Latest / Cash Flow for Life / Chapter 19: Property Management
Transcript
- 00;00;00;04 - 00;00;26;11 Chapter 19. Property management. Now that you're past the point of finding tenants and getting them into the unit, let's talk about managing the unit and tenants. It's not just making sure your numbers stay in the black and your property is not damaged. It's also about keeping tenants happy and reducing turnover. Tenant relations. Keeping good tenants happy should be one of your main concerns. 00;00;26;19 - 00;00;40;28 Turnover costs money because of lost revenue due to vacancy, having to rehab units between tenants and the need to market for and move in new tenants. 00;00;41;00 - 00;01;06;16 All of those costs are greatly reduced when turnover is reduced. Keeping tenants happy keeps them in the units and they really don't like moving anyway. It usually doesn't take a whole lot of effort to maintain a good relationship with your tenant. When they're happy, they're more likely to overlook minor annoyances and problems, such as your small delay in getting to a dripping faucet. 00;01;06;18 - 00;01;36;23 Like all relationships. Communication is the foundation for a good landlord and tenant relationship, because you may want to check out the interior condition of the units periodically. Approach the question and hopefully get to visit by asking how is it going? Are there any problems? Tenants will see this as concern for their well-being and may invite you in. It's not an inspection then it's a courtesy visit to see if you can help them in any way. 00;01;36;26 - 00;02;03;18 Schedule a visit with your tenant every six months or so. If your lease calls it an inspection, that's fine. The lease and local laws will dictate how often you can inspect and how much notice must be given to the tenant. Always follow your local laws. You're not there to look for clutter or poor housekeeping. You're there to look for damage or violations to the terms of the lease, or local zoning or building code violations. 00;02;03;21 - 00;02;26;01 We usually drop off a card at Christmas and visit twice more, once in the spring and once in the fall, in the spring and fall visits. We do a little maintenance as well. We call tenants and explain that the fall visit is to check faucets and conditions for the winter to look for any water leaks. The tenants will appreciate your maintenance and they'll be happy to let you in to get it done. 00;02;26;03 - 00;02;47;24 You can also do a fire alarm check every 3 to 6 months. You come in, you check the smoke and fire alarms and make sure the unit is safe for the tenants. After you have about three properties, you may want to hire a property manager or handyman to make these visits. Scheduling a handyman to do exterior work, such as clearing downspouts, is a call you can make. 00;02;47;27 - 00;03;13;29 We ask the tenants to please let the handyman in to look for any other problems that can be corrected with the property. The handyman can then report back to us if there are any lease violations or damage issues. Maintain goodwill. We drop off Christmas cards and we give gifts as well. A gift certificate to Home Depot will be appreciated and might benefit you as well. 00;03;14;01 - 00;03;21;04 Many tenants will use it to make some improvements to the home, such as new light fixtures or landscaping. 00;03;21;06 - 00;03;45;19 Goodwill is also a function of repair response time when a tenant calls with a problem. It should be handled quickly and efficiently. Remember, you're not only providing a product, you're providing exceptional service. We target that the small, necessary repairs will be completed within 24 to 48 hours, which is usually not a problem if we have handyman on call ready to go. 00;03;45;21 - 00;04;10;08 If the washing machine breaks, we want to fix it right away to reduce the inconvenience and frustration that our tenants will inevitably have. This is greatly appreciated by our tenants, and we know this because they have told us. Communication. We have found email communication to be invaluable and the best communication connection with our client tenants. Just about everyone uses email. 00;04;10;11 - 00;04;34;29 It's free and it's fast. We remind tenants of their lease expiration dates and keep them informed about maintenance and other activities that may affect their occupancy. Also, consider text message communication. A lot of tenants like to communicate primarily by text message, but just be cautious that some notices will want to be sent via email as a more formal record. 00;04;35;01 - 00;05;01;27 Avoid problem tenants following our instructions and system should help you minimize or eliminate tenant problems. You've learned how to market for tenants, interview them, and handle leasing and moving issues. If you do these things properly, you'll almost never have problems with a tenant. However, we all mess up now and then, and there's sometimes things you just can't see or predict. 