Landlording can be a tough business. Your income often depends on factors beyond your control: the economy leads to job losses; job losses and overbuilding lead to vacancies; vacancies lead to a renter’s market. Coupled with the day-to-day hassles of keeping your properties in shape, handling tenant problems, and making the numbers work, the stress can make even a saintly person cranky at times.
Cranky landlords don’t necessarily make the best landlords. Most landlords want to be known as a “good landlord,” which could be broadly defined as enjoying mutually-beneficial and respectful relationships with long-term tenants, making a profit and enjoying the rental business. These are not unachievable goals.
Good landlords know that income property investing is not about the buildings. They know their income from those properties depends on the people inside them. Good landlords know they are in the people business. Outstanding customer service and communication skills are absolutely necessary to be a good landlord.
Tenants might say the characteristic common to good landlords is empathy—the ability to understand another’s situation, feelings, or emotions; to walk a mile in that person’s shoes.
Tenants are people and want to be treated just like you want to be treated. Sure, they make mistakes. Sure, you’ve heard the horror stories from other landlords about skipped rents, trashed apartments, neglect, and bad behavior. These things happen to the nicest of landlords. But they don’t happen as much to good landlords who treat their business like a business, their tenants like people, and who set high standards for their properties, their tenants, and their own behavior.
know who they are renting to before the lease is signed (thorough tenant pre-screening)
make repairs when they are needed
wouldn’t rent anyone a property they wouldn’t let their mother live in
set firm rules
respect their tenants enough to not treat them like children—or animals
do not take advantage of their tenants
are not self-serving
recognize the landlord/tenant relationship as a mutually-beneficial business partnership that requires effort on both sides
It doesn’t take a superhero to make a living in the rental property business. Lots of folks do—and some manage to be “good landlords,” too!
Pre-screen all tenants as part of your standard application process. Background and credit checks will help ensure you rent to qualified tenants. For more landlord resources, including forms and information on tenant screening, turn to E-Renter.com. .
Question 1 is about pet policies. Let’s say a landlord has five rental units. The tenants in four of them are neat and clean. The fifth tenants are not. They leave trash around their unit, and during inspections the landlord wonders if they ever clean the place. If both a “neat and clean” tenant and tenant number five want to adopt a dog, is it discriminatory to approve Mr. Clean’s request and turn down the other tenant?
Discrimination is defined by the Fair Housing Act (FHA). Pet policies have nothing to do with the FHA. The only tenants who are protected regarding pets are those who fall under the protection of the Americans with Disabilities Act (ADA). A service animal must be allowed, regardless of your pet policies. All other pets are completely at your discretion.
Question 2 is regarding appearance. A landlord has two applicants for the same apartment. The first arrives in a clean, well-maintained late-model car. She is nicely dressed, and wears expensive-looking jewelry. The second arrives on a bicycle, wearing baggy jeans, a baseball hat turned backwards, and a torn t-shirt. Is it discriminatory to decline the second prospective tenant’s application without going any further?
Yes. Landlords may not discriminate on the basis of appearance. Smart landlords are blind to appearance, using solid tenant background screening as the decision maker. In this case, the first applicant could be way overextended on her credit, have a bankruptcy in her credit history, and owe her previous landlord a few months’ rent. The second could have bicycled straight from work, where he is well-respected, earns a good salary, and has solid credit. Appearances can be deceiving.
Question 3 is regarding advertising. Landlord Jane wants to pre-screen tenants by describing her expectations in the “for rent” ads she places in the paper. Her ad reads as follows: “1BR 1BA apartment, clean building, safe neighborhood near church. No pets, no kids, no smokers, no drinkers, no bums. Background and credit checks. Ref req’d.” Is Jane’s ad discriminatory?
Could be. Describing the rental unit as “near church” could be interpreted to mean she desires tenants of that church’s denomination. “No kids” can be problematic. You cannot discriminate against people with children, although a one-bedroom apartment could be considered too small for more than one person. Parents or a parent and infant in most states are allowed to share a one-bedroom dwelling. Check your local and state laws. Landlords can prohibit smoking in rental units and alcohol consumption in common areas, but not a general “no drinking” or “no bums” rule. Jane’s definition of a “bum” is most probably discriminatory.
