These nice ladies want to share a new apartment –>

This is different than the situation I described in my last blog post. That covered an existing tenant wanting to add a roommate to share the rent. And, of course, you will have situations when an existing tenant wants to add a roommate for romantic or family reasons. Both of those obviously present different issues.

However, roommate situations from the beginning of a lease present plenty of challenges of their own. You can avoid some of them by setting clear rules and having an appropriate legal arrangement. You will also do better with certain kinds of roommates than others. Note here that I’m not talking about married tenants who obviously (unless they are separated) will be sharing the apartment.

But generally, the best roommates will be those who have lived together before. These folks already know each other really well, and are unlikely to discover unpleasant things about each other that make one of the roomies move out early.

I don’t think you should spend any time at all figuring out how the roommates are going to share the apartment. For example, you don’t really care who uses which bedroom or how they figure out long distance charges. There are excellent Roommate Agreements, arranged strictly between the roommates, which they can find on the Internet.

The simplest arrangement might actually be to get a completely separate lease, with separate payments due, for each of the roommates. In this case, you are treating each roommate as a separate tenant.

One problem with this is that the tenants may earn very different incomes, so that one can afford all or half of the apartment, and the other cannot. Frankly, however, such disparities make for very temporary roommates. Unless they are in a romantic or family relationship, when one roommate depends on another for support, the arrangement almost never lasts.

Another problem is that if one of the tenants moves out, the remaining tenant or tenants still have valid leases. Suppose you have two separate leases, each calling for $450 per month. One of the roommate/tenants moves out. Now you are getting $450 per month, total, for a unit that should bring in $900. And you probably can’t do anything about it.

A better bet, I think is to have one lease, signed by all parties, with one rent payment they are collectively and individually liable for. This means that if you have three people in a unit with a lease for $900 per month, it is up to them to come up with the $900.

Using the one-lease arrangement, the remaining roommates or roommate still owe you the full rent. Realistically in that situation, you’re probably going to give the remaining tenants a chance to find a new roommate. However, this is not something to stress before anybody signs a lease! You want the new tenants to believe they have a financial stake in getting along – that way they will treat the commitment more seriously. And, of course, you may want to evict remaining roommates if one of the original two or three breaks the lease – it may be an opportunity to find new, better, or just better paying tenants.

If you do allow the remaining tenant to find a new roommate, you have two options. One is to have a new lease supersede the old one, but with the new names. Cancel the old arrangement, and create a new one, only if the tenants’ do not owe any rent for the current or previous months under the old lease.

If you're new here, you may want to subscribe to our RSS feed or sign up for our real estate social network. Thanks for visiting!

Tags: apartment, find roomate, housing, rent, renter, roomate, roommates, tenant

Some readers did ask for my rules.  Your rules have to depend on your properties.   For example, there’s no point posting rules for using the pool if your property doesn’t have a pool.  Also, it’s up to you to determine what are appropriate fines.  Just remember to charge more for more serious items.  And, it’s not wise to threaten eviction for the first violation.  I can’t speak for the whole country, but New Hampshire is experiencing relatively high vacancy rates and so we have to love our tenants a bit more at this time.

I’m planning to put updated rules documents on my web site fairly soon, but in the meantime, here are some useful guidelines for rules.

Fire Safety

The following should not be allowed – tampering with smoke detectors, non-electric space heaters, fireworks, or any open flame other than a gas stove installed by the landlord or candles in holders, damaged electrical equipment.  You can order any tenant’s appliance or equipment removed if you deem it unsafe.

Trash and Sanitation

If you have dumpsters, the dumpster company will let you know what is allowed.  If you have trash pickup, the city will let you know.  Tenants must keep trash in closed bags inside barrels with secure lids.  If there is curbside trash pickup, tenants must put out barrels after a certain time and bring them back by a certain time.  The city may mandate a certain type of trash bag.  Impose a separate fine for each separate item of trash (e.g. bag, box or whatever) which you have to take care of because the tenant blew it - plus whatever you are charged.

One problem with this is it can be hard to tell whose trash is left out on the sidewalk.  Make your best guess and wait for denials.  i would be very interested to hear how other landlords “assign” trash.

Parking Lots

Designate specific spaces for each tenant.  The only things allowed in parking lots are registered motor vehicles (cars, trucks or motorcycles) or registered trailers.  Limit maintenance to these specific items – interior cleaning, replacement of small parts such as lightbulbs, adding of fluids such as oil or antifreeze, changing of tires.  Do not allow oil changes.  Do not allow any use of unregistered motor vehicles such as minibikes, scooters or ATVs.

