Sharing my reading notes - Managing Rental Properties by Brandon and Heather Turner

[Jessica Yuan]

Hey everyone, I've recently finished reading The Book on Managing Rental Properties by Brandon and Heather Turner. It is an amazing book that clarified many questions I had about running rental properties and provides actionable advice. I'm sharing my reading notes below for anyone interested in a summary: 

Seven Things to Do Before Signing Your First Lease

⦿ Consider asset protection

⦿ Get insurance

    ☞  “full insurance coverage”: cover the entire cost of rebuilding your property should something drastic happens.

    ☞  “actual cash value”: cover the loan only in a bad situation.

    ☞  Liability coverage: protects you if you were to get sued.

    ☞  Umbrella insurance policy: extend above the property insurance policy limits.

⦿ Set up a bank account

    ☞ checking account: income and expenses

    ☞ savings account: hold the security deposit

    ☞ you might want to order actual, physical checks for your checking account. Many of the contractors and vendors you will be paying will not accept cards.

⦿ Gather forms and documents: rental application, acceptance letter, deposit receipt and deposit to hold, denial letter and adverse action letter, lease agreement, rules and regulations, pet addendum, move in and move out checklist, lead-based paint pamphlet, and disclosure and certification, other state required forms, legal notice to pay or vacate, legal notice to comply with lease, notice to enter property, move out instructions, disposition of deposits

⦿ Create a policy binder: company mission and values, company managers/owners/employees, telephone standards (hours, expectations, etc), list of all properties, addresses, mortgage companies, and insurance companies, the application process, minimum standards for tenant approval, tenant screening process, rental collection practices, rent extension process and late fees, security deposit process, basic lease terms, pet policy, smoking policy, vacating tenant process, turnover process

⦿ Get to know the neighbors

⦿ Set up bookkeeping

Fair Housing Laws

⦿ Simply asking the age of children can get you into hot water when screening for or renting out a property. Instead, we request the dates of birth for all persons living in the unit.

⦿ It does not apply to:

     ☞ owner occupied residential properties.

     ☞ owners with < 4 single family homes at the same time and don’t use any sort of advertising or listing broker.

⦿ Fair Housing Act requires that you accommodate reasonable requests for changes in rules, policies, practices, or services, and that you accommodate the tenant should they have a reasonable request to modify the dwelling or common areas, at their expense.

⦿ Landlord may ban all smoking on their properties except medical marijuana.

⦿ Federal law prohibits landlords from discriminating against prospective tenants who have a felony conviction for drug use. Why? Because drug or alcohol abuse is considered disability. Note that this only concerns drug use, not drug sales or manufacturing.

⦿ Your qualification standards should be based on valid business reasons. For example, you can set an income requirement of the minimum income your potential tenant must make to be accepted.

⦿ Keep excellent records, it will protect you in the event a discrimination charge is brought against you. Keep files for “Prospective Applicants”, “Denied Applicants”, “Current Tenant”, “Past Tenant”.

⦿ Penalties:        

     ☞ Compensate for actual damages, including humiliation, pain, and suffering.

     ☞ Provide injunctive or equitable relief, such as making housing available to applicant.

     ☞ Pay a civil penalty of max $16k for first violation and $70k for a third violation within 7 years.

⦿ Do not include “perfect for families” in your ad, rather, if you are marketing to a family, highlight the parts of your rental or neighborhood that makes it perfect for a family.

⦿ Section 8 is a protected class in some areas, so do your due diligence and make sure you’re not violating Fair Housing Laws before making any decisions.

Tenant Screening

⦿ Minimum qualification standards:

     ☞ Income must be 3x monthly rent.

     ☞ good references

     ☞ can’t have evictions

     ☞ pass credit requirements

     ☞ pass background check: rentprep.com, cozy.co, mysmartmove.com

     ☞ Establish non-smoker requirement

     ☞ Establish no-pet requirement

     ☞ Establish a reasonable occupancy limit, 2 per bedroom.

⦿ Eleven most common questions asked by tenants:

     ☞  “I can pay 6 months upfront, can I move in this weekend?” — usually it means they are aware of something that will affect them negatively in their background, and they are hoping the dollar signs will dissuade the landlord from properly screening them.