Remember, landlords must be very familiar with the Fair Housing Act, which bars discrimination against persons based on race, color, national origin, religion, sex, familial status (including children under the age of 18 living with parents or legal custodians), pregnant women, and people securing custody of children under the age of 18), and handicap (disability). Treating all of your tenants fairly and consistently is a smart way to avoid charges of discrimination.
Landlords, do you really know what’s going on inside your rental properties? Has a tenant ever surprised you with unacceptable (or illegal) behavior? How many of you have discovered evidence of an unauthorized pet—after the tenant moved out?
It only takes a quick scan of a newspaper to find the horror stories landlords and property managers must deal with: Woman found with 32 cats in studio apartment; Police raid methamphetamine lab in neighborhood home; Marijuana-growing operation in basement shocks neighbors.
As a landlord, you have the right and duty to inspect your rental properties. The right to know what activities are taking place on your property should be clear in your lease. If your tenant signs it, they affirm that they agree. The duty falls under protecting your other tenants and the community around your property by keeping illegal activity out of your rentals.
Scheduling periodic inspections can be done as soon as the lease is signed. Or, if you decide at any time during the lease period to begin inspections, just let your tenant know when you’ll be there. The element of surprise could work in your favor if you suspect a tenant is breaking the rules, but remember that in most states, you must give notice prior to entering a tenant’s unit.
Communicate with your tenant. Let them know that the inspection is routine and necessary to ensure that systems are operating properly, or to check for plumbing leaks, test CO2 levels, locks, fire extinguishers or structural problems. Allow them to ask questions. Tenants with nothing to hide will likely have no problem with you coming into their home. If a tenant wants all the details of the inspection, or asks for more time, you could have a problem on your hands.
On inspection day, check all the systems, fire extinguishers, smoke alarms, and plumbing. As you walk through each room, see what else is going on. Listen for any odd noises, like a hidden dog or cat (it happens!). Look for signs of animals, illegal activity, and “odd-shaped” plants. If there is a basement, attic, or storage area, check them out, too. Any drug-related activity is likely to occur out of sight.
If you find evidence of illegal activity, do not confront your tenant on the spot. Call the police and tell them what you have seen or heard. If the tenant’s infractions are lease-related, such as extra people or animals you have not approved, follow your established procedures for tenants who break the provisions of your lease.
A simple habit like regular inspections of your rental properties can go a very long way to preventing big problems!
The question of pest control in rental properties is often debated. Tenants expect that their rental unit will be pest-free when they move in.—and they expect that the property owner will keep it pest-free. Pests fall under the responsibility of making your property habitable, to which your tenants are entitled.
Some landlords maintain that their responsibility is limited to delivering a house or apartment that is free from vermin or rodents at the time the lease is signed—and that the tenant becomes responsible from then on. This usually comes up after a tenant has moved in and starts seeing bugs or mice. In many cases, the tenant’s living habits are the problem. Whether it’s leaving food out and attracting mice and insects, or failing to report a water leak that rots out a baseboard, lifestyle can certainly contribute to pest issues. In this case, why would the landlord be responsible to pay for pest control?
However, if you’re an apartment building owner, you know how bugs and critters spread throughout an entire building. It only takes one unit to attract pests that become a problem for everyone else. In this case, the landlord would probably need to get control of the situation—on their own dime.
Pests can either be a huge problem or a non-issue, based on where your rental properties are. Some areas are just buggier than others. Some cities have major vermin problems. If you’re lucky to own rental property in an area that is infested with roaches or rats, you’re likely to spend much more time and money fighting them than other landlords. In warmer climates, property owners often take the initiative to keep cockroaches and other problem bugs under control through regular pest maintenance, like spraying.