Keys

Do not allow tenants to make copies of keys.  You can order key blanks which are marked with “do not duplicate” and a serial number.  Record the serial number when you give the keys to the tenant (typically one set of keys for each person who signed the lease).  It may be appropriate to offer the tenant additional keys at the start of tenancy for a small fee.

Common areas

If you have common lawns, tenants can use them for outdoor activities, but cannot leave anything on the lawns overnight.  The following are not allowed: fireworks, cooking, weapons, alcoholic beverages.  You may want to allow alcoholic beverages outside in case of a scheduled social event where the tenant asks your permission ahead of time.  All trash must be removed by the end of the event.  Do not permit any use which would prevent other residents from using the space at the same time – that is, anything that would block off an area.

Common area activity is not permitted outside of certain hours (which you may extend on weekends).  Designate which areas are not unit interiors, but are also not common areas (decks and porches, for example).  Activity in those areas may still be prohibited after a certain hour.

Pet policies deserve a book of their own, but obviously pet waste must be cleaned up by the tenant immediately, pets can’t be left outside unsupervised and pets can’t be outside even with the tenant unless they are on a leash.  The simple answer is obviously to ban pets, but this will also really limit your prospective tenants.

Guests

Tenants are responsible for the conduct of their guests.  If the guest of a tenant violates a rule, the fine or penalty will be owed by the tenant.  Any guest who threatens or endangers other tenants will be permanently banned from the property.

Overnight guests

Overnight guests are only permitted for a few nights per month (this is up to you, but I would suggest a maximum of four nights) and one or two consecutive nights.  If the tenant has an overnight guest he wishes to have stay longer, he can negotiate the matter with you.

Maintenance

Tenants must let you know immediately when they have a maintenance issue.  Impose a fine for late notices.  Typically you will not allow any tenant to perform his own maintenance (including painting and small repairs using tools).  You should not ever allow a tenant to perform maintenance on another tenant’s unit, unless a) the first tenant is a licensed contractor working in his field and b) you have a separate arrangement with the tenant to perform the work.

At the same time, tenants are required to keep their units neat and tidy.  Any trash must be bagged and in a barrel with a lid and removed from the unit at the next possible opportunity.  Entrances may not be blocked.

Social behavior

Any threatening or criminal activity is obviously banned.  Tenants are not allowed to put any signs or notices on the exterior of their units.  Solicitation is not allowed.  Tenants may not enter another tenant’s unit (including porches, steps or decks) without the other tenant’s permission.  Even within units, noises above a conversational level are not allowed after a certain time.

It is the tenants’ responsibility to let you know about rules violations, but not to address those violations themselves (by confronting another tenant, for example).  You want your tenants to be informants, not police.

In preparing your list of rules, you should also consider appropriate penalties.  A very few types of violations will be cause for eviction.  These include safety matters such as open flames inside units, as well as criminal or threatening behavior.  Otherwise, you should impose a system of fines, with second offenses commanding higher fines.  Charge more for safety and sanitation issues than for convenience violations.  The penalties as well as the rules must be either in your lease, or referenced in your lease.  Include that more than a certain number of violations in a month will be cause for eviction.

Tags: eviction, landlord, renter, tenant, tenant rules

What Make A Good Renter?

Is a good renter someone with great credit, or large deposit or maybe  high income?  The approach landlords take in qualifying their renter could be changing because of the housing crisis and the large number of foreclosures.

The main objective of renting your home should be to have a qualified renter that will pay rent on time and take care of the home to some degree.  Large deposits can maximize renters responsibilities to the care of your home, but what can be done to help minimize renters late pay or simple non payment and evictions.

The qualifying approach I encourage landlords to take is one similar to underwriting a loan.  The question that everyone should ask themselves before renting their home. Can my renter make the payment on a consistant basis and how?  This question is always answered by employment.  There are a number of way to increase the odds of finding a good renter just by looking at their employment.

Time on the job - The length time at the current employer is the first thing you should look at.  If a potential renter has been employed for a number years this helps build a case that consistant income can help provide for timely rental payments. 

Proof of income - Not only knowing where your renter works, but knowing exactly how much he makes is very important.  It is not out of the question to ask for the last two paystubs and last years W2’s.  While this may seen extreme, you have answered two critical questions.  Does your renter really work and how much do they make.