00;05;02;00 - 00;05;26;02 You may have made a selection error and that might come back to haunt you. This usually happens in two areas collecting the rent and preventing property damage. Rent collection can be improved by making it easier for tenants to pay rent, even accepting rent via debit cards, credit cards, or even email. Money transfers and direct deposits is one way to simplify the process. 00;05;26;04 - 00;05;45;20 You don't need a fancy machine or a special bank account to do this either. Setting up a business account with PayPal and connecting it to your bank is an easy way. There are also other types of programs and services out there that allow you to take credit cards. Yes, there are some fees involved, but they are small percentages of each transaction. 00;05;45;23 - 00;06;07;02 You can accept all types of credit cards and electronic checks via PayPal. Tenants may run short of cash at the end of the month, so allowing them to float their own loan by paying rent with a credit card is better than getting an excuse and a late rent payment. Debit and credit cards don't bounce, and so you don't have to go to the bank to deposit those payments. 00;06;07;08 - 00;06;26;17 You simply wait until PayPal notifies you of a payment via email, and then transfer it for free with a couple of clicks into your bank account. Of course, you can always accept their checks in the mail or dropped off. Some landlords send a stamped envelope to their tenants ten days before their rent is due, so they can mail in their check. 00;06;26;20 - 00;06;57;22 It's a subtle reminder that this works in some cases. You can take 12 post dated checks and you just bring them to the bank on the checks to the bank day. When the economy is tough and people are scrimping. You want to make rent payments as easy and flexible as possible. If a tenant gets paid twice a month and they tend to run short at the end of the month, allowing them to pay with two payments is one way to be flexible and improve your cash flow as well. 00;06;57;25 - 00;07;22;03 Late fees. Learn what the law allows for timing and amount of late fees, and implement a late fee policy when possible. This policy should be spelled out clearly in the lease. A common method is to have the late fee kick in 3 to 5 days after the rent is due, and for it to be a set percentage of the rent payment, depending on the law. 00;07;22;08 - 00;07;52;24 Charging 5 to 10% of their rent amount may be the way to go. Rent subsidies and tenant rent aid your encouraging tenants to stay in your unit, developing relationships with them and making them happy. So it's inevitable that now and then a tenant will run into financial difficulties and have trouble paying rent in full and on time. It could be due to a job demotion or job loss, illness, layoff or temporary unemployment. 00;07;52;26 - 00;08;19;00 Tenants are in a lease with you and it can be much better for you if you can find them. Some help to get through the rough period. Research the various government read subsidy programs in your area, as these can be great resources for tenants having trouble making rent payments. You should become familiar with any of these programs, and have materials on hand to give to tenants that are in these situations. 00;08;19;02 - 00;08;42;02 We once had a family that had been renting to us for several years, and they fell in hard financial times. They were late on rent several times and it was becoming a more frequent situation. So we looked into available programs and found them rent assistance for a while. However, it became clear that the situation wasn't going to get better and they were in over their heads with the rent. 00;08;42;04 - 00;09;04;03 We didn't honest talk with them, and they admitted they can no longer afford to live in the home. However, we didn't want to evict them, so we got creative and worked out a compromise that allowed them to live there with reduced rent in exchange for maintaining the property and the landscaping. This got them through the summer and gave them time to find somewhere less expensive to live. 00;09;04;05 - 00;09;12;11 It didn't cost us that much at the end of the day, because we had been paying someone anyway to do these jobs that they took over. 00;09;12;14 - 00;09;33;19 Damage policy. We talked about stating your policies clearly in the lease agreement, and a damage policy should be one that is clearly explained. The tenants should be made aware of any actions you will take if damage is discovered. They should know they'll be responsible for the cost and how you'll collect that amount. 