All Forum Posts by: Jeff Takle

I take checks for security deposit. Everything has to clear PRIOR to them taking possession of the house, however. That means I take security deposit and first/last month's rent and any other fees up front, cash them, and then give it 4 days to clear. Any bounces and they're gone. If they can't pay to get in the place, i can't trust them to pay rent.

Once everything clears, they get the rental deposit receipts and the keys.

RE: taking a check for the rental application. I take them. I do the background check, etc. and will even meet to sign a lease, and take security, first/last, etc. However, if that check bounces, they're out and the lease is null and void b/c they violated the rental applciation policy, which requires payment of the fee. That makes my lease null and void too. And they're gone with no second chances. Again, if they bounce a check on a rental app, they're no good. And NEVER GIVE THE KEYS until everything's been deposited and you've had 4 days after that for the payments to clear.

The best way to defend yourself against problems with this is to have a written tenant screening policy and provide it to every applicant. It lets them know if any check bounces during the process that they're automatically disqualified. If people think you'll check and won't give them keys until everything's cleared, they don't waste their own time.

Most people don't have a written policy and as a result, tenants think they can wiggle their way into a property before you'll catch the problem.

If you want a very solid free Tenant Screening Policy, PM me or email me. My company had one developed a while ago and it's great. No reason not to share.

-Jeff

I'm not aware of such a service. I suspect that it's only possible (if at all) for property owners with: 1) a lot of property, say over 1,000 units; and 2) a long and very well documented history of payments / rents. The financial industry, at least the traditional large financial industry, wants to see a lot of data and be able to ascertain with reasonable certainty your long term delinquent rent rates, eviction rates, fees, rent increases, operating costs, and your (or your company's) personal financial picture and stability. In other words, how risky is the note?

However, if you have a number of properties, you should consider at least opening a sweep account and floating the money for a short period. It's good practice to have different operating accounts for all your properties, but if you reach critical mass in terms of rentals, you can gain significant benefit from temporarily pooling all rents into a central sweep account. Delay moving it to the specific operating account for, let's say 7 days. If you have 100 units @ $1,000 each, then it's the equivalent of getting 7% return * 0.25 (1/4 of year) * $100,000 = $1,750 additional revenues. That's real money you may be currently forfeiting to the bank holding your separate accounts. Now, if you have 500+ units around a major city where rents average $1,500...

Talk to several banks and let them know you also need to open deposit (escrow) accounts for each unit's security deposits (in this example, another $100,000 in security deposits) and you want to open $200,000 in deposit accounts + operating accounts at some lucky bank. You should turn their heads. Banks can turn around and through the Federal Reserve, leverage that money 9 times over...in other words, they can take your 200k in deposits and make $1.8M in loans from it. They're taking 7% on your mortgage...I say take some back.

Your is an interesting idea...I'll noodle on it and shop it around and see if anyone has thoughts. Lots of fun options. -Jeff

Nolo and the Landlord Protection Agency both have free links to state-specific landlord tenant laws. http://www.nolo.com/statute/state.cfm
http://www.thelpa.com/lpa/lllaw.html

Landlord tenant "knowledge" amongst novice and pros alike is often based on myth, hearsay, and guesses, rather than legitimate information. You are doing the right thing by seeking out the source of the law for your state and local area. I had an entire room cry foul when I described my late fee program in Massachusetts, claiming I violated the law and that late fees were not allowed; a few seconds later on my PDA, I downloaded the specific statute the allowed precisely what I did. Emailed it to them for the next month's meeting and most members shrugged it off, something like "that's what I thought it probably was..."

Most books are written generally so they can apply (and be sold) across all 50 states, which guarantees that they are not specific enough to be able to trust their guidance for your state, county, and city. Check with your mayor's office, bureau of consumer affairs or something like that, or the state level too.

Perhaps the single fastest, and best place to look is at your local TENANT ADVOCACY group! They have more hard information and case law handy than you can shake a stick at. You might even get on their good side if you talk to them before you have a problem!

Get the real data and don't trust your investments to hearsay. Good job!

I used Vonage for 3 years and overall, I agree with everyone's comments. The call quality has gotten consistently better over time. However, I would still occaisionally get a huge echo, dropped calls, etc. Frustrating but I was willing to suffer for the savings.

When my company started to expand, I looked into Vonage's business lines and, guess what? They're exactly the same with basically identical features but...oh yes...it costs more. So, I looked around, asked for suggestions, etc.

Ended up at Packet8. Their business line features are phenomenal and miles in front of Vonage. Multiple lines, virtual attendant (Hello you've reached company X, for sales dial 1, tech support dial 2, etc.), and makes it a great match for a virtual company -- one where people are in many different states. Provides unified numbers, toll free, robust conference call center for teleconferences, etc. It's a bit more expensive than Vonage but the features are light years ahead.

That got me thinking about Vonage and after the way they handled their IPO, overvaluation then going back on their word with buyers, improper trading, and now the Verizon suit for patent infringement, you may want to look around first. Everybody knows Vonage because they spend $250million in advertising each year -- precisely why the company has NEVER TURNED A PROFIT. EVER. I am now quite happy at Packet8.

Actually, I think 1.5 hours away is CLOSE! It's something you could drive to if you had to. If you can get $400/month in rent, then you're getting nearly $5,000 / year in revenues. You are likely to have maintenance issues 2-3 times a year on average. Would you drive the 1.5 hr trip 2-3 times a year for $5,000? I would.

Find a local plumber, electrician, HVAC and handyman. Keep their numbers handy. I provide them the tenant's name and phone number when there's a problem, set some guidelines about what I'll pay and what needs a call back prior to work being done, and then have the tenant and maintenance person arrange the time to do repairs. I get billed directly from the maintenance person. This is no harder than paying your own electrical bill--the company is somewhere else and they provide a service to a property.