     ☞  “I know you said you don’t allow pets, but would a small dog be okay?” — ”I’m sorry, but this home is strictly a pet-free home” 

     ☞  “Can I pay my deposit in installments?” — “Our policy states the security deposit must be paid in full prior to getting the keys. Do you have any family or friends who could lend you the funds?”

     ☞  “Can my due date be the 15th?” — “No”. As your portfolio grows, you will regret allowing your tenants to have different due dates.

     ☞  “I’m in a hurry, can I pay the rent and move in today?” — “You are certainly welcome to fill out our application , and after it has been properly processed to ensure you meet all our qualification standards, we would be happy to discuss your move-in date in a couple of days.”

      ☞  “My boyfriend/mom/sister wants to live with me, but I don’t want them on the lease. Is that okay?” — “Anyone over the age of 18 living in the home must fill out an application, meet our screening requirement, and be on the lease”. What if the tenant moves and their roommates stay? You are left with a legal tenant with whom you have no contract.  
     ☞  “What if I don’t meet all of your criteria?” some issues, such as a lack of rental history, can be compensated by requiring additional securities or a cosigner.

⦿ Getting references from previous landlords

• ☞  Did tenant stay for stated period?
• ☞  What was the monthly rent?
• ☞  How much of the rent did the tenant normally pay?
• ☞  Did the tenant always pay rent on time?
• ☞  Did the tenant keep utilities on and paid in full at all times?
• ☞  Did anyone else live with the tenant?
• ☞  Did the tenant ever receive any legal notices?
• ☞  Did the tenant have any pets?
• ☞  Did the tenant maintain the home in good condition?
• ☞  Did the tenant give proper notice before vacating?
• ☞  Did the tenant receive their entire deposit back after vacating?
• ☞  Would you rent to the tenant again?
• ⦿ Legal lease agreement: www.ezlandlordforms.com, www.uslegalforms.com, www.rocketlawyer.com
• ⦿ No sub-letting on lease agreement

Tenant Management

⦿ If there’s one simple piece of advice in this entire book that you should listen to: always follow through with late fees.

⦿ #1 reason most tenants are late on their rent is not because of an emergency or some unforeseen necessary expense, but because of priorities. They are late because paying rent on time has not been made a priority. 

     ☞ If tenants plan ahead and communicate, can also rent extension up to 10th for a $20 penalty.

     ☞ For example, June 26th come around, and the tenant realizes that they have a full week until rent is due, and they realize they need that money for something else, so they say, “I’ll spend this paycheck and use the next one for rent”. But the next one doesn’t come along till July 10th, so the tenant calls “my rent is going to be late because my paycheck doesn’t come until Friday”.

⦿ Periodic inspection, 6-month rotation. Be sure to remedy any problems found during the inspection, including damages caused by the tenant, so your tenant knows you are not the type of landlord who will allow their property to be treated poorly.

⦿ If you allow your tenants to pay via personal check, you are bound to run into a bounced check, aka NSF “not sufficient funds”. It can take up to a couple weeks to receive notification that it bounced.

Tenant Issues

⦿ Abandonment: a rental is referred to as “abandoned” when the tenant defaults in rent and implies, by words or actions, that they have moved. Upon discovering an abandoned unit, the landlord has certain legal steps must take before re-renting the property. The last thing you want to deal with from a tenant who abandoned the unit is for them to later accuse you of stealing or losing their previous family heirloom.

⦿ When a tenant dies: landlord should secure the premises and attempt to get in contact with the executor of the estate, since the rental becomes the estate’s responsibility at this point. The landlord should not give anyone access to the tenant’s personal belongings unless they are the executor.

⦿ Dealing with drugs: several signs that can indicate there’s a problem:

☞ begin paying rent later and later, fall behind on utilities, neglect housekeeping

☞ have multiple visitors at all times of the day who come and go quickly

☞ use extreme security measures

☞ keeps their blinds or curtains closed at all times

☞ exhibit illogical behaviors

⦿ 10 common lease non-compliance

☞ junk outside

☞ unapproved roommate

☞ smoking: smoking can cause thousands of dollars in damage to your property. it can ruin the carpet and paint with the smells.

☞ bugs: bugs are frustrating because most of the time they are caused by your tenant, by the tenant will never believe that. Some landlord will include a clause in their lease stating that the home is bug-free at the time of move-in, and any pests discovered in the home after so many days of occupancy are the tenant’s responsibility to remedy.

