Making Deals With Tenants

Early in my career, new tenants often asked me to “work with them on the deposit.”  In other words, they couldn’t quite pay both the rent and deposit required to move in.  Being a trusting soul, I usually agreed, and we’d make a plan for them to pay it up within a month or so.  What I quickly learned was that something else always seemed to pop up, and the deposit they owed me never quite found its way to the top of their priority list!

So, I stopped allowing that.  But then I got people who wanted to “work off” the deposit.  They were willing to paint, clean, etc.  Thank God, I was smart enough to say no to that proposition!  Here’s why:

I had made the mistake of letting one of my good, long-term tenants paint a couple of rooms at his place, with disastrous results.  He told me he used to work for a paint contractor, so I gave him the go ahead.  He really botched it up — terribly — and I learned my lesson.  I don’t ever allow any of my tenants to do work on my properties.  There’s too much risk involved, not to mention liability issues.  (What if they get hurt while doing work for you?  Not good.)

Here’s the bottom line:  if your applicant doesn’t have the full rent and full deposit, don’t let them move in.  PERIOD.  No exceptions!

Also, if they’re responsible for any of the utilities, make sure they put them in their name prior to moving in.  Don’t just blindly trust they’ll get it done.  Ask them if they’ve made the calls to transfer service and if they say “yes,” call and check.  (Yes, I’ve gotten burned on this as well, by trusting it got done, and then receiving a gas bill a month later.  Totally my fault.  Learning the hard way, once again!)

Between my book and this blog, I’m hoping to save other landlords from making some of the mistakes I made early in my career.  Although I did a lot of reading and networking, there are so many things I had to learn through experience.

After being in this business for over 18 years, you’d think I’ve gotten it totally perfected by now, right?  Unfortunately, not …

Onward and upward!

Just Say NO to Slobs

I hear countless owners talk about how tenants have trashed their rental properties.  And I’ve had it happen to me as well.  So what do you do to prevent this from happening?

There are several things you can do BEFORE you allow these potential slobs into your rental properties.  I’ve talked about a few of them before on this blog but I thought this subject was worth devoting an entire piece to it.  I got burned several times early on … Here are a few things I’ve learned over the years:

  • What do they look like, physically?  Are they clean?  Have their clothes been washed or are they a filthy, wrinkled mess?
  • What about the car they drive?  Is it well maintained, inside and out?
  • Do they have children?  If so, are they clean, well-behaved?
  • Where do they live?  Drive by, first, and assess the outside.  Have they been attentive to it?
  • Plan a visit to that home where they live, if possible.  (You could stop by to pick up the application.)  Is it a mess inside?  Are there countless neighbors, friends, cousins, little kids running around?  If so, that’s a total red flag.
  • Are they living with relatives or friends?  If so, they may have been evicted recently.  Run a credit check on them.  (I use National Tenant Network.  For $20, you can run credit, criminal history, etc.  It’s an excellent resource.)
  • Does the applicant “bad mouth” the current landlord?  If so, you may be the next victim of that behavior.
  • Does the applicant have a bad attitude in general?  If so, you can deny tenancy based on that issue.

Renting to a slob who doesn’t take care of your rental will end up costing you a ton of money down the road.You can save yourself a lot of headaches by following these simple quidelines BEFORE you accept a tenant.

Don’t be in such a rush to fill that vacancy … attention to detail will save you — emotionally, mentally, physically, and financially.  It’s worth it to take your time when you look at prospective tenants.

Otherwise, you may learn the hard way … like I did!

Onward and upward!  🙂

Beautify …

I encourage the tenants in my Indianpolis rental properties to plant flowers and shrubs on the property if they’re so inclined.  Most are not, especially if they’re struggling financially.  Understandable.  If you don’t have much disposable income, you’re not going to consider using it to buy flowers and mulch.

The home in the picture below used to be barren in the front.  I hadn’t gotten around to planting anything along the front porch, although it would’ve enhanced the curb appeal.  But then Shelby moved in and little by little, the outside of this rental property got a facelift!

photo (3)First, the front of the house got a fresh coat of white paint, with my permission of course.  Dirt and dust from the street had grayed it down.  Then the dark gray trim got repainted, followed by the porch floor.

And this spring, the finishing touches … more plants added, a border, a couple of beautiful hibiscus trees and some mulch to finish it off.

I wish I had a “before” picture to show … if you look at the video clip on the home page of this blog under “A Bit About Barb” it’s the first home I drive by … but anyway, it used to be plain and a little tired looking but now?  Warm, inviting, cared for … I love the look!

