Categories
DIY

Keeping It Legal for DIY Landlords

A legal hammer.

ALWAYS have everything in writing. Specific terms should spell out exactly what is expected and legal from all parties involved

Working through the web of renting your properties can be mind boggling when you realize the details involved with signing a tenant. Knowing federal laws and local regulations will help keep you in business and profitable. Working from a template and a detailed checklist is a good way to keep everything legal from Day 1. If properly thought out, it can save you from the high cost of defending yourself in court.

Proper Documentation

ALWAYS have everything in writing. Specific terms should spell out exactly what is expected from all parties involved. Have a lawyer draft your lease agreement to help avoid the pitfalls of cookie cutter online forms. Rental agreements are legally binding contracts, know the rights tenants have and familiarize yourself with the Federal Fair Housing Act.

Advertising, Showings & Applicant Screening

You must study, and pretty much memorize, the Fair Housing Act to avoid discrimination violations. Your advertising, how you handle inquiries, showings and applicant screenings must all conform. Make one mistake and you could wind up in court.

Don’t forget about the Fair Credit Reporting Act and what your required to do if you deny an application or an applicant disappears.

Once you figure out how to legally operate — be consistent! Avoid potential discrimination lawsuits by treating everyone the same and avoid shortcuts — even when you know what the outcome will be.

Deposits and Fees

Check your state and local requirements regarding application fees, pet fees, security deposits, etc. Decide what you’ll charge and again, be consistent to avoid discrimination claims.

Keep In mind a security deposit is just that, a deposit, so it technically still belongs to the tenant, you are just holding it. Don’t go out and spend it. You may want to keep it in a separate account to make it easier to keep track of and explain when needed. Remember, the security deposit is used as a guarantee against possible damages or unpaid bills, but even during an eviction proceeding, it still legally belongs to the tenant.

Required Disclosures

Federal law requires disclosure to a tenant about potential lead-based paint issues. Make sure this disclosure is included in your lease and that you also have the government required lead-based paint pamphlet to hand out.

Your tenants may also have the right to disclosures regarding building ownership, landlord, or management company that acts on behalf of the landlord. Provide them with proper contact information for rent collection, complaints, maintenance issues, etc.

There’s also required disclosures like the Move-In Checklist, specific tenant notifications required in a lease like; Truth-In-Renting Act, Security Deposit Rights, Domestic Violence and Senior Living clauses. All are another reason to engage an attorney to at least review your lease annually.

Property Maintenance

Check your local ordinances for landlord obligations regarding property maintenance. Many cities consider it illegal to collect rent if a property hasn’t passed a city inspection. In addition to issuing tickets, they may also arrest an owner who fails to comply.

Know Your Landlord Rights

When dealing with landlord-tenant issues, there is usually more focus on protecting the tenant. As we all know, there are two sides to every problem, and as a landlord, you have rights, as well. Though not a complete list, here a few biggies:

  • Eviction – Depending on your lease agreement and state & local laws, you have any number of valid reasons for choosing to evict a tenant.  Keep it legal here, abide by all local laws and ordinances to prevent making the situation any worse.
  • Home Entry – You certainly don’t have unlimited access to a tenant’s home, but with proper notification to complete repairs or an emergency the law allows entry as needed.
  • Rent Increases – Many states and cities are passing laws limiting rent increases. Be sure to check and conform as needed. If there are no laws, you can legally raise the rent as much as you want, as often as your lease allows.

Housing is a highly regulated industry and need to be clear on fair housing laws and other local ordinances that affect your business. Pleading ignorance will not keep you out of trouble. Of course, you want your real estate investments to be profitable, but ignoring the laws set in place to protect the landlord-tenant relationship, will only do more harm than good in the end.  Before making any legal missteps, consult your attorney for clarification for any landlord-tenant issue.

Categories
DIY

Why Do I Keep Attracting Bad Tenants?

 Cops outside a house.

In the landlord sewing circle, conversations have a way of moving toward bad tenants.

No matter where your properties are located or how high your rental rates are, you’re bound to come across some bad renters — it’s just part of the business. Bad tenants affect more than just your bottom-line, they can wear on your sanity as well. If you feel like you’re attracting more than your fair share of “slumtenants,” maybe you are. Before things get any worse, take an introspective look at your policies and evaluate your business model.

Where Are You Purchasing Properties?

If you own properties in rougher neighborhoods, expect more problems and repairs. Lower demographic areas have lower income levels, higher levels of illegal activity, and many residents have a criminal past. Many will not have the decency to respect you or your property.

How and Where Do You Advertise?

If you’re nailing hand-written flyers to telephone poles, you give the impression that you’re desperate and probably will take anyone just to fill the vacancy. But if you take the time to take hi-def photographs and/or professionally made virtual tour videos to post on your site, you will attract a different type of renter. By including the rental rates in your marketing material and your website, you will instantly narrow the number of potential applicants. By charging higher rates, you’ll weed out much of the riff-raff.

