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.

According to Marquette Advisors, a Minneapolis-based, real estate consulting firm, the Twin Cities posted a record year as it absorbed 6,400 rental units in 2010, up from -3,450 (yes, that is negative) in 2009.  The absorption rate increase shows a greater demand for rentals.  In fact, rentals outpaced new construction in 2010 demonstrating that many families are either forced or choosing to rent instead of purchasing.

We saw a metro-wide decrease from 7.3% vacancy at the end of 2009 to a 3.8% vacancy rate at the end of 2010.  This is no surprise as the numbers of families losing their homes to foreclosure or doing short sales continues to rise.  These homeowners will need new places to live.

According to the study, rents have also remained steady throughout the Metro area.  They also predict that rents may go up as much as 3-4% as demand will continue to out pace supply, forcing a shortage of good rental properties.

Single family home rentals are averaging $200-$400 per month in positive cash flow.  If you have ever thought about buying rental properties, now is the time.

Tax Court Case favors the IRS-Taxpayer did not meet real estate professional 750-hour requirement

If you are claiming to be a Real Estate Professional here is another case that points out that taxpayers needs to be documenting their time when performing real estate activities. A recent tax court case held against the taxpayer claiming that he did not qualify as a real estate professional. The Tax Court held that being “on-call” does not count towards the 750 hour requirement (Moss, 135 TC No 18).

SITUATION: The taxpayer was employed full time. The taxpayer and his wife owned a number of rental properties, including four apartments and three single-family homes. The taxpayer was directly involved in the rental properties performing rent collection, repairs/maintenance, and screening/evicting the tenants. For record keeping purposes the taxpayer kept a log detailing the dates he spent performing these activities. The taxpayer neglected to include the time spent but later was allowed to go back and prepare a time summary. The taxpayer’s total hours were 646 and did not meet the 750 hour test (as required to be a real estate professional). NOTE: Not to mention the fact that over 50% of his service must be in the real estate profession.

The taxpayer also argued that he was on-call during his employee time to handle rental issues. The Tax Court took the position that service time must be actual performance of such service. The tax court also rejected the taxpayer’s claim that his calendar reflected only 75% to 85% of his time- failure to provide proof.

CONCLUSION: The Tax Court ruled in favor the IRS and the taxpayer was subject to additional income taxes and accuracy-related penalties.

TAKE AWAY: Taxpayers claiming to be real estate professional need to keep detailed records of their time and services when working on their properties.

Greg Nelson, CPA, MBT

Olsen Thielen CPAs

www.otcpas.com/blog

So everyone knows what a high maintenance person is.  In fact, some of us have dated (or are married to ) some (not you honey)!  These are people that just can’t seem to be satisfied with anything despite how good it is.  When you get one of these as a tenant, watch out.  They can be very frustrating as they are often not making problems themselves, but they want to complain about everything.  Often also, their complaints or requests are legit, but maybe they are a little oversensitive about things.

I had a new tenant in one of my townhouses.  This empty nester couple were a relocation from Memphis and had lots of cash in the bank from selling their home.  She liked the unit, but she said she smelled cigarette smoke.  I am pretty sure the current tenants did not smoke in the house, but out on the back patio.  No doubt that some of that smoke came in the house and I am sure it was on their clothes and other belongings.    They were going to be great tenants, but she insisted that I not only shampoo the carpet, but I have the ducts cleaned.  This unit was only 2 years old, but I agreed.  I paid the $250 to have the duct cleaned.  She was satisfied.  I go over there a month after they move in only to find out that she is a smoker.  Huh?

So what do you do if you have a tenant that seems to call you over every little repair and/or every little neighbor problem?  Are you spending 80% of your management/maintenance time on this one tenant?  Unfortunately, because their requests are often reasonable and legitimate, it may take you a while to identify that this is a high maintenance tenant.  So what do you do once you identify this?

• Start pushing back on their requests.  Question if it really needs to be done.  At first this may be difficult to do, because you know the work may need to be done or the place is not perfect.  Most rental units are not perfect and were probably never represented as perfect.  They have to live with some defects.
• Ask the tenant to put together a punch list and then agree that you are going to go in and do all the work one time and you are not coming back except for an emergency for 6 months.  While this may be difficult, it could get them to see that the property is just fine.
• Harder still, but I know many landlords do this, is to simply tell them that  you are not fixing it.  Period.
• Lastly, move them out.  If they continue to be a thorn in your side, tell them:  “Look, it sounds like you are just not satisfied with this property.  I don’t believe I will ever be able to get it to the level of maintenance/repair/beauty you want.  Maybe we should just break the lease at the end of next month and you should find another place that you are more satisfied with”.  This statement right there may be enough to shut them down.  Many people when presented with an ultimatum or take away will back down.

Having a high maintenance building is tough enough to deal with if you are a part-time landlord.  I would say that high maintenance tenants are probably worse as the building is not calling you on the phone at 7pm saying the door handle is loose!

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.

A customer of mine recently purchased a townhouse in Brooklyn Center.  It was a 1970s vintage with 3 bedrooms and they paid $29,900.  It is in terrible shape and needed everything (carpet, paint, kitchen, bath, furnace).  It was also filthy and looked like some of the college houses I had gone to parties in.  The carpet was sticky and there was ketchup on the ceiling of the kitchen!

After getting the offer accepted, we received the association docs.  Needless to say that I was dragging my feet on reading this 117 page document over the weekend.  My customer, being an attorney, dove right in.  Deep within the document were the “rental rules”, which went on to say  that a unit in that association may only be rented if the owner lived in the unit for at least 1 year prior to renting it.  [Insert gnashing of teeth by me,  here].

Why didn’t the listing disclose this?  Why didn’t the listing agent ask me if it was an investor buying this property?  We promptly canceled this PA and will be moving on.  Keep an eye out for this when purchasing a condo or townhouse.  It is more common than you may think.