around to make it happen. Alternatively, see if your bank will give you a line of credit against another property so you can write a check for the purchase of this new property.
• Offer to close in 2 weeks-This requires either a cash offer or a very organized mortgage broker to make this happen. Truthfully, I often find that it is the REO bank that can not close that quickly because the title work on a foreclosed home can be difficult.
• Remove the inspection contingency-Only do this if you are confident about your analysis prior to making your offer. Alternatively, many banks will give you a verbal acceptance one day and then require you submit your earnest money check and their bank docs within 48 hours. You can use that window to do your property inspection and then not turn the docs in if you need to cancel. Although this not the most professional way to handle yourself, it could prevent you from buying a problem that you did not see when you did your walk-thru.
• Make sure to use a reputable investment real estate agent-Surprisingly, the number of REO agents in Minnesota is actually quite small. Although they don’t have much if any influence over the bank’s decision, they may be willing to give you useful advice that may help you win an acceptable offer. I found that I had to earn the respect of the big REO agents before they would talk to me.
• Do not ask for seller paid closing costs-Banks just look at the net offer. To them a $100k offer with $5k in closing costs is the same as $95k offer with $0 closing costs. In fact, they feel that paying closing costs can just complicate the transaction.
• Do not ask for the bank to perform any repairs-They will almost never pay for any repairs or changes to the property. They are selling it as-is. Just factor that work into your offer price.
• Do not put any time limitations on when you need a response from the bank. The banks are on their own time table. They will do what they want to do, when they want to do it.
• Refrain from any other non-standard language or requests on the purchase agreement which may include: assigns to, access prior to closing, repairs, etc.

Although this is not an exhaustive list of foreclosure buying tips, just using the main ones will help you win more offers. Gosh, on second thought, maybe you will be competing with me and I shouldn’t have told you my secrets! I guess in this market, sadly, there are enough foreclosed properties to go around!

Are you searching for investment properties on your own and frustrated at your results?

Once a Bad Tenant, Always a Bad Tenant

I have been beating myself up lately over my bad tenants. In the last 30 days, I have had to evict one tenant for non-payment of rent after only 6 months, ask another to leave at the end of the month after repeated police calls (and probably not collect their past due rent), and threaten [...]

I have been beating myself up lately over my bad tenants. In the last 30 days, I have had to evict one tenant for non-payment of rent after only 6 months, ask another to leave at the end of the month after repeated police calls (and probably not collect their past due rent), and threaten another with eviction because of non-payment. Plus I have another one or two that are on the edge of eviction for non-payment.

If you remember back to January, I had made an Investment Property New Year’s Resolution to reduce my bad debt expenses. Unfortunately, like my personal goal to lose 10 pounds, I am failing. I decided to do some research and pulled all of my past and present tenant files and tried to find some common theme amongst all the “bad tenants”. I realized that while many of the problems are with the tenants, it appears I am the one enabling their bad behavior. Here is what I found.

If it walks like a duck and sounds like a duck, it is probably a duck.
While I rarely see a tenant that has a great credit report, the tenants that have problems paying their rent on-time (or ever) have typically shown a history of financial and/or rental problems on their background checks. The ones that have several items in collections especially seem to have issues with rent. I guess paying late and/or not paying a bill is in some ways like criminal activity or drugs, once you get past your first time, it just gets easier each subsequent time to not think about the consequences.

Bad tenants apply here
Over the last 30 days, I have been in full leasing mode as many of my leases expire either May 31 or June 30. Just like someone that leaves one abusive relationship and falls into another abusive relationship (often because they don’t feel like they can demand better), I found that I keep wanting to make exceptions for prospective tenants that have bad traits (I am in no way minimizing the plight of someone in an abusive relationship, I am just making a point). Although it is easy to deny the applicant that lies to you about the recent eviction, it is tough to say no to a single mom who is working 2 jobs but only takes home about $980 per month and wants to rent your $750 per month apartment. Can she and her child live on only $230 per month, even if she claims it is not a problem?

Lose a month of rent or have bad debt because of an eviction-which is worse?
Although I am not a fan of having a vacant rental unit and losing a month’s worth of rent, I believe that is an easier one time event than having to constantly call and hunt down your tenant for your rent. Plus, when you have a tenant that is bad at paying, each month you are also wondering if you are going to see the rent or if this will be the month you need to evict.

Realizing and admitting you have a problem is the first step in solving it. I am committed to demanding better tenants. Here are a couple things I am going to do differently:

• Never book an apartment showing without spending a couple extra minutes on the phone and asking them about their income, rental background, and other details. I think I have been quick to just set up an appointment because I am in a hurry when they catch me on my phone or because I just want to get bodies through the unit.
• If they have a history of bills in collection, run the other way.
• Ask for additional damage deposit if I feel like taking a risk on the person.
• Sticking to the rule that the prospective tenant must make at least 3 times the rent in documented gross income per month.
• Commit to doing a more thorough background check via phone calls to previous landlords and employers.
• Not accepting incomplete tenant applications or missing data.

I have been successful up until this point, but I want to improve my business and strengthen my cash flow by reducing my non-paying tenants. I also want to reduce my work and stress load by having tenants that always pay on time.

7 Questions to Ask Your Realtor About Investment Property-My Response

Several days ago, I referred to a great post by Chris Lengquist’s at Kansas City Real Estate Investing named: 7 Questions To Ask Your REALTOR Before Looking For Investment Property. If you have read my blog for any length of time, you may have noticed that I don’t do much (if any) self promotion. Without [...]