00;09;33;21 - 00;09;59;16 Repair and maintenance. Budgeting. As a landlord, one of your primary responsibilities is to repair things as quickly as possible when they break. If you're not a handyman, it helps to at least learn enough to assess the problem and call the right professional. When the professionals arrive, it's good to have enough knowledge to direct them to the problem and answer questions that will help them diagnose and repair it. 00;09;59;18 - 00;10;29;02 Remember our recommendation earlier to attend classes at the home improvement stores, buy books and learn about general construction and electrical and plumbing installation and repair. When we discussed after repair value, we gave you resources to estimate what repairs and renovations will cost. Using this knowledge, you need to prepare and put aside a budget for repairs. You don't want to be caught short and surprised by repairs when tenants move out. 00;10;29;04 - 00;11;00;29 Repair and maintenance costs are part of your business expense. Complaining about more cleanup or repair costs than you anticipated isn't the solution. It's much more effective to plan for repairs and maintenance ahead of time and set aside that money. In general, we set aside roughly 5% of the rental income to pay for repairs and maintenance. This is usually more than enough, allowing us to be okay with the infrequent excess cleanup and rehab for the next tenants occupancy. 00;11;01;01 - 00;11;32;22 The term preventative maintenance is key here. Do ongoing maintenance to keep the property in good shape and help ward off more expensive emergency breakdowns in the future. We even schedule two hardcore cleaning visits each year, with our crew doing a thorough cleaning that includes mopping floors and vacuuming the entire home. This often impresses the tenants and lets them know how serious we are about keeping our properties clean, and a nice place for them to live. 00;11;32;25 - 00;11;47;22 We schedule one of these cleanings just before their lease is about to expire, putting us out right in front of the situation. If they move out because the place is then just a quick light cleaning away from the new tenants moving. 00;11;47;24 - 00;12;14;25 Fire and smoke detector policies. There isn't much worse that can happen to a home than a fire, even if it's isolated to one room. The smoke and water damage can be very expensive. Then, of course, there's your liability as a landlord. If the tenant is harmed or worse, due to a fire, you don't want there to be any doubt that you took every precaution to make the home as safe as possible for your tenants. 00;12;14;28 - 00;12;44;15 Human lives are irreplaceable, and we take fire safety very seriously. One thing that we insist upon is that our fire and smoke alarms be interconnected between the home levels. If there is a basement, first floor, and second floor, the detectors on all levels are wired together to go off simultaneously. If people are sleeping on the second floor, it can be easy for them to sleep right through a fire or smoke alarm going off in the basement. 00;12;44;17 - 00;13;17;03 While some municipalities and building codes have made this interconnection of alarms mandatory, we do it anyway, whether it's required or not. Immediately upon purchasing a home. We have fire and smoke alarms installed and wired together. We also make sure that they're hardwired into the homes electrical system to get around any dead battery problems. Every visit we or our handyman make to the property, we check the detectors with their test buttons to make sure that they are operating properly. 00;13;17;05 - 00;13;45;28 Hush smoke alarms. You've probably experienced the stovetop grilling stake smoke alarm fiasco. The piercing sound is very annoying, so people's first reaction is to remove the batteries so the alarm will shut up. We don't want this to happen because they often don't put them back to counteract this. We install hush alarms. They have a special button that will silence them for 15 minutes when the occupants air out the home. 00;13;46;01 - 00;14;13;16 This keeps people from removing batteries and forgetting to put them back in. When you have hush alarms, make sure you show your tenants how they work and you teach them so that they actually use the feature. Not only do we try to inspect detectors and alarms every 60 days or so, we document these inspections in our files. We want to have clear evidence that we've taken every precaution to make our dwelling safe for our tenants. 00;14;13;19 - 00;14;42;25 If you have a number of units, you may want to hire a fire management company, which will charge a nominal monthly fee to oversee the operation of all fire and smoke detectors. Having them make the regular inspection visits, should there ever be a fire, and the tenants complain that you didn't take adequate precautions. You'll have ample proof that you actively engage in the right activities to ensure their safety and the safety of their personal property. 