Top Real Estate Investment Markets

Rob over at HomeRun Homes does a nice job of summarizing some of the top Real Estate investing markets on his recent blog post.  While Minnesota did not make his list, I would bet that it would be comparable to the Detroit example in some places in Minneapolis.  Otherwise, we are seeing Memphis numbers in the suburbs.  Maybe I should think about buying a home near Disney for $100k.  I could just rent it out to all my friends with kids when they go down there!

Run over and take a look at Rent to Own Homes.

Storing Your Tenant’s Stuff

I have written several times about how much joy I get in having to store a tenant’s stuff after they move out.  This is really a kick in the teeth if I have to store it after I just evicted them.  Not only do they owe me money, they probably didn’t clean the place at all, and now I have to take care of their stuff!

Previously, a landlord would have to store the tenant’s “Abandoned Personal Property” for 60 days.  This should be inventoried and stored somewhere secure. I often will leave it in a bedroom in the unit if possible or at least in the basement.  Still, I have to move it and ultimately I have to dispose of it (as tenants never come back for it).

A new law that went into affect on August 1, 2010 reduces the retention period to only 28 days.  Much easier and nicer.  While I don’t like to store their stuff ever, at least this way I can get rid of it a month earlier.

New Tenants Application Screening Law

As I mentioned in a previous post, the Minnesota State Legislator passed a set of new laws that are being called the Tenant’s Bill of Rights.  The Minnesota Multi-Housing Associations represented all landlords and help the authors tweak and streamline the bill to lessen any undue impact on landlords.  We thank them for that as most of the items are simply clairifications of how we already do business as landlords.

One important section is worth exploring in more depth.  There were many shady things happening with screening fees and how tenant applications were being reviewed prior to this law being enacted.  This law cleans up any areas for abuse or discrimination against the tenants.  Here are some of the major points (these only apply when a landlord charges an application fee):

• A landlord may not collect or hold a tenants’ application fee without providing a written receipt for the fee if the tenant’s asks for it.  This seems pretty easy and obvious.
• The landlord may not cash, use, or deposit the application fee until all prior applicants have either been screened and rejected or they have been offered the unit and they have declined to take the unit (did not sign a lease).  This is a significant change as it was a previous unwritten rule to screen one applicant and only take that money until you have exhausted all options with that applicant, then move onto the second application.  Some landlords were cashing all the application fees, running all the tenant applications and picking the best one.
• A landlord must return the application fee if the prior applicant is offer the unit and accepts; subsequently entering into a lease agreement.  You can’t keep the application fee.
• You must disclose to the tenant, in writing, prior to taking the application or fee the criteria that your rental decision will be based upon.  I have been doing this for many years as it was required in certain cities, but this becomes a statewide requirement.
• If you reject a tenant application, you must notify the applicant within 14 days of that rejection as well as identifying the criteria that the tenant failed to meet (you should be citing something on the above written application screening criteria).  If you are rejecting the applicant for something that is not on the screening criteria document, you must return all their application fee.
• A prospective tenant who materially provides false information or omits information on the application is liable for damages, plus a civil penalty of up to $500, plus court costs.  I am not sure how this one is going to be regulated or tracked, but it could be interesting if some applicant lies to you and you can prove it.

These are some small, but important changes to how we as landlords run out investment properties.  You should make sure you thoroughly understand these.

Always, Always, Always Get a Deposit!

I got an email from another member of my team today that was asking for some suggestions on how his customer should handle a tenant issue.  Here is his opening email:

I have a client that is very green in the rental business. He signed a lease with a tenant for 6 months.  The tenant moved in but hasn’t paid him a dime.  No month in advance, deposit, rent etc.  What can be done to get this person out?

Ouch!  Now, I suspect that 90% of new landlords have made the mistake of not getting a security deposit prior to move in, at least once in their career.  In my experience (and I have made this mistake before), you will get that deposit only about 10% of the time.  Once they move in, you have zero leverage to get that deposit.  That tenant has no fear of you actually doing anything to them.  In fact, you can’t!  No eviction in the world is going to work to get that deposit paid.

When the tenant signs the lease, you should get the damage deposit.  And before they move in, you should get the first month’s rent.  Worst case, if the time is short, get all of it prior to move in.  If the time is long between lease signing and move in, always get a deposit as the tenant can simply walk away from the lease.  While you could try to sue them for lost rent, good luck.  Actually, you could get into a wierd situation where legally you need to evict them to break the lease even if they never lived there.  Worst case, hold the keys until they give you the security deposit and first month’s rent.  This is the last leverage you have.

Another mistake that I am sure happens, but I made only once in my earlier landlord years was to accept a personal check for the deposit and/or first month’s rent.  I am sure you can guess what happens next; the check bounces.  Now you have a tenant living in your investment property that has not paid anything to be there.  Much like the guy above.  If you have several weeks prior to move-in, you have time for a personal check to clear.  Also, if the check is drawn on a local bank, drive it over there and have it cashed immediately so you get the funds directly instead of depositing in your bank, they send it to the tenant’s bank and then it gets returned 14 days later NSF.

A slight twist on this mistake is when you are dealing with a tenant that get’s a rental subsidy like Section 8.  The tenant talks the talk like they know exactly how it all works, saying they have talked to this person or that agency and you are going to get your money.  Never take the tenant’s word for it.  Call the agency or have the tenant provide written proof of the subsidy.  Just because they say they are getting emergency assistance to pay the security deposit, doesn’t mean they qualify for it.

Taking some precautions and holding the keys ransom for the money is the best option.  By they way, I told this agent to file the eviction immediately (since they also owed the first month’s rent).

IP201 Seminar: How to Finance More than 4 Properties

Are you a real estate investor and have been frustrated by the fact that you are stopped at buying only 4 investment properties?  Maybe you have great credit and plenty of cash, but no one will talk to you.  Rob Bonahoom has been in the mortgage business for 15 years and specializes in working with investors.  He has compiled a list of banks and other sources that will lend you funds beyond the typical 4 property limit from the large national banks.

Rob owns a large number of investment properties himself and helps investors daily on accomplishing their goals.  Come hear him speak and learn more about your options on how to buy more property at our free Investment Property 201 seminar.  Don’t worry, we are not selling you anything and you will not be asked to sign anything.  This is a no-pressure one hour seminar to give you some information.

The seminar is Burnsville.  Register for the IP201 seminar here.

Free Investment Property 101 Seminar

Have you always wanted to buy an investment property, but didn’t know where to start?  Would you love to take advantage of this down real estate market, but need help figuring out the financing?  Come to our free, 1 hour investment property seminar that will give you some great nuggets of information on how and where to get started.

This is NOT a high pressure sales pitch meeting.  You will not sign anything and we are not selling anything.  It is just an opportunity to get some information and then make a decision from there.

The seminar is Burnsville.  Register for the seminar here.