I see no problem and certainly wouldn't sell it just because it's "too far away."

You don't have to be next door. Look up the local sherrif and give them a call. They all have email. Pay them over the phone with a credit card and give them the details for the notice on email. Best $24 you'll spend in the whole potential eviction process.

I've done this 500 miles away from my property in Virginia. Easy.

Just to correct something Michael said way in the beginning. The law for lead based paint is anything built before 1978, not 1975, but you're right; we need to provide them a disclosure statement and the lead based paint pamphlet.

Both of these forms can be downloaded at the HUD site. Google HUD lead based paint.

States can also have their own requirements. Massachusetts (shocker) has a 13-page info packet you have to deliver. Good luck finding it online, too! Ha. Love this state...

Like noobdog said above, you will have to register your LLC as a "foreign corporation" with each state in which you do business, but you don't need to form new LLCs. In fact, the paperwork nightmare is prohibitive to do so if you're in several states. Think about this: Ford motor company doesn't incorporate in every state but they operate in every state--pretty much every major company deals with this. They do, however, have to register in each state, so that the state can get its grubby little hands on the tax revenues for business generated within its borders.

To transfer properties to your LLC, you simply "sell' the properties to the LLC. If you own the property outright, then it's a snap. Sell for $100, re-record the deeds, etc. Find a real estate attorney / title company that will close it for you. If you have mortgages, then it's not as easy. Banks don't like their mortgages going to things (LLCs) that don't have any assets or proven track record of revenues. You will certainly have to personally guarantee the mortgages, which keeps you personally on the hook for them which, I'm guessing, doesn't protect what you'd like. What you're looking for is to get your personal assets separated from any lawsuits against the company; but if you're personally guaranteeing everything the company owns and the company gets sued...guess what? You're still on the hook. Having draw the murky connection to you personally (a person guaranteeing the assets of a company which owns only assets guaranteed by the person) it becomes exceedingly difficult to prove to a judge that in fact the company is truly a separate entity and not a dumping ground for your property, in which case your personal assets are still attachable.

Second, mortgage companies will charge a company higher interest rates than an individual, especially if the company has no track record.
[b]
Most likely you're now asking, then why the hell does everyone talk about putting property into an LLC? [/b]A few reasons: 1) the people promoting this often have dozens of properties, many of them owned outright, and use LLCs to insulate against personal liability and also to circumvent different state or local laws monitoring owners with more than a certain number of properties. 2) many people don't know what they're talking about and get excited about how easy it is to "start" an LLC which takes about 90 seconds and a $100-$500 filing fee in most states; their assets are not protected unless several requirements are met and most newbie investor LLCs don't meet the proper requirements. 3) People misunderstand how much liability protection you actually get with an LLC. 4) Lawyers, accountants, and "start your company" companies all get paid if you start an LLC whether or not it protects you so they have a vested interest in promoting their creation.

-Jeff

The LLC only protects your liability in very uncommon circumstances: you must get sued, not settle, lose in court, receive a judgment in excess of any insurance you have, and have the viability of your LLC stand up in court (aka not have the court "pierce the corporate veil"). This requires a lot of paperwork and maintenance to establish and maintain a defendable, functioning LLC. Don't get me wrong; you can create an LLC is about 90 seconds and $100 check to the state corporation commission. That's easy. Making it defendable in court as a viable business entity and not your personal liability shelter takes real work.

Most of these problems can be overcome by increasing your insurance coverage on the properties. Changing from $100,000 to $1,000,000 in coverage will cost about an additional $50/year for a typical fire policy. You'll spend more on that in LLC filing fees and the LLC structure protects you under far fewer circumstances.

One good reason to start an LLC is if you start owning a large number of properties: in Virginia (and other states) if you own more than 4 rentals, even if they are not all in Virginia, then you are subject to their Landlord and Tenant Act which has all kinds of restrictive policies that greatly increase your liability. For this reason, people often clump properties into groups of 4, sell them to their LLCs, and effectively each entity then owns no more than 4 properties and thus are not subject to the more restrictive laws. In Massachusetts, you have new restrictions at 10+ properties. You'd have to check your state landlord tenant law to see if this applies to you. Nolo has the best starting point for finding your landlord-tenant laws at: http://www.nolo.com/statute/state.cfm

My advice for people just getting started: Get a huge insurance policy and leave it at that. LLCs are super easy to start up, but take far, far, far more work than you think to properly function as a business. You don't need to be spending your time filing county, state, and federal taxes, business licenses, certificates, and other crap for an LLC--you need to be finding and buying deals. :beer:

It just costs legal fees.

I have an LLC where I was raising angel investor money and ran into a few folks who wanted to change it to an S-Corp because case law is more established in terms of payouts and equity/ownership. We ultimately decided to keep the LLC structure but write in the changes to the Operating Agreement so there would be no mistaking who owned what and how and when they would get paid. My venture capital contacts said they wouldn't even look at it as an LLC and discussions would start on the premise that the company was converted to an S-Corp; but VC isn't interested in investments under a few million.

To change from LLC to S-Corp, I believe that every single member of the LLC must agree in writing to the terms. If it's just 2-3 people, no problem. If you've got 20+ it could be a problem as even a single person can prevent the conversion.

There is also the issue of asking the IRS to treat your LLC as a corporation; this may functionally resolve the problems above, but again, the investors I've spoken to don't really want to deal with an LLC and you've got enough hurdles to jump through in getting their money without having to convince them of the LLC benefits.

So, it would certainly seem viable to start an LLC and if it gets bigger / better, convert down the road if necessary. But, the more money, time and effort that get tied up into the LLC, the more complicated (and expensive) the conversion is likely to be!