The Application Process Is Your First Impression

Was the potential tenant on time for appointments? If they showed up late without calling or just blew you off with no consideration for your time, they’re probably not going to have much respect to your property either. Were they courteous and neatly dressed? If their appearance is sloppy, imagine what the inside of your rental will look like. 

For starters, charge an appropriate application fee. If prospective renters can’t scrape together the fee, how are they going to come up with the rent? Also, it’s smart to present a lengthy application, people who aren’t serious won’t bother to take the time to fill it out. Was the application written legibly, fully completed, and signed? Texting is ruining people’s penmanship, so that’s not the perfect marker, but if vital information or sections are left blank, you have to ask yourself, “What are they hiding?” These are some early red flags, though it’s not foolproof, it does you give an idea of how they will act as tenants.  

Don’t Skimp On Lease Details 

Sure, you can go online and just print out a lease, but be careful with cookie-cutter contracts. You want to be confident that every one of your required terms is in the lease. You’re better off getting an attorney to draft one for you, the initial cost will more than pay for itself when problems arise, or you find yourself in court. Make sure all tenants are listed and sign the lease. Once presented with the contract, many tenants will try asking for amendments, resist the urge to negotiate the terms of YOUR LEASE. By doing so, potential tenants will feel like they found themselves a “pushover,” you’re setting yourself up for problems in the future. 

Get The Scoop From Past Landlords

Your application has a section for references for a reason, make sure you contact previous landlords. A little extra time now doing basic research will save you the trouble of having to deal with the aftermath of damages or missed rent payments. Be glad to get the bad news early and weed out any subpar tenants. Past behavior is a good indicator of how they will treat you and your property. 

Max Out The Deposit

For the same reason it’s smart to charge appropriate application fees and rents, get as much of a security deposit as the law allows. It will weed out bad tenants that may have trouble coming up with cash on the 1st of every month. 

Don’t Be Lenient With Your Policies

Bad tenants are like sharks, they can sense prey in the water. You have a business to run and bills to pay. It is vital to be firm and consistent with all of your policies. Being passive about tenant screening, rent collection, and other house rules only cause more problems throughout their tenancy.  

You can’t always spot a problem tenant. Someone is bound to sneak through eventually. But with due diligence and proper screening, you should be able to limit your liability. You want to stay on top of your rentals and arrange for periodic inspections so you won’t get surprised when they move out. Finally, don’t rush the process just to fill a vacancy, if there’s any doubt, then there’s no doubt. 

Categories
Wholesaling

Where To Find Leads For Wholesaling Houses

 A woman in a suit.

Depending on your budget and goals, wholesaling deals can be found anywhere where you have motivated sellers, even in wealthier neighborhoods. Let’s be honest, though, most opportunities present themselves in more distraught communities where there are more distressed homes and foreclosures. 

Tips For Locating Wholesaling Opportunities

  • Homes facing foreclosure or that already are in foreclosure, bank-owned properties, and property auctions present excellent opportunities for wholesalers. Foreclosures, however, are not limited to low-income areas, the crash of 2008 is a good example where millions of people faced losing their homes. People lost jobs, had medical events, or got divorced, even in affluent neighborhoods. These life-changing events affected anyone who wasn’t prepared with an emergency fund.
  • Characteristic signs of potential opportunities often include boarded up windows and entryways and unkempt landscaping.

If you’re having trouble finding properties to wholesale, look in areas where other, more experienced, wholesalers are buying.

  • Low-income areas and neighborhoods where many of the homes are rented present a good opportunity. They are prime breeding grounds for flippers or landlords who own houses in the area. These people are often looking for new opportunities. Many investors don’t know how to find deals, are too busy or just aren’t interested in hunting them out. That’s good for you. This gives you a chance to put a property under contract and to offer it to a local investor looking to add to their portfolio.
  • Neighborhoods with one or two homes per block are areas you want to avoid, there’s little upside and low probability that you’ll be able to move them. As they say in real estate — location, location, location. As a wholesaler, you want to get your property sold as quickly as possible. A flipper will only buy the property if they’re confident they can sell it after renovations. And a landlord won’t see the point of purchasing a property if there is no potential for renting it out.
  • Hot Tip of the Day: Look for areas with newly built government housing. Not only do these areas typically have fewer vacant properties, they generally have plenty of homes in need of rehab. Finding neighborhoods where people are investing is promising. New home construction is a sign of stability or even growth. 
  • The internet age means it’s possible to find sellers without ever having to leave your couch. Digital “bandit signs” and pay-per-click ads on Google or Facebook are highly effective at honing in on a specific demographic. Using layered options and detailed targeting, you’re able to get your ads in front of an audience that will be more interested in hearing about your offer. 

Running any business has its challenges, it’s your job to be creative and stay abreast of market trends. Finding properties to wholesale isn’t that difficult, but it does take some work. As you gain experience, build your buyer’s list, and hone your negotiating skills, it will get easier. Combining strategies will increase your odds of locating profitable deals.

Categories
Wholesaling

When To Walk Away From A Wholesale Deal

 When To Walk Away From A Wholesale Deal.