☞ Mold: across the country, tenants have won mutimillion-dollar cases against landlords for significant health problems, such as rashes, chronic fatigue, nausea, cognitive losses, hemorrhaging, and asthma — allegedly caused by exposure to “toxic molds” in their buildings. Explain to tenants that mold is most commonly caused by steamy showers, furniture against walls, and leaky pipes, ceilings, faucets. If they don’t report a leak that results in mold growth, this falls under the category of avoidable damages, most likely making them liable for the expense of remediation. Encourage your tenant to run the bathroom fan at least one hour after every bath, and run their kitchen fan while cooking. If the tenant’s bathroom or kitchen does not have a vent, install one.

☞ Complaint. If you have a multifamily property that the upstairs tenant have children who continually walk around the floor, bothering the tenant below, what can you do? you can’t tell the upstairs tenant to tie their children up, and asking them to leave because of their kids would violate the Fair Housing Laws. People will always complain, and it’s your job to decide if the complaint is warranted and worth trying to solve.

⦿  Evictions.

• ☞ Find a good attorney, you can find one by calling your local county administration building and ask to speak to the person in charge of evictions. When you get them on the phone, ask them which attorney files the most evictions in your area. They would likely be a good attorney to talk with.
• ☞ Step 1: post or deliver a Pay or Vacate or Notice to Comply. Mail the notice with “Certified, with Return Receipt” so you can prove the document was delivered.
• ☞ Step 2: file eviction with the court.
• ☞ Step 3: the lawsuit is served by a third party.
• ☞ Step 4: set the court date. In Northern states, evictions during the cold winter months can be put on hold until warmer weather. ☞ There’s simply not a lot you can do about that.
• ☞ Step 5: schedule with the sheriff.
• ☞ Step 6: remove the tenant.
• ☞ If you are to evict a tenant without a rental contract, in most states, they are treated the same as a tenant on a month-to-month lease.
• ☞ Evictions can take up to $5000

Dealing with contractors

⦿ Ask if they are licensed, bonded, and insured, and if they are active, if they have any infractions, if they have any lawsuits against their bond.

⦿ How to find great contractors

☞ personal referrals

☞ other contractors

☞ ask store employees who they would have work on their houses

☞ Go to home stores at 6am and see who is checking out contractor’s desk. These are typically the go-getters who are up early to get their supplies to the job site. You don’t typically see hungover contractors at that time of the day.

⦿ Screen contractors

☞ ask general questions: how long have you been in this line of work? what skill would you say you are the best at? how many employees work for you? how busy are you?

☞ Google them with their name and keywords such as “scam” “rip off” “sue” “court” “evil”

☞ ask for reference

☞ hire them for one small task before hiring them for a large project.

⦿ Manage contractors

• ☞ know when to use bids vs. hourly pay
• ☞ sign a contract
• ☞ be clear with instructions
• ☞ pay them at the end, verify all work before paying
• ☞ ask for invoices
• ☞ get a lien release signed. When a client doesn’t pay a contractor, that contractor can place a lien on the property they were hired to do work for, making it difficult to ever sell the property until they are paid. This is contractor’s lien or mechanic’s lien. Therefore, when a large rehab project has been completed, always get the contractor to sign a lien release form that states the bill has been paid in full, and the contractor releases their right to file a lien on the house.

When tenant moves out

⦿ When tenant tells you they are moving, it’s important for them to give you their notice in writing.

⦿ If your tenant is in military, and they get reassignment or deployment orders, they may be allowed to break their rental lease without repercussions.

⦿ Never allow the tenant to use their deposit as the last month’s rent. Make sure your lease has a clause that states that the deposit may not be applied toward rent at any time.

Business Organization

⦿ keep track of miles you drive for business, they can be deductible.

⦿ Have separate bank accounts, savings account, and credit cards for each property.

⦿ Itemize income and expense based on IRS Schedule E.

⦿ Reconcile with your bank. make sure the numbers line up between your bookkeeping and bank statements to prevent double charging.

Some other notes

⦿ Estoppel Agreement: The buyer to verify the terms of the lease with the tenant before purchasing the property. This prevents the seller forging the leases.

⦿ Recommend finding the official landlord-tenant laws for your state, printing them out, and reading them, highlighter in hand. Yes, they might be long—but so are lawsuits.

⦿ For any US property built prior to 1978, the tenant must be given a Lead Paint Information Pamphlet from the EPA.