Thanks to Roy Bohrer and my good friends and members of the National Association of Residential Property Managers (NARPM). Locally, she has chaired the Property Management Committee of the Marin Association of Realtors several times and currently serves on the Board of Directors as the Director of Fair Housing of Marin.
Book description
To be a successful investor, you must have a clear and thorough understanding of your legal rights and obligations as a property manager/owner. You must have clear and concise policies and procedures in writing, and you must follow them.
Special features
Bright Idea: Smart or innovative ways to do something;
You must use all the correct legal forms from the application to the tenancy and the move-in and move-out process. This book illustrates the importance of having good policies and procedures in place at the outset, before any problem arises.
Quote: Anecdotes from real people who are willing to share their experiences and insights
When you make an exception to your policies and procedures, you can find yourself in trouble. Once you learn this, you can start working on the 1031 exchange process (see Chapter 15) and buy more properties to add to your inventory.
Index
Getting an Overview of Rental Property
Management
Turn negatives into positives ■Start your investment business ■Understand the good, the bad and the ugly of owning rental properties.
Rental Property Management 101
You will likely find that property managers are willing to take the time to discuss with you the pros and cons for a particular type of property and your situation. You have to be willing to take the time to learn the basics in the beginning and be willing to keep learning.
Understanding the pros and cons
When you do, pick yourself up, dust yourself off, learn from the mistakes, and then swear you'll never let those situations happen to you again. This is where it pays to join a group of other property owners or investors - for advice and moral support.
Pros of managing rental property
You may enjoy it enough to make it your career and even manage property owned by others. You can keep a home that you may want to move back to later (for example, if you are moved from an area you love).
Cons of managing rental property
Overcoming the negatives
You are on call 24/7 and there are no days off when you manage your properties yourself. You'll likely find some hints and tips on what to ask before choosing the right one for you.
Running your business like a business
Also, get an email address that contains your business name instead of your personal name. Plan now to own long-term property. You may not own the same property forever, but you should have a plan to buy property and build your business from there.
Hiring real estate professionals
Realtor/broker
Do your homework on your own, look for properties in the newspaper and on the web, and get some ideas of the area and type of property you are interested in.
Banker/mortgage broker
Insurance agent
Accountant/financial advisor
Attorney
I decided I wanted to hire the lawyer who had handled a lot of cases, had a lot of experience and had seen it all. And he certainly had a lot of experience in evictions and in dealing with tenants.
Property manager
They gave me a name and he has been my real estate attorney for over 20 years.
Financing properties: Stretching yourself to take that step
Years went by and I was in my comfort zone, living in my larger home and renting office space for my business. You can start by buying a second home and renting out the apartment you currently live in.
Maintaining your property
I took a risk, I was scared, but it was one of the best investments I ever made. If you haven't purchased a property yet, look into buying a duplex or triplex and living in one of the units.
Finding and qualifying great tenants
Expanding your business
The market in your area will determine how quickly the value of your investment will increase. This goes hand in hand with the market value of your investment: So, as the value of the property increases, the rent should increase by a similar amount.
Just the facts
When you have paid off part of the equity in one property, you can refinance that property to buy your next property; other times it will make more sense to sell your investment to buy a bigger building. Note that most single-family homes are rated based on comparable homes sold in the area.
Taxes, Licenses, and Insurance
In addition, make sure you comply with your local authorities. You must be sure that you have good accounts and keep track of your paperwork so that you are ready when you meet with your accountant.
Types of taxes
Have a tax strategy to help you know when to improve your property and when to sell your investment.
State tax
Federal tax
Property tax
This is to determine the value based on the property and other comparable properties in the area. Don't be late with your property tax payments, as penalties are usually around 10 percent.
Transfer tax
Many lenders address nonpayment of property taxes within the loan paperwork and have the option to call your loan so that it becomes due and payable immediately if you don't pay your taxes. So if you leave a fridge, washer/dryer or other furniture and fixtures in the property, you must also report these.
Depreciation
For example, a building depreciates over a long period of time, while a computer only depreciates over a few years.
Hiring an Accountant
Repairs versus renovations
Passive versus active
Business licenses and permits
Insurance
Includes cover for loss of rental income if your property can no longer be occupied as a result of a covered loss. Additionally, purchase additional coverage for furniture and fixtures located at the residence.