Several days ago, I referred to a great post by Chris Lengquist’s at Kansas City Real Estate Investing named: 7 Questions To Ask Your REALTOR Before Looking For Investment Property. If you have read my blog for any length of time, you may have noticed that I don’t do much (if any) self promotion. Without selling myself too heavily, I thought it would be interesting for me to answer those 7 questions so you can see how a full-time investment property Realtor would respond:

1. Are you an investment property owner and/or do you take any specialized classes to assist you with evaluating real estate investment property? I have been an investment property owner since 2002. I own and manage almost 30 units from single family to multi-family in many different parts of the Twin Cities. Additionally, I have attended numerous classes and seminars over the years both as an investor and a Minnesota Real Estate Agent.
   
2. How long have you been working with investment properties? As I mentioned above, I have been an investor since 2002, but I have specialized in investment properties as a Realtor since I started. I sell only about 1-2 owner occupant houses per year.
3. Can you show me how you evaluate an income property, numbers wise? I use a customized spreadsheet that I built over the years to analyze large volumes of investment properties. It allows me to pull down up to several hundred properties at a time from the MLS and find the best values for my customers in a matter of minutes. See the spreadsheet on the right (click to see a larger version).
4. What are your feelings about cash flow or appreciation? Cash flow is a must. I know that there are other “gurus” out there that say negative cash flow is OK. I disagree. In this market, you can absolutely buy a nice property at a great price and have cash flow also. Appreciation is what we are all in this game for. I like my tenants, but I would rather be spending that time with my family. The cash flow is fine, but I am waiting for the pot of money at the end of the rainbow when I sell everything!
5. What are your hours of availability? I carry a PDA and check it most of the day. I also spend about 2-4 hours per day on my laptop. Typically, I am available from 8am to 8pm during the week and weekends by appointment. This might not be normal for most real estate agents, but it is just how I work.
6. Do you require a Property Management agreement in addition to an Exclusive Buyer’s Agency Agreement? No. We simply sign a Buyers Representation Agreement once we begin to work together.
   
7. Who do you work with concerning inspections, repairs, maintenance and property management? Over the years, I have accumulated many contractors and repairmen that I always refer to my customers. I also always try to have at least one inspector and property manager that I can recommend to my customers.

The above questions are important to ask your Realtor when venturing into Investment Real Estate. I hope my answers give you some insight into what a full-time investment Real Estate agent can offer. Why not work with someone that specializes in investment property?

Expiring Your Leases

Even though I own a lot of investment real estate, I had never put much thought into when my leases expire. I focused on not having multiple leases in the same building expire at the same time and, whenever possible, never expiring a lease between November and February. With these safeguards in place, I thought [...]

Even though I own a lot of investment real estate, I had never put much thought into when my leases expire. I focused on not having multiple leases in the same building expire at the same time and, whenever possible, never expiring a lease between November and February. With these safeguards in place, I thought I could cut down on multiple vacancies at the same time. What I found out was that I still have to worry about advertising, showings and my upcoming vacancies almost every month.

The old saying is true – you really do learn something new every day. This week I met two longtime investors who have most or all of their leases expire May 31st. They had some very good reasons:

1. You only need to work on leasing at one concentrated time per year.
2. Your advertising dollars go further, as you can place general ads in the newspaper. Because you have multiple units to show, you can accommodate almost any prospective tenant.
3. By setting your lease renewal dates in the spring (preferably June 1), you’re targeting the strongest time of the year to lease your properties.
4. Your existing tenants may have more options if they wish to move to another apartment in one of your other properties.

To begin the lease consolidation process, change the expiration dates to line up with May 31st as your renewals come up. There is no law that all leases must be 12 months long (with the possible exception of Section 8 tenants), so why not a 17 month lease? Longer is better for both you and your tenants. All the tenants I talk to don’t really care how long the lease is when you tell them it is locking their rent for the term!

The process to move your leases to June 1st start dates may take a year or more, which works out fine for me because I can’t physically work on all my properties at the same time. In the event that more than a few existing tenants do not renew, I plan to make some of my leases expire in May, some in June and some in July, which allows me time to work on each unit.

7 Secrets to a Happy Tenant

Now I am not suggesting that you let the tenants live there for free or pay rent as late as they want, but I think there are 7 simple things you can do that will keep them happy. And happy tenants will treat your property better, pay their rent on time, stay in your building [...]

Now I am not suggesting that you let the tenants live there for free or pay rent as late as they want, but I think there are 7 simple things you can do that will keep them happy. And happy tenants will treat your property better, pay their rent on time, stay in your building longer, and recommend you to their friends as a good (possibly great) landlord.

1. Be friendly, respectful, and courteous always. Then when you need to be firm, they will know you are serious.
2. Answer your phone when the tenant calls or return their call promptly. Nothing is more frustrating when you have a question or problem and someone will not return or take your calls.
3. Stop by or call to just chat and see how they are doing. This lets them know you care about them as a person. Ask about their work, their kids, or what they enjoy.
4. Repair everything in the unit that the tenant calls about. Even a simple dripping faucet can fester into a frustration in time.
5. If the tenants have lived in the apartment for more than 2 years, touch up the paint in the main areas, paint a room a color that you both agree on, or shampoo the carpet. You are not only keeping them happy, you are maintaining your property.
6. If the tenant always pays on time and they call and tell you the rent is going to be late, forgive the late fee this one time. Even the banks do it!
7. Offer an incentive if they find a new tenant for you. I give my existing tenants $200 if they find a new tenant that signs a lease. It costs the same as a newspaper ad and much cheaper than a vacant unit.

It is cheaper to keep a tenant that to find a new one. These simple (and in many cases free) tips can keep your tenants happy and make your life as a landlord easier.