I’ll continue to encourage my tenants to beautify their exteriors, but for now, I wish I had more Shelbys!

Trash, or Treasure??

When tenants move out — planned or not — they often leave a few items behind.  Here’s an example:

003The tenant took all of their clothing and personal items from this bedroom, but left the mattress and dirty linens and some boxes and other trash.  They’re obviously not coming back for this stuff!  But how about the contents of this next photo, taken from the same house?

001

The shelving units in both rooms were not in good shape, but I suppose they could be used in another rental.  The stuff on the sheves — electronics, knick-knacks, etc. — was either broken or just plain trash.  So as a landlord, what do you do?  Can you throw it out?  Or will your tenant come back on you several months later, claiming you threw away some precious family heirlooms?

Here’s what I do … on my application, I always get the names and addresses of two contacts — family and/or friends — as emergency contacts.  In these cases, if I cannot reach my tenant and I don’t have a forwarding address, I call these people and try to find my tenant through them.  I let them know the situation, and tell them I need to clear out the rental for my next tenant.  Sometimes they come and clear out the house, sometimes the tenant does, and sometimes the emergency contact says the tenant doesn’t want the rest of the contents.  I get this in writing, take pictures of the junk left behind, and put it out for the trash man.  Simple.

When you’ve made all efforts to find your tenant and contacted the appropriate people, to no avail, you can — by law — label the stuff they left behind as “abandoned property.”  The law is purposely vague about this, and I’ve never, in 17 years, had an issue with throwing people’s junk away.

What’s that saying?  “One man’s trash, another man’s treasure?”  No, it’s “One man’s trash, another man’s trash!”  So don’t keep it, throw it out!  And know that you’ll find a better tenant next time!

Onward and upward!  🙂

Illegal Entry?

I own and manage 27 rental property units in Indianapolis, and also manage homes for other owners.  I love my work and have gotten fairly adept at it over the years.  When I consult with people who are considering getting into the business, their greatest concern it that tenants will totally trash the rental unit.

Well, yes, that can happen, but there’s an easy fix for that.  Do occasional walk-throughs, and make that privilege part of your lease agreement.  My lease states, “Tenant will allow landlord to show, make repairs or inspect apartment when necessary.”  I explain that the home is in excellent condition and I hope they’ll maintain it.  I’ll be coming in — with proper notice, of course — every once in a while, to do a walk-through.

The key word here is “proper notice.”  Tenants have rights to the property.  Don’t ever think that, just because you own the rental, you can go over there unannounced and gain entry, even to the back yard or garage.  Your tenant (if so inclined) could order you off the property and be correct in doing so!  If you refused, he/she could call the police and have you arrested and hauled off.

By all means, do put a clause in your lease that allows you access to your property.  It’s your asset and you must protect it.  But make sure you give your tenant notice, usually 24 hours, before you come.  It’s common courtesy, but it’s also the law!

Better to Buy Right Now?

Mortgage rates are near a 50-year low and foreclosures continue to flood the housing market.  It was also recently disclosed that the banks are withholding thousands of these foreclosed homes, and will release them into the market throughout 2012.  This is only going to delay the housing recovery even more.  But I guess the good news in this: for investors (or other buyers who can qualify) there’s plenty of inventory out there, prices are going to bump along the bottom for a long time, and it’s a great time to buy, as mentioned in the following article that appeared in Kiplinger on line:            http://www.kiplinger.com/magazine/archives/should-you-buy-or-rent.html.

Indianapolis is actually cited as one of 10 cities where the prices are low/stable and unlikely to drop much further.  They also talk about a price/rent ratio, often called the rent-to-buy ratio.  To find out whether it’s smarter to buy or rent in your area, you take the value of the home you’re looking to buy, and divide it by the annual cost of renting the same type of dwelling. If the number is below 15, it’s a good buy.  Above 15, smarter to rent.

For example, on the foreclosure I bought last fall, I paid 35K and have a total of 40K in it.  At 825/month rent, my ratio is 4! Definitely a buy.  And even at the true market value of the home, compared to those around it (80K), the ratio is only 8.

The rent-to-buy ratio here is excellent, and we have a very strong rental market.  I was able to find a fantastic renter for that home as soon as it was finished and ready to go.  So we’re fortunate here.  It’s a great market for buyers — if you can qualify.  And there’s the catch.  The banks have tightened their purse strings and are making it difficult.

They’ve gone from way too lenient to way too strict.  Hopefully, the pendulum will swing back to middle ground soon . . . in the mean time, people everywhere are being forced into rentals.  For us landlords, life is good . . .      🙂