Fleas are usually considered the tenant’s responsibility. If you allow pets in your rental properties, you might consider requiring pet owners to keep their animals on flea control. If it’s in the lease, and they agree to it, you’ll have some backing if fleas later become a problem. Flea control is especially important when pet-owning tenants move out. Fleas lay eggs that can hatch and surprise the next tenant. Be sure to have a professional service treat the unit for fleas—and the tenants should foot the bill.
On this site, we’ve covered the importance of clear rental agreements and leases a dozen times or more. And we’ve stated that the relationship between landlord and tenant is strictly a business one. Never does that distinction become more important than when it’s time to evict a tenant.
Even landlords who choose tenants very wisely, who run all the right credit checks and background screening checks, and who have good, professional relationships with their tenants will face the inevitable eviction soon or later. And, if that landlord is a compassionate person, he or she might not feel good about doing it.
This economy has made it tough for everyone. Tenants are losing jobs and landlords are having a hard time filling rental vacancies—there’s no doubt the business has changed drastically over the past year. But even in this economy, landlords must look at eviction as a business decision—hard as that can be.
Is it okay to evict a tenant in this terrible job and rental market? The answer is “yes.” If you’re in doubt, pull out the rental or lease agreement. Read it over. Check off the terms and conditions that your tenant has failed to honor. Remind yourself that when your tenant signed that lease agreement, he or she agreed to abide by each of those terms and conditions. And they agreed that if they broke the agreement, you had the right to take action, including eviction.
You took a chance that the tenant would uphold their end of the bargain, just as you performed all the duties you agreed to. In approving this tenant, you conducted your due diligence, mitigated your risk through tenant screening, and verified employment and tenant credit history. Though it was based in smart business practices, you still took a chance.
When it turns out that the tenant and you both made a mistake in entering into the agreement, then choosing to evict is okay. When it turns out that, despite the best efforts on both sides, the terms of the rental agreement cannot be upheld by the tenant, then choosing to evict is okay. Making the best business decision you can when a tenant breaks the rental agreement is okay.
This is just one reason a strong rental or lease agreement is the foundation of every landlord/tenant relationship.
Communication is a landlord’s most important skill when it comes to filling rental vacancies. Harnessing the power of all types of communication outlets can lead to greater success. Using social media networks is another tool you can consider.
Social media networks include Facebook and Twitter, which attract the most attention and seem to have hundreds of news articles written about them weekly. There is good reason for that—Facebook and Twitter have the most users out of any online communities: 65 million and 23 million respectively.
How would a landlord use these social networks to advertise rentals? Simple. Set up a page for your business on Facebook. Reach out to your tenants, vendors, friends, and associated businesses to become fans or friends. Become a fan of as many local businesses as you can. Update your Facebook page often with information on vacancies, facts about your rental business, or news about the neighborhood. Be interesting, and of course, be professional and confidential—don’t disclose any tenant information or gossip!
On Twitter, it’s easy to create a profile page and start “tweeting.” Use the search tools to find groups of Twitter users in your town or city, as well as real estate people, property management companies, handyman businesses, and contractors. All of these people are good potential folks for you to follow. They’ll follow you back, meaning they’ll receive all of your status updates. And they’ll pass them along to their followers, too.
Besides letting the world know about your vacancies, social networks can help improve landlord/tenant communications. If your tenants see that you’re listening to them, they’re more likely to let you know when they’re having a problem. And contrary to what a lot of people think about social networks, your tenants are not likely to say only negative things about you!
But if your tenants do have an issue, chances are they’re talking about it anyway—wouldn’t you rather know what tenants are saying so you have a chance to address complaints and make things right?
Keeping up with a Twitter and Facebook account can take very little of your time—and the payoff can be great. You’ll expand awareness of your rental business and maybe even find ways to turn problems into opportunities!
Reis, Inc., a real estate research firm just released its 4th Quarter 2009 apartment vacancy report. As expected, vacancies hit 8%—the highest in thirty years. The poor state of the U.S. job market continues to be blamed, as job creation lags behind other positive economic indicators. Young people, who are typically apartment renters, have been hit especially hard in the job market.