Types of insurance
Natural Disaster Insurance Earthquake, wind, hail and hurricane insurance is another item sold separately to supplement your current policy. Non-Owner Auto Liability This insurance is a very inexpensive policy that covers you if someone who works for you is driving.
Reducing risk through preventive maintenance
Home warranty insurance This is provided to cover any failure of the systems in the property. If something breaks, call your home warranty company to take care of the problem.
Reviewing your policy
It's a good idea to meet with your accountant and insurance agent at least once a year to review and review your rental needs. It's a good idea to not only put this in writing, but also encourage (or insist) that your tenants get renter's insurance.
Acquiring Rental Property
Ways to get a rental property ■Turning your home into a rental property ■Considerations before you start ■Reasons for buying-.
Purchasing Rental Property
At this point, they are considering renting the house to help pay the parent(s) monthly expenses and thus preserve the property for an inheritance.
Ways of acquiring property
Job transfer/temporary assignment
A few years of wear and tear can be a lot depending on the tenants lifestyle. Remember that some of the precious memories you have are not acceptable to the renter.
Moving to a nursing home
You may want to consider a month-to-month agreement after the first year if your company calls you back early. For example, if you have a growth chart for your children on the wall, you might want to take a picture or trace it on a piece of paper.
Death of a parent
Make sure they are there when you meet with the property management company and let them be part of the planning and leasing of their home. This helps enormously with the emotional side and with your long-term planning for renting the property.
Property you’ve tried to sell
Sometimes it's also best to rent for six months to a year in the area you're moving to. This allows you to ensure that you are buying your new home in the right area.
Purchasing an investment property
Compare property values and rents
Investigate various loan options
Consider the property tax
Take into account supplemental tax
Check on insurance coverage
Confirm utility costs
Plan for future maintenance costs
Consult your accountant/financial planner and real estate agent
Inspect the property
Engineer's report Sometimes a prospective owner needs to obtain a soil engineer's report, especially if the property is on a hillside.
Converting your property into a rental
An outdated home
But when you live in the property, you can take care of things a little easier and you can even tolerate more. When you lived in the property, you could take the time you need to get estimates and wait a little longer to make repairs.
A house with a pool
A high-maintenance home
A home in a poor location
Taking over occupied rental property
Tax Bill Make sure you get a copy of all tax bills relating to the property. Copy of Current Insurance Policy It is important to obtain a copy of the current owner's insurance policy in advance as you will need to have it in order prior to closing.
Closing on the loan and meeting your tenants
Your insurance agent may need to provide written proof of the policy to the escrow company prior to closing the escrow. Be sure to follow your state and local laws before giving them your moving notice.
Hiring a real estate agent
If your tenants are on month-to-month contracts, you may even want to serve them with an eviction notice. When sending the first letter detailing where tenants must pay their rent and how to call maintenance, you must include a tenant information form (see Appendix 4).
Realtor
Buyers and sellers are clearly better served when a real estate agent is engaged to help with the sale or purchase of a property. You should choose a real estate agent with as much care as you would a lawyer or doctor.
Agent, listing agent, and subagent
Before you can buy your first rental property, there is still a lot of work to be done. Make sure the current tenants of your new rental property feel comfortable with you taking over.
Financing Rental Property
Doing your homework ahead of time can help take some of the stress out of it and get you the best grade possible. A good loan can mean the difference between success and failure in rental property management.
Sources of funding
Take the time to know the process and what to expect before your clock ticks and you close and have a limited amount of time. Besides the location of the property, the loan rate and terms are the second most important things.
Residential loan (for one to four units)
There are more added costs when you are required to have PMI, usually at a higher interest rate, and you may be charged higher points to cover the cost of insurance. You still have all the other costs associated with the loan, such as title insurance costs, lender fees, appraisal fees.
Commercial loan
If you have a loan of more than 80 percent, you may be required to have private mortgage insurance, also known in the industry as PMI. As with residential rental properties, qualifying for an investment property of five units or more is primarily based on the property's ability to generate good, solid cash flow itself.
Private-party lending
The building you choose to buy must have income that can cover your monthly mortgage payments, pay your general expenses and have some cash flow left over that you, as an investor, can put in an account as a reserve for your maintenance costs.