00;14;42;27 - 00;15;09;09 Smart key the Smart key system is one of our best tools for both security and cost savings. You can buy this system in most building and hardware supply stores. All of our house locks are programable with multiple properties. This is a great cost saver because we can simply Rickey and program our locks ourselves instead of the cost of absolutely replacing them. 00;15;09;12 - 00;15;36;19 It's a system of rotating keys with 6 to 8 different keys that can be programed into different locks, and we often don't throw keys out. We can rotate them through our properties by wrecking the locks as tenants move out. We keep records for each house and make sure that when keys are reused, they're in a home in a different neighborhood every 8 or 9 years will end up rotating through all sets of keys. 00;15;36;22 - 00;16;13;06 Other expenses. Owning rental property brings with it other expenses insurance, taxes. Renovation permits, utilities, condo fees or fees. These are necessary components of managing your rental property business, and you'll want to be very aware of how much you'll need to budget for them, as well as ways to minimize them when possible. Insurance. Well, anyone who has owned a home with a mortgage will be very aware of the insurance required by the mortgage company. 00;16;13;08 - 00;16;48;14 There is another level or two of coverage for rental properties. Higher premiums will result due to extra coverage for rental property insurance. The landlord is covered for loss of rents if the property is damaged and can't be rented out for a period of time. Appliances and the structure are covered, but not the personal property of the tenant. Liability coverage is extremely important because your tenant could seek to gain money from you for accidents outside of your control, such as slipping and falling on the property. 00;16;48;17 - 00;17;22;20 Develop a good relationship with your insurance agent team member. He or she can help you get the coverage you need at better rates as you build experience. Taxes. Property taxes come with property ownership. Never rely on tenants to pay property taxes, because failure to do so will ultimately result in the loss of the property. If you have a mortgage, it's likely that the lender will require escrow payments to have the tax money available, and we'll use it as a servicer to pay the taxes to protect the investment. 00;17;22;22 - 00;17;50;04 Taxes go up, but they rarely go down there based on a valuation assessment by your local tax assessor, who can revisit the property assessment at any time, especially when the property values are increasing. Sometimes taxes are assessed based on an annual phase in schedule. Find out how it works in your area. Your improvements of the property can also result in increased valuation for tax purposes. 00;17;50;06 - 00;18;15;16 You should always document your improvement expenses for tax purposes because they are normally deductible against rental income. Often, the tax assessor will look at pulled building permits and based your increased value on the building permits that you've completed. Utilities. If you have a duplex or a multiplex properties using common meters, you will normally be paying the utilities for the tenant. 00;18;15;18 - 00;18;40;17 However, if each home or unit is separately metered, you'll want to have your tenants pay their own utilities. First, it makes your rent look more appealing because you do not have to advertise rent at higher numbers to account for your utility bills. However, there's another reason for wanting your tenants to pay their own utilities. They pay attention to their usage when they have to pay that bill every month. 00;18;40;20 - 00;18;49;09 Having the utilities as a part of their rent tends to lull them into complacency about how much they're consuming. 00;18;49;11 - 00;19;17;12 Permits cities and other municipalities enact building permit legislation for several reasons, but primarily for safety and tax revenue. Though not necessarily in that order. While you may be able to replace flooring or paint walls without a permit, you'll definitely need one for electrical or construction projects. Visit your local building or zoning department and pick up material about the permit process and regulations. 00;19;17;15 - 00;19;46;03 Always being compliance because fines are always more than permits. Building codes are often regulated at the state or provincial level. Condominium fees. By nature, a condominium project has a lot of common area space, and the condo board will be tasked with the maintaining the property. There is a monthly fee assessed to each condo owner to keep the condo building, maintenance and management functions funded. 00;19;46;05 - 00;20;07;23 There will also be a requirement for funds to be in reserve for major projects like the roof. Condo fees do have their benefits, though. Usually they include insurance on the structure's exterior, the roof, the grounds. In common areas, water and sewer charges are also typically paid out of the condo fees. 00;20;07;25 - 00;20;28;09 Handyman. We've already talked about having a handyman or two on your team. This is a cost of doing business and a necessary one. You must respond to tenant repair and requests quickly and efficiently, and you also want to do regular maintenance to keep the properties in good condition. 