Being the landlord

by Mario Acosta on February 11, 2013

in Buyers, Investors, Local Topics

Hi all – this week I am going to try and wrap up my basic advice on being a landlord.  As I have said it’s a great solution if you are in a situation where you want to move but can’t or don’t want to sell.

I have talked about how to get started and some of what you will need to do.  This week in wrap up I want to talk about a few last ideas and share some mistakes you can easily avoid.

The last two steps in my getting started series are about record keeping and what to do when it all falls apart.

 Step 5: Keep Records of Your Rental Income and Maintenance Costs
Accounting for your rental property is not the most exciting task in the world but it’s essential. It’s the only way you will know for sure if your rental property is raking in profits or losing money every month.

For the income side, all you need to add up are the rents from your tenants and any tax benefits that you get to enjoy as a rental property owner.

The costs can be a bit tricky for a first time landlord as there are many different expenses that you may have to include such as mortgage payments, home insurance and property taxes. If you have hired any real estate agents or lawyers, remember to include their fees as well.

Depending on the terms of your rental agreement, you will also have to factor in maintenance costs such as repairs, garbage collection, gardening, and plumbing if you are the one paying for them.

More importantly, many first time landlords forget to include vacancy costs when they are calculating their expenses. Vacancy costs are basically the loss of rent income whenever your rental property goes without any tenants.

To calculate your vacancy cost, first estimate how long your rental property is likely to be vacant in a year. This usually varies from 2 weeks to 3 months depending on the demand for rental property in your area.  Add the mortgage payment during this time period to the cost of finding a new tenant to obtain your vacancy cost.

Step 6: Handle Tenant Problems and Evict Them if Necessary

Whether you are becoming a landlord for the first time or a highly experienced property manager, you will probably come face to face with horrible tenants eventually.  Knowing how to handle nasty tenants is a critical part of becoming a landlord… if you want to preserve your profits and sanity.

Sometimes it’s just a simple problem that can be solved with a 5 minute phone call while other times it can be a major issue that involves obtaining a court order to uproot those nightmare tenants from your property.

Eviction of your tenants is a costly and lengthy process so we only recommend it as a last resort especially if you are a first time landlord. However, sometimes it’s the only way to remove those tenants who are living terrors.

Remember becoming a landlord can be fun and financially rewarding… if you know how to become a landlord in the first place.

Bad landlords who lose money and land themselves in hot soup, are often not crooks. They are mostly regular rental property owners who have made nasty mistakes.  Here are a few mistakes to avoid keeping yourself out of the soup.

Mistake 1: Discriminating Against Tenants on Purpose or Accidentally

While it’s natural that every landlord will want the best possible tenants for their rental property, be careful not to be discriminate based on their age, sex, race, disability or family status.

While it’s well within your landlord rights to reject having seven people living in your 2 bedroom apartment due to overcrowding, you are not allowed to decline someone as your tenant simply because she has kids (because you are worried her kids will trash up your place).

Therefore be careful when you are interviewing your tenants and avoid asking questions with any hints of discrimination. Otherwise they may take your offensive question and use it to complain to your local fair housing authorities.

If you are unlucky enough to be blacklisted by the housing authorities or tenant websites as a bad landlord, it will severely affect the future supply of tenants for your rental property.

Mistake 2: Not Being Careful When Screening and Choosing Your Tenant

Most seasoned landlords will tell you that just choosing the right tenant will eliminate 80% of your future problems. Research has shown that in most countries about 3 out of 10 are bad ones, so learning how to weed them out is crucial.

However many new or bad landlords do not know or simply cannot be bothered to screen their tenants carefully. Asking your potential tenants the right questions, learning how to read their body language and making sense of their application forms are all important skills of effective tenant picking.

Mistake 3: Lying to Tenants or Making Verbal Promises that You Can’t Keep

Remember when it comes to rental agreements, the promises that you make to your tenants are legally binding. Even if it’s just something that you said and is not included in the written lease agreement, your tenants will still be able to hold you responsible in some cases.

When you want to reject someone as your tenant, avoid lying to them such as claiming that you have already found a new tenant.