Debt to Income Ratio - While pulling credit can give you an idea of credit score and repayment history, how are you going to judge individuals that have gone through foreclosures and bankruptcies.  Sometimes a bad borrower is a bad borrower and you need to decline them for your rental,  but in today’s market place you will find more good renters with bad credit than ever before.  My suggestion is to look at credit, income and employment and determined a debt to income ratio .  This will illustrate whether they have sufficient income to cover their rent and debts.

This process is very similar to qualifying for a home mortgage.  It is up to the landlord to develop their own guidelines as to what is acceptable to their market place.  This is a very simple process to help increase the odds of a good renter - check employment, have proof of income, and determined debt ratio.

Tags: Credit, debt, employment, income, landlord, lease, rental, rental-property, renter, tenant

I talk to hundreds of investors every month and there are some thoughts I would like to share with you on my experiences with investors, particularly first time investors.

The question I hear the most for our investors is, How do I to get ready to start investing?

The answer for me is two parts.

1. Are you ready to invest?
2. Are you patient?

The key to investing is to be prepared financially, physically and emotionally.

• Financially - Make sure you have your credit in order and you have an understanding of the financial commitment in order to invest. Understand cash flow, entry strategies and exit strategies for real estate. Have your financial advisor’s in place, loan officer, CPA and real estate attorney.
• Physically - Can you move into your investment at any time? Do you have a property manager? Will there be any work that needs to be done to your property? If you are not ready to get physically invovled with your investment do you have the people in place to help? Have the individuals like property mangers, general contractors, and handyman’s ready to go.
• Emotionally - Does finding a renter stress you out? Do you trust a good deal when you find one? Are you missing all the great deals because you think about it one day too long? The very best real estate deal do not hang around for long. They sell and move quickly because other investors that are better prepared or willing to take more risk move quickly. Investors do not need to be cold as ice to make a deal, having help and advise is valueable. Talk to other investors, Realtors, and loan officers use their experience if your unsure. From a mental stand point investing is not easy. If it was there would be no room for you and me.

Remember to be ready financially, physically and emotionally you have to be patient.

Tags: landlord, lease, real estate, real estate investing, Real Estate Investing, real estate investor, renter

A lot of the investors that I work with have some experience investing in single family homes but they want to know more about some of the advantages and disadvantages of investing in apartment buildings. The following lists are not meant to be exhaustive lists detailing every single advantage and disadvantage of investing apartment building and single family homes. The lists are just meant to reflect some of my own observations on each type of investment property. Also, these lists assume that the investor is buying the apartment building or single family home investment for the purposes of holding over an extended period of time. The lists don’t consider other investment techniques such as flipping.

Advantages of Apartment Building Investments

• Lower cost per unit than single family homes.
• Greater cash-on-cash return. Traditionally, apartment buildings offer a greater return than single family homes.
• Foreclosures! All of the families who have been displaced because of foreclosure are going to have to live somewhere! And most likely they will live in apartments.
• You start profiting instantly. You benefit from positive cash flows from day one. And you can live off that income, so you don’ have to go to a job everyday.
• You can afford a property manager. You can actually cut down your property management costs and headaches by hiring a company that specializes in apartment building management. Never talk to a tenant again
• It is easier to get seller financing. Apartment building owners are generally more financially astute and are more willing to help you finance the property. It is even possible to get 100% financing.
• Apartment buildings can appreciate faster than houses. Strong demand in metro areas with limited apartment vacancies can cause prices to soar.
• Pay HALF the taxes you now pay. Standard tax rates of 30-50% don’t apply. You will be able to pay the capital gains rate of 15% by buying and holding.

Advantages of Single Family Home Investments

• Lower start up costs. The down payment on an investment house can be extremely low. Some investors are able to obtain cash back at closing.
• Financing for single family homes is readily available.
• The acquisition costs are less then an apartment building. Generally, you do not have to perform an environmental survey or pay expensive out of pocket fees prior to closing.
• If your rent is priced right, it can be very easy to keep a single family home rented and to keep vacancy rates low.
• Many single family home investment properties will attract longer term tenants, such as families with kids.
• There is the potential to buy single family investment homes from desperate sellers thereby acquiring the investment at below market value.

Disadvantages of Apartment Building Investments

• High start up costs.
• Larger tenant turnover.
• High maintenance and management costs.
• Generally you will have to put down a 20% down payment.
• Your great FICO score won’t help you very much when qualifying for a loan.
• You need to educate yourself to determine how to identify a profitable opportunity.
• There could be hidden maintenance costs you did not perceive or anticipate that could adversely effect your investment returns.
• High out of pocket fees and expenses are required when qualifying you apartment investment deal with a commercial lender.