Hard-money loan
Sometimes, a hard money lender is used because the buyer has poor credit or because the property being purchased is in bad shape and is a real fixer upper. Often, in just a few short years, your value increases and you can refinance and possibly get an even better loan with plenty of time to shop around for the best rate and the best loan.
Prepayment penalties
Know Your Banker
Understanding what happens during closing
The functions of a closing
Once all the instructions in the storage have been completed, it can be completed. Once your offer is accepted, you can select a closing agent who can be an attorney and/or escrow agent.
Follow up
Make sure the seller takes care of these items in a timely manner to avoid unnecessary stress during the transaction. Order all work and cleanup, or negotiate who will take care of what items, from the property's condition reports, contractor's report, or other property inspections performed on the property for sale.
Understanding closing costs
Interest on the new loan from the date of financing until 30 days before the first payment date. Any judgment, tax liens, etc. against the seller or the property that appears on the title.
The role of the closing agent
Acts as the neutral “stakeholder” and communication link with all parties in the transaction. Take the time to get to know the key people in your bank's credit department.
Upgrading and Maintaining Your Investment
Preparing Your Property for Tenants
Where to begin
After you've done your move-out inspection in writing and taken photos if needed, start getting your property in clean and pristine condition to market and attract your next great tenant.
Purchasing lockboxes for your properties
Painting, cleaning, and replacing flooring
You can save a bit of energy by turning off the furnace, water heater and air conditioning while the property is vacant. Generally though, you leave the power on so you have light available to show the property, plus water to carry out repairs, painting and cleaning.
Making a maintenance to-do list for yourself
The exterior
If there is a chimney, make sure there is a spark plug at the top and there are no cracks in the joints that could lead to a fire inside the frame. The problem is that during a fire, the person inside does not have time to find a key and insert it into the lock to open the door.
The interior
Check the stove vent to make sure it's working and pulling the smoke out. Make sure you have the necessary GFCI (Ground Fault Interrupter) outlets near the sink.
Maintaining Your Property
Maintaining and repairing your property
Emergency maintenance
You should be sure that you have instructed your tenants to call the appropriate authorities first if the emergency is life-threatening or if safety is a concern. This means you need to know what to do, where the emergency shutdowns are located and how to handle the call.
Routine and preventive maintenance
You can use u-ground receptacles on your property if you either ground the outlet or provide GFI (ground fault interrupter) protection to the outlet. And in some areas, it's a code violation to leave graffiti on your property.
Contractors are your best friends
Don't use carpet salvaged from another building, even if it's a good deal; it probably won't last long. Emergency service company: It's a good idea to build a rapport beforehand and open an account with an emergency service company.
Fair housing and your contractors
Safety equals reduced liability
Habitability standards
Responding to maintenance calls
I truly believe you can teach your tenants to make it routine to put their maintenance requests in writing (see Appendix 4 for a sample maintenance request). The landlord's initial reaction is to let the tenant make the repairs, especially if you think it will save you money.
Renting Out Your Property
Avoiding Fair-Housing Complaints
Understanding the law
The site also includes links to each state so you can locate an office in your area and view highlights of what the Department of Housing and Urban Development (HUD) is doing in your state. For example, you can discriminate if you make an exception to your standards because a person is down and out and you feel sorry for him or her.
Fair housing, then and now
The Fair Housing Act also specifically makes it illegal to refuse to permit, at the expense of the disabled person, reasonable alterations to existing premises occupied by such a person or to be occupied by such a person if such modifications are necessary to offer such person full enjoyment of the premises. . My suggestion is that you get to know the local fair housing organization in your area.
Fair housing guidelines for advertising
Sex Advertisements for a single-family dwelling or separate unit in a multi-family dwelling must not contain any explicit preference, restriction or discrimination based on sex. Familial status Advertisements may not state an express preference, restriction or discrimination based on familial status.
Fair-housing guidelines during interviews
Keep all your notes from the first contact throughout the process. At this early stage in the process, you will often be able to determine whether the customer is able to qualify financially to rent from you.
Fair housing guidelines when showing your property and taking applications
Determining occupancy restrictions
Some property managers use the standard of two people per bedroom plus an extra person per household. The National Association of Residential Property Managers (NARPM) wrote a position paper adopting this standard as a fair and reasonable occupancy standard.