00;20;28;11 - 00;20;50;23 Even if you try to do most minor repairs yourself. You will not always be available. You know you got to take a trip or vacation now and then, right? Have a handyman on call to take care of the small problems before they become big ones. More on move outs. The way that you handle move outs can save you a ton of money. 00;20;50;25 - 00;21;15;01 A couple of weeks before a tenant is due to leave, we visit the property to find out what's in store for us. If it's a disaster zone or if the tenant has a lot of stuff we know we're in for not only cleanup, but possibly disposal of items as well. We try to offer incentives to our tenants to get them to do as much as possible towards getting the unit clean. 00;21;15;03 - 00;21;36;23 If we can incentivize them to do a chunk of the cleaning while they're still in the unit, it can save us a couple of days of vacancy after they're gone. Offer a dumpster A dumpster costs money, but it can be well worth it if the home is full of junk. It's likely that the tenant will be leaving a lot of it for us. 00;21;36;26 - 00;22;02;16 We offer them a dumpster if they'll agree to leave nothing in the unit when they leave. The cost of the dumpster is a great trade off for the labor we're avoiding, and cleanup costs, as well as the loss, time, and vacancy. Letter of recommendation. We had a family that rented out one of our properties for several years. They were good tenants who never caused any problems in always paid their rent. 00;22;02;18 - 00;22;32;14 Their family was growing and when a third child arrived, they needed to find a larger place to help them find a new home. We offered to give them a letter of recommendation to show to prospective landlords. They were touched saying, wow, we've never been offered a letter from a landlord before. When they moved out, we stopped by our property and found that the place was spotless, requiring almost no work on our part to get it ready for the next tenant. 00;22;32;16 - 00;22;44;12 That letter, taking just a few minutes of our time, saved us the entire cost of hiring the cleaning crew, and got our next tenant into the unit sooner. 00;22;44;15 - 00;23;06;09 Pay tenants to clean. In one instance, we had a home with multiple tenants, and our visit prior to the end of the lease turned up. The fact of the house was pretty much a cluttered mess. We told them that if the house was empty and clean when they left, we'd give them each $50. It was, and we did. 00;23;06;14 - 00;23;37;15 We got a clean house condition and deposits. Earlier we discussed damaged deposits and the importance of a good policy of move in and move out inspections and checklists. This is crucial to minimizing damage and will also help you get compensated for as much damage as possible when it occurs. The lease should make it crystal clear with a list as to what is considered wear and tear and what is considered damage. 00;23;37;18 - 00;23;59;28 Normal wear and tear is not damaged, and we consider that a part of our normal cost of doing business, so we take care of that out of our own expense. We expect the tenant to pay for damage out of their damage deposit. Let's look at some examples for a carpet. Normal wear and tear is a little dirty and little worn down in spots. 00;24;00;06 - 00;24;14;01 Damage would be cigarette burns or major stains for walls. Normal wear and tear would be small furniture, scrapes or scuffs. Damage would be large holes. 00;24;14;03 - 00;24;45;14 For appliances. Normal wear and tear would be something like loose handles or knobs. Damage would be broken or missing. Handles or knobs for an item like tile. Wear and tear would be the grout between the tiles. Cracking. Damage would be broken tiles. Deposit refunds be very clear in the lease about what constitutes damage. Specify any situation that could result in your retaining part of their deposit. 00;24;45;16 - 00;25;20;13 Check your local laws to see what you can and cannot do in this regard. We try to arrive when the tenants are almost complete with their move out process, and look over the unit right then using the inspection checklist. One example we've encountered of an on the spot negotiation of deposit is a couch left in the home. We inform the tenants that the least states that all personal belongings must be removed, and that we can charge up to $50 per item for furniture items left in the home that we must remove. 00;25;20;15 - 00;25;44;13 This normally gets their attention and they remove the item. Look behind that poster. Do a very thorough move out inspection with your checklist in hand and get it signed by the tenant. Here's some experience we can share. Once we had a move out in which we went through the property while the tenant was still there, a couple of posters on the wall went unnoticed. 