Disadvantages of Single Family Home Investments

• The cost per unit is usually higher.
• If you lose your tenant then your cash flow goes to zero.
• Prices in the residential market can fluctuate wildly.
• You may be required to belong to a Home Owners Association.
• Because of the higher unit cost, cash flow is lower.
• Maintenance costs can be excessivEach unit has its own roof.
• The taxes and insurance, per unit, can be much higher.
• The replacement value is higher.

Tags: apartment building, Commercial Real Estate, financing, landlord, mortgage, real estate, real estate investing, renter, SFR, single family home, tenant

In the winter of 2003, I was out driving by properties that I was managing in Minnesota, checking to make sure the tenants were maintaining the exteriors. One of the properties was a four-plex building and the day I drove by was the trash pick up day. Ordinarily, there is nothing noteworthy about trash bags and trash bins at the end of the driveway on pick up days. That day, I noticed there were dozens and dozens of boxes scattered about the end of the driveway.

I decided to get out and gather the boxes and pile them together so the trash collectors would take them. I was a little surprised to find that just about all of them were empty and all of them were the same size. I flipped one around to read the text on one of the boxes and that is when I began to panic. I thought I was facing what no landlord ever wants to encounter . . . A tenant manufacturing drugs in the house.

All of the boxes were marked to have contained 24 pint size bottles of Isopropyl Alcohol. Someone had told me before that Isopropyl is one of the chemicals used to produce Methamphetamine. In other words, I thought I had stumbled upon a “Meth Lab” and was worried that it could explode at any time. Not only would an explosion destroy the unit but it would likely take out the other three units and, God forbid… Residents!

I didn’t know what to do. I didn’t think a “suspicion” would legally justify entering the unit without giving the tenant 24-hours notice. In my mind, I started to think about all of the tenants who lived there and quickly determined which one of them had to be guilty. Lois Coleman (I am not using their real name) had been a problem tenant since I began managing the building. She usually paid her rent late, didn’t have a job that I knew of and when a resident made a complaint… They were always complaints about Lois.

I went back to the office and let the owner know what I had found and we both proceeded to pace back and forth for close to an hour while we tried to determine what we could and what we should do. Neither one of us wanted to even think of what the liability could be if there was an explosion.

Still not knowing the right thing to do, I called the police department where the property was located, which was somewhat of a small town outside of Minneapolis. I asked to speak with someone in the Narcotics Division. When they put me on hold, I joked with the owner that the person that answered the phone was probably running over to another desk to pick up the phone and use a different voice.

When I came off hold, I rambled to the officer about what I had found in the driveway and went on about not knowing how to proceed until they literally cut me off and asked for the property address and which unit. After I gave him that information, he asked me the name of the tenant. I replied, “Lois Coleman.”

The officer quickly said, “Ah… Lois.”

I nearly had an all-out panic attack with the realization that the officer knew Lois on a first name basis. The officer got my name and number and quickly told me he would call me within a few hours and hung up before I could ask any questions. The owner and I paced a trench in the floor while we waited to hear back from the police.

Less than 90 minutes later, the officer called back and calmly said, “You’re ok. There isn’t anything illegal going on in her unit.” Before I could say anything, he added, “If you suspect any illegal activity going on in the future, don’t hesitate to call us.” Before he could hang up I blurted out, “Wait! Hang on, hang on!” I said, “What do you mean, I’m ok? What happened? What did you do?”

The officer said in a rather matter of fact tone, “Oh, well I went out to the property and knocked on Lois’ door. When she opened the door, I told her that I think she is cooking Meth in her unit and asked her if I could come in and look around?”

I said, “And she let you?”
He replied, “Well, yeah.”

I was speechless as he explained further. He said, “Look, one way or the other we are going to find out if she is up to no good. She agreed to let me look around and I didn’t see anything to indicate that she was doing anything illegal. Had she refused to let me in, I would have put a squad car in front of the building and one in back and then I would have instructed you to inform her that you will be inspecting her unit and give her 24 hours notice. She wouldn’t get anything in or out without us knowing about it before you could go in to inspect.”

What that police officer told me that day continues to be the most effective method for finding out if a tenant is doing something illegal in the property and I have found that the police tend to keep an extra eye out for you as well.

That same day I called Lois on the phone and asked her what she was doing with all those boxes. She was very apologetic for causing the fuss and told me that she had been helping her mother move recently and she got the boxes from the hardware store after she asked the manager if she could have any empty boxes.