Avoiding steering
Avoiding linguistic profiling
Although we don't have any two bedroom apartments right now, you are still welcome to visit us. Let them call and ask about an amenity you don't have and see how your on-site manager handles it.
Avoiding unintentional discriminatory practices
If you find a problem, work with your manager or find someone who won't put you at risk.
Use of the pool
Property managers explained that the rule allows peaceful enjoyment of the pool by those who want to swim and not play. I have already established the business rationale for the rule — to allow peaceful use of the facilities for all residents.
Renting to roommates
This simple change in language removes the discriminatory nature of the rule and achieves the business goal of enabling peaceful pool enjoyment that is fair to all people. When it comes time to enforce the terms of the lease, the more information the better.
Laws that protect tenants with disabilities
You can request a separate application from potential residents over the age of 18, regardless of their marital status. Not only do you treat all applicants the same, regardless of their marital status, but you also receive additional information on the basis of your adult residents.
Discriminatory questions and actions
Unless your state lists "marital status" as a protected class, the answer is probably no. However, is it possible that a same-sex couple could view this policy as limiting housing opportunities for them because of their relationship.
Modifications
For example, if there are two units for rent - one on the ground floor and one three floors above - you must show both units to the applicant who uses a wheelchair, however reasonable you think it would be for the person to only consider the ground floor -unit. You may require proof of a disability, which would be a certification letter from the disabled tenant's doctor, but this proof need not specify or explain the disability.
When a pet isn’t a pet
You may not ask a disabled tenant for proof of training for a service animal. The tenant is responsible for the actions of their animal and may be liable for any damage to your property.
Fair housing and sexual harassment
If a resident lures your employee into the unit and the employee does not respond as hoped, that resident will likely contact management and accuse the employee of wrongdoing. Make it clear to residents and maintenance professionals that unless there is an emergency (fire or flood), no maintenance professional will be alone in the unit with someone's minor child.
Tenants with disabilities have the right to make the unit accessible and usable with your prior approval and are required to return the property to the same condition it was in before they moved in.
Marketing Your Rental Property
By having the property in excellent condition, being organized and prepared with your paperwork, and pricing your rent competitively, you will be on your way to landing a quality tenant.
Determining the appropriate rental price
If so, it means that supply is greater than demand and you need to be at the lower end of the market to be able to rent out your property quickly. Plan to recruit current tenants based on their length of stay in the property, the condition of the unit or property, and the current lease agreement.
Ways to determine your market rent
Call nearby properties from the "FOR RENT" signs located in front of the units. When setting your asking price, do your homework to find the market rent and then stay at the lower end of the market.
Looking at an example
Ask the person who answers how much he or she charges for the rent. This will be one of the incentives that will draw a prospect to your property rather than the similar one for more money.
Offering a discount or move-in bonus
Please note that your property must be in excellent condition and priced to be able to rent straight away to a qualified long-term tenant who will look after your investment. This is your business and it takes time to market your property in the best possible way.
Preparing yourself to market your property
You'll want to create an appropriate advertising and marketing plan to market to people who desire the amenities you offer, who want to live in your area and, of course, who can afford the rent you charge.
Finding effective places to market your property
Place a sign on your property
If you put up a sign where your tenants are still living in the unit, be sure to put up a "Do Not Disturb Residents" sign. You can leverage a good current tenant's time by offering him or her an incentive to show the unit, especially if you don't live nearby.
Newspaper advertising
Providing Information 24/7
Utilities It is important to mention any utilities included, especially if all utilities are (or are not) included in the rent. It is important to check your ad on the day you expect it to appear in the newspaper.
Advertise in rental publications
I find that the busiest days and the most active days for rental calls and rental showings are towards the end of the month, with the last weekend before the first of the month being a very good time to advertise and rent your property. Towards the end of the month, they look around with plans to find a place and notify their current landlords on or around the first of the month when they pay rent.
Use a Web site or online ad
Many local newspapers now have all their advertising online as well as on the printed page. To find out which sites are the most effective, go to the web and search for rental houses by the name of the city in which your property is located.