A bit more positive is the news that an ever-increasing supply of newly built apartment units is starting to decline—finally catching up with the credit crunch that began in the summer of 2008. 28,000 new apartments came onto the market in the 4th quarter 2009. The total for the year: 120,000, including developments intended for condos that converted to rentals. New apartment supply should fall by half in 2011, and if jobs improve, there could be some rental market recovery by the middle of this year, according to the report.
The U.S. apartment vacancy rate rose .20 percent from the 3rd quarter, and 1.3 percent for the year, ending at 8%. Sunbelt cities like Tucson AZ, and Jacksonville, FL experienced huge vacancy increases in 2009, at 10.5% and 14.4%, respectively. Charlotte, NC and Lexington, KY were also hit hard. Nationwide, vacancies increased in 52 markets, improved in 17, and remained flat in 10.
Not only are vacancies higher than ever, but landlords are experiencing a double-whammy: both asking and effective rents are plummeting. For 2009, asking rents fell 2.3%, also the largest decrease in thirty years; effective rent fell .7% to $964 per square foot.
And while mortgage financing has toughened up, government efforts to enhance the housing market threaten apartment owners, as some renters find it easier to buy a home. In some markets, continued unrest in the housing sector and lower rents will make renting more attractive than buying.
Landlords and rental property owners will likely need to continue offering rent reductions, perks and amenities to entice new tenants—until the job market improves. And when that will happen is anybody’s guess.
Where are landlords required to place security deposit funds in FDIC-insured institutions? Are you allowed to earn interest on your tenant’s security deposit, or must you turn interest over to the tenant at the end of the lease? How long are you legally allowed to hold the deposit after your tenant moves out?
Every state has its own laws regarding how landlords handle security deposits. As a rental property owner, you must be familiar with your state and local regulations.
Here are some general guidelines that can help keep you on the up-and-up in most states. Dealing with your tenants as fairly, openly, and honestly as possible is the first step to keeping security deposit headaches to a minimum.
Interest: In many states, landlords with a minimum number of units are required to place security deposits in interest-bearing savings accounts. Some require separate accounts for each tenant; others allow one account, but no comingling of the landlord’s own funds. If you reside in one of these states, you have the choice of paying the interest at the end of the lease, or for long-term tenants, paying the interest once or twice a year. With interest rates currently low, the total interest earned is not much. We know a landlord who gives his tenants their interest checks each year in December—just in time for the holidays.
Rent vs. Deposit: Do not confuse the two, nor allow your tenants to do so. Rent is rent. The security deposit is meant to cover the property owner’s expenses if the tenant fails to keep the property in good working order or to cover tenant damages. If a tenants gives notice and expects you to keep the security deposit as last month’s rent, you may have grounds for eviction. Clearing up the tenant’s misunderstanding is probably a simpler way to go, however. Tip: be sure to include clear language in your lease about the amount of the security deposit, when and under what circumstances the tenant will receive it after the lease ends, and that it may not be used in lieu of rent payment.
Deductions: A move-in inspection and checklist, compared with a move-out inspection and checklist, will likely dispel any conflicts over deductions for cleaning, repairs, and damages. Conduct the move-out inspection with your tenant. Point out items that must be replaced or repaired. Obtain their signature to prove they were present and agree to the list of damages. Then, be reasonable about costs—recover your expenses, but don’t gouge your tenants.
Time Limitations: Landlords must deal with security deposits in a timely manner after the tenant moves out. It’s not fair to drag the process on indefinitely, keeping the tenant’s money tied up. Do the right thing and deal with damages, send an accounting of what was deducted from the deposit, and include a check for the balance to your tenant as soon as possible. Besides, most states require landlords to supply an explanation within a certain number of days.
Second Chance: Times are tough for almost everyone. Why not be an exceptional landlord and help your good tenants keep more of their hard-earned money? After the move-out inspection, set up a second walk-through to give the tenant a chance to right the wrongs you point out. Most tenants are capable of performing minor repairs and giving the unit a good scrubbing. Clearly communicate your expectations and give the tenant a chance to meet them.
We recommend you also automatically screen all tenants as part of your application process. For more landlord resources, including forms and information on tenant screening, turn to E-Renter.com. .