There never was an explosion but, I sure learned a lot that day.

Tags: drugs, landlord, meth, meth lab, police, real estate, renter, tenant

Simon Lagree Had it All Wrong

Without doubt, being a landlord requires a certain mindset. Before actually owning rent houses, I was certain I didn’t want to participate based on our first experience as tenants. Right after the wedding, the mister and I moved into a lovely little duplex on the edge of town. We stayed 2 ½ years, paid on time each month, never caused damage or broke a single rule. And yet there was no doubt that our landlord was the adversary-he made sure we knew from day one.

When sewage from the entire complex started backing up into our bathroom, his reply was typical of what we’d come to expect. He told us it was a ‘city problem’ over which he had no control. When the excrement seeped through the wall, soaking the living room carpet on a regular basis, he said we’d best get the rent in on time regardless. After 3 months of dookie, we finally left in the middle of a one-year lease. Our loving landlord threatened to sue for the six months remaining and refused to return our deposit.

The Landlord Stinx!

Of course not all landlords are rotten, but enough are that certain stereotypes have grown up around the profession. Just as the words ‘Used Car Salesman’ and ‘IRS Agent’ bring vivid images to mind, landlords suffer from the reputation of being heavy handed, greedy, and suspicious. There’s a certain everyone’s-out-to-get-me mentality that smells up the name.

Unfortunately, sometimes everyone *is* out the get them. Tenants with no respect for private property, governments that assume landlords are milking the poor, state legislatures that want to ensure deadbeat tenants have a place to stay (whether they actually pay rent or not)… no wonder some landlords wind up jaded.

If this were the only way to do business, I’d go back to running likker. But over the years, we’ve found another way… a balancing act of authority and business-like professionalism backed by a well-written lease.

Don’t Smile Until Thanksgiving

I’d like to propose another model based on my first grade teacher back at good ol’ Freeman Elementary, Mrs. Locke. She was ancient–probably all of 30. Her flaming red hair and Yard Stick of Doom had a class of 28 little wildcats quaking in their loafers. She stood over the class, hands on hips and proclaimed her authority with The Look.

She repeated the rules… and repeated the rules… and repeated the rules. And we followed the rules because we respected her. She was not our friend. She was not our pal. She was The Teacher. She could do awful things like send us to the Principal. She could put our desk in the hall where everyone that walked by bore witness to our shame. And if all else failed, the worst punishment of all–The Paddle (which, come to think of, she never actually used.)

Back in the days before smiley-stickers, good teachers knew how to control the classroom without drama. To establish respect, the teacher needed to be seen as an authority figure with actual power. Rules were made, rules were written on the blackboard, rules were obeyed.

Or Else.

So in the same spirit, I present:

A First Grade Teacher’s Rules of Landlording:

• Remember who you are. You own the house. You make the rules. You are The Landlord.
• You are not your tenant’s friend. Don’t pal around with someone you might have to evict.
• Maintain a presence without being oppressive. You either have authority or you don’t. Bluster, swagger and heavy-handed bluff will cause tenants to lose respect (and makes you look silly.)
• The rules are the rules. Repeat the rules, follow the rules, don’t bend the rules-ever. You’ll be sorry.
• Everything needs to be in writing. You can’t send someone to the office without a note and you can’t evict someone without documentation.
• This is a business-act professionally at all times including the way you dress. (Mrs. Locke had the best bouffant hairdo in the whole school…we were very proud.)
• Reward good tenants. You want them to stay, right? Let them know you appreciate the care they give your house.
• Refine your lease as you go. If you find your kiddies are bringing Hot Wheels to class, institute a no-Hot Wheels rule. If you find your tenants park Hot Wheelz on your grass, put a No Hot Wheelz on the Grass clause in future leases.
• Adapt and overcome. Learn from your mistakes. Cut your losses and move on–just don’t make them again.
• Don’t be defined by what you do day-to-day. I ran into Mrs. Locke when I was in nursing school-no missing that red hair. Turns out she had a life outside of first grade. Who knew?
• Remember: People are just people–if they’re honest and trustworthy, they will remain that way once they’re tenants. If they’re liars and cheats they will lie and try to cheat you too-it’s nothing personal.

Which leads to: Nothing is personal. It’s just business.

Random picture of JoJo on the couch that has absolutely nothing to do with landlording.

Tags: landlord, Landlord Tenant, lease, rent houses, renter, tenants