When wholesaling properties, transactions don’t always run smoothly, sooner or later you’re bound to come across some deals that don’t go your way

The more experience you get as a wholesaler, the more will you be able to manage these imperfect situations. Other times, however, you’ll find that the deal just isn’t going to be worth your time, that’s when it’s time to walk away.

Sometimes you can’t agree on a price, other times circumstances change, that’s why you have to have an ironclad contract with contingencies that will allow you to get out if needed. Having something in writing will protect you when you’re faced with adversity or a worst-case scenario. To be a profitable wholesaler, you need to stick to your plan. Hold firm to your requirements and don’t allow yourself to be taken advantage of.

A good buy will ultimately depend on how well you negotiate the terms and conditions of the contract, it’s a give and take. Do not bend on your principles or agree to terms that don’t fit your strategy. On the flip side, this is a negotiation, so avoid being too hard-nosed, as well. If you can’t agree on critical criteria, it’s time to walk away.

When you locate a property, you’re eager to get the property under contract so you can find a buyer and collect your check. As with any other business transaction, when there are multiple people involved, timetables can get messy. Inspection dates and closings get bumped all the time, so you should allow for a reasonable amount of flexibility. One of the keys to successful wholesaling is seller motivation. When deadlines are not being kept or if you feel like the seller is stalling, it’s time to walk away. 

This sounds like a no-brainer, but if you won’t make enough money, then don’t waste your time.

There are a couple of reasons for little or no profit. First, the After Repair Value (ARV) is too low. There’s no point in buying a property if won’t be able to sell it for a profit. Second, there isn’t enough equity. Sellers want to walk away with at least a little cash in their pockets, but if they’re upside down, you’d have to configure a short sale. A short sale brings an extra hassle, but it is possible. However, very often, sellers don’t have the money to bring to closing. So if either of these is true for you, it’s best to walk away.

The world of real estate is forever changing. New laws, new code requirements, new zoning ordinances are changing the face and landscape of real estate. Stay abreast of current changes to avoid getting stuck with a property under contract and not being able to find a buyer for it. If any newly introduced factor will prevent you from being able to turn a profit, it’s time to walk away. 

As you grow your wholesaling business, you’ll learn to spot warnings signs that will trigger your instincts. You’ll have a sense when there isn’t enough upside to make the deal worthwhile. Not all of your transactions are going to be home runs, but do your due diligence and stick your plan. There will always be another property that will fit your parameters. When you see that things are headed south, it’s just best to walk away. 

Categories
DIY

Tips for Novice Landlords

People dream of becoming landlords, how hard can it be to walk to the mailbox every month, and cash rent checks?

 Tips for Novice Landlords.

Let’s get it out of the way early — making money as a DIY landlord is NOT going to be as passive you envisioned. Expect to spend many of your evenings and weekends dealing with property and tenants issues.

The whole point of investing in rental housing is to collect monthly rent payments, yet this can be one of the most challenging aspects for a newbie landlord. There will be times when you have to hound tenants for the rent. Be firm about rent payments, you rely on them for running your business. Being lenient with your tenants will open the door to a slew of problems. If they don’t pay, follow your state’s laws, and if needed, start the eviction process.

So you’ve got your first rental ready to go. You’re eager to start renting and making some money. Resist the urge to rent to just anyone because you’re concerned with vacancy. Make sure to stick your plan — be vigilant about screening new tenants. Leasing to a tenant that doesn’t meet your standards will only bring more problems than it’s worth, it’s better to be patient and wait for the right candidate.

Fair housing laws are in place to protect the tenant — they are a big deal. Don’t put yourself in a position where you’ll have to defend yourself in court. If you’re not sure about something, consult an attorney, or better yet, read up and educate yourself, it’s bound to come up again.

You want your rentals to be the best they can be to attract prospective tenants, but remodeling to your (expensive) tastes is not a good business decision. It’s fine to remodel but resist the urge to go overboard. Unless your property is in an area where you can charge appropriate rental rates, it will be difficult to recoup your investment.

The right marketing strategy will make a world of difference. Make sure to use the right avenues to market your vacancies. Newspaper ads are on life support. You need to place your ads where the right clientele will see it.

Place online ads and use dedicated web sites to find great renters. To entice prospective tenants, pay a professional to take brilliant photos and create a virtual tour. This will save you tons of time by not showing your property to people who aren’t that interested or can’t afford it.

First impressions matter, don’t underestimate curb appeal. Always keep your property looking good — inside and out. Prospective tenants will never get to see how beautiful the new kitchens and bathrooms are if they pass on your property because it looks dingy from the outside. 

BONUS: Stay Organized

You may be surprised how much work is involved with your rental property business. The mountain of paperwork alone can be daunting if you’re not prepared. Paying attention to details and staying organized will help you to stay focused and promote success.

Just because you’re starting a “side business” to produce a passive stream doesn’t mean it’s going to be easy —  this is not a hobby. There is a learning curve to honing the skills needed to run your rental property, but things get easier to manage with every new tenant and each additional property.

You will face challenges, you need to treat your new venture as a “normal” business. Plan on making mistakes when you’re starting out, but expect those growing pains to wane as you acquire experience and grow. Stay positive and focus on your goals.