00;25;44;15 - 00;26;10;25 Also, the light in the basement was burnt out, so the inspection was done with just the light from a couple of small windows, but mostly in the dark. After the tenants had gone and we had refunded their deposit, the cleaning crew came in and found two large body sized holes behind the posters. When the light bulb was replaced in the basement, it was discovered that the carpet was ruined black and beyond repair. 00;26;10;27 - 00;26;34;26 The cost to repair these problems was around $1,200, a number we still remember to this day. And a really good lesson for you. Eviction. One of the benefits of following our systems and our mentorship, is the probability that you're less likely to have to do an eviction. Doing certain things right will help you avoid ever having to deal with an eviction. 00;26;34;28 - 00;27;09;11 Remember to have a good tenant interview checklist and procedures. Prepare a thorough tenant application thoroughly check out references, employment information and credit history. Use a strong lease that makes all rules and rent payment procedures and timing very clear. Check out the tool we like at WW w very fast.com for a unique way of qualifying tenants. Even if you do all of this right, you may still have a tenant who becomes chronically late with rent. 00;27;09;14 - 00;27;35;06 Getting behind one or more months or tenants might annoy the neighbors to the point that you could lose other tenants. If so, eviction may be your only recourse. In Canada, the eviction process can be difficult and time consuming, depending on the province that the property is located in. Knowing the law and your provincial rules is very important when you initiate any eviction process. 00;27;35;09 - 00;27;59;27 In the United States, there are many federal, state, and even local laws that protect tenant rights. We mentioned learning about those earlier in this book and even running your planned procedures past your attorney. The process of eviction can take months and require a lot of paperwork and hassle. This is all the more reason to perfect your tenant selection and property management process. 00;28;00;02 - 00;28;08;04 To avoid the situation altogether. Property management companies. 00;28;08;06 - 00;28;33;10 As you add to your inventory of properties, you may find that a good property management company is well worth the money you pay. The company will take over most of your headaches and present a more professional image to your tenants. The property management company can take over every phase of the business, including meeting and interviewing tenants. It will do the reference and employer calls and get the leases signed. 00;28;33;13 - 00;29;06;09 It will collect in forward rents and work with late paying tenants as well. Property management companies can present a comfortable image to your tenants because they are dealing with them in a professional office. Tenants also believe that property management companies will have more properties to show them, even if they're contracted to show only yours. If the prospective tenant is solicited through your marketing, property management companies keep up with local landlord and tenant laws and should always have the right legal forms and contracts. 00;29;06;11 - 00;29;36;02 They are trained to deal with problem tenants, and they have experience in the eviction process and doing it legally. If you have the resources, you should consider using a property management company, or you can just build it right into your initial ROI and cash flow calculations for the property before you purchase it. You should do this if you want nothing to do with the day to day management of your properties, because their fee is usually 5 to 10% of the rents collected. 00;29;36;04 - 00;30;09;07 Action steps. Look again at forms, checklists, applications, and leases with an eye towards clarifying what tenants need to understand about the rules. Run through our example situations in this chapter and come up with some of your own. Check your lease documents to make sure it's clear who is responsible for what. What's next? You're now familiar with the entire process from marketing through tenant selection. 00;30;09;08 - 00;30;38;04 Move in management and move out. Mastering these practices and working with us will ensure your success with your first property. This will get you excited and you'll want to grow your business right away. What's next? You're now familiar with the entire process from marketing through tenant selection. Move in management and move out. Mastering these practices will ensure your success with your first property and your properties beyond that. 00;30;38;06 - 00;30;54;29 This will get you excited and you'll want to grow your business right away. In the next chapter, we'll talk about business, sustainability and managed growth. And if you want to learn more about how we can help you, you can always learn more about our one on one coaching programs at Key spire.com.