Instead, politely let them know that you wish to interview more people before making your choice. Some people have been wrongfully accused of being bad landlords or even sued for discrimination when they were just trying to tell a white lie.

Be extra careful when you are making promises when signing your rental agreement.  If your promise is the reason why your tenants chose you, they can simply break the lease agreement if you did not keep your word. For example if you promised them a new water heater in a week’s time and you did not install it on time, they can simply move out of your property and refuse to pay you rent.

Mistake 4: Failing to Maintain Your Rental Property in a Habitable Condition

While your rental property does not have to glitter like a royal palace, you have to at least maintain the condition of your property to meet your area’s housing safety and health standards.

If there is property damage and it is not due to neglect or abuse by your tenants, and affects the habitable condition of your property, then it’s up to the landlord to fix it.

Once your tenant informs you of the damage, you will usually have 7 to 14 days to make repairs. If it is an emergency situation such as a total electrical failure, you will have to fix the problem within 24 to 48 hours.

After this time limit, your tenants can choose to end their rental agreement with you and make a complaint to the local housing authorities. If you do not want to be blacklisted as bad landlords, do remember to make your repairs on time.

Are you ready to avoid more bad landlord mistakes and dangerous pitfalls?

Mistake 5: Not Knowing How to Handle Your Tenant’s Rent Payments

Your rent payment is the income and lifeline of your rental property so learning the right way to collect and manage it is crucial for avoiding any landlord problem.

Some greedy landlords like to overcharge their tenants for late rental fees. While it’s acceptable and reasonable to impose late fees, it has to be reasonable (usually 3 to 10% of the monthly rent). If your late fees are more than 10%, your tenants are highly likely to complain and you will run into landlord problems if they bring this matter to court.

If your tenants are always late in their rent payments and you are thinking of evicting them, never accept a partial payment from them. In the eyes of the law, this usually means that you have silently agreed to carry on the rental agreement so evicting your tenants will be a massive landlord tenant problem.

Mistake 6: Entering Your Rental Property Without Tenant’s Permission

Many landlords think that just because they are the owner of the property, they have to right to enter it anytime they want. However it’s against the law to do that in most areas as it is considered a violation of your tenant’s privacy rights.

Whether you are collecting rent, making minor repairs or showing your property to potential buyers, you will have to inform your tenants of your arrival at least 12 to 24 hours in advance to avoid any landlord tenant problems.

However, if you need to access your property for emergencies and urgent landlord problems such as repairing a burst water pipe, you are allowed to enter your property immediately without permission.

Mistake 7: Failing to Refund Your Tenant’s Security Deposits Correctly

Learning how to handle security deposits is important for avoiding tenant complaints and landlord problems.

While most landlords know they can retain a part of the security deposits if the tenant leaves without paying rent or damages the property, they do not realize that there are often strict rules regarding the use of security deposits.

If your tenant simply walks off and stops paying his rent, you will have to try and look for new tenants first. If you have proof that you were not able to find new tenants in time, then you will be allowed to keep the tenant security deposits to compensate yourself for the lost rent and landlord tenant problems he has caused.

If your tenant is leaving and you discovered that he or his occupants damaged your property, you can claim repair fees by retaining a part of his security deposit. You will have to give him a security deposit refund letter together with a security deposit itemization form. Which is an item by item list of all the repair and cleaning fees.

So there you go – a beginners guide to becoming a landlord.  I hope I did not scare you away from the idea – it is easier than you may think by just following these simple guidelines. Most of them are just common sense, but some are sadly learned by experience.  So, like in all things get educated first, pencil out the math and if it makes dollar sense than by all means go for it.  If it becomes too much work talk to your trusted real estate professional – he or she can help you out. Many real estate professionals are also property managers themselves, for their own rentals and for their clients. For a small monthly fee many will handle the whole thing for you.

I hope you will come back next week and see what the world throws at me to share with you.

Have a great week.

Sherman Oaks Home Search Sherman Oaks Home Values

Post by Mario Acosta

Mario has written 117 articles.

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