Put up flyers
Try community bulletin boards
It's not as efficient as some of the other methods, but it only takes one person to walk in and call from your flyer post. Many people who move to an area stop by the chamber to pick up information about the area.
Contact a local employer or relocation department
Use your current tenants or other word of mouth
You fill your vacancy and have a current tenant who is happy with his new neighbor. However, think about the tenant who refers the potential customer: do you want more of the same type of tenant in that property?
Hiring a property management or rental company
Another benefit of hiring a real estate agency or property management company is that they will handle the necessary screening and leasing paperwork. Real estate companies, rental agents and property managers are generally aware of current legislation and market conditions.
Advertising and fair housing
It is your responsibility to know the fair housing laws and ensure that you do not violate them at any time. Compliance with the Fair Housing Act as well as local fair housing laws is paramount.
Finding the Best Tenants
Establish your tenant selection criteria in advance
You can verify income using copies of the applicant's pay stubs from the previous month, which you ask her to provide with the application. Sterling References: Look for applicants who can provide you with names and phone numbers to verify all sources of income, as well as the applicant's current and previous residences.
Prescreening begins with the first phone call
Start by asking some preliminary questions on the phone before viewing the home. After you drive by, ask her to call you for a personal appointment to view the inside of the home.
Show applicants the property
Even if the tenant has driven by, provide clear and concise directions to the home. If you have multiple potential candidates who want to view the property, schedule the appointments at least 20 to 30 minutes apart so that you have enough time for each individual applicant.
Showing a vacant property
If so, make sure she brings everything she needs to the second show so she can make a decision. You don't want to be held responsible if you say it's safe and something happens.
Showing an occupied property
The rental application
When you pick up the application and the necessary paperwork, you should always collect an application processing fee and a refund deposit, if allowed in your area. The processing fee covers your costs of managing a credit report and going through your processing procedures.
Items you want on your application form
Make, year, model and color of the applicant's car together with the license plate number. If you are self-employed, the name of the company and detailed information about the work performed.
The fine print on your application
Have you ever been evicted from a tenancy or served with an eviction notice? Have you ever been convicted of a misdemeanor or felony other than a traffic or parking violation?
Screen applications to find the best tenant
This application is for qualification purposes only and in no way guarantees the applicant that he/she will be offered this property.”. Applicant understands that the owner can and will accept more than one application for this rental property and that the owner has the sole discretion to select the best qualified tenant.”
Obtain a credit report
If you are unsure of the information or do not understand what is being presented, call a customer service representative at the credit bureau. Don't rely strictly on the credit report and forget about the rest of the review process.
Verify current employment
Contact the applicant's current and former landlords and submit your questions on your verification/screening form (see Appendix 4). Ask whether the landlord is considering renting to the applicant again and inquire about the amount of rent that the tenant pays (or paid).
Verify personal references
When you first contact the landlord, explain why you are calling and be sure to listen carefully to his or her response. Also find out if the tenant has pets, was ever served a notice and was given 30 days notice of intent to move.
Call co-signers
Recognize the danger signs in tenant applications
Be sure to ask for an explanation if you find conflicting information on the application. In any case, be sure to check your local, city, and county laws before refusing to accept Section 8 coupons.
Non-Section 8 Programs
If you review the application and find it acceptable after going through the review process, then you meet with an agent from the housing authority for a move-in inspection before the tenant moves in. Once a year, an inspector from the local housing authority carries out a review before the end of the one-year tenancy term.
Turning down a potential tenant
Deposit problems: A tenant should be able to pay the move-in fee with a cashier's check or money order shortly before moving in. Not ready to move: If the applicant is unable to move in for 30 days or more and is not willing to pay. rent sooner, rent to someone who is ready to move in immediately.
Working Out Details with Your Tenants
A written lease provides clarification and brings discussion if they don't agree with any of your terms before moving in.
Finding a good lease
Ending a Lease Early
I use a company called Professional Publishing (www.profpub.com) and pay for the ability to use online forms. You can either download a program with all the forms included or order a single transaction package for residential rentals or sales.
The difference between a lease and a rental agreement
Keep in mind that if you use a professional lease form company, part of what that company does is keep up with current laws and constantly make changes. The company allows you to fill in the blanks, has continuous updates and keeps up with the current requirements.
