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Lesson 10
Property Management
Management
is the most important aspect of owning rental property. Bad
management can result not only in loss of rents and/or increased
operating expenses, but can lead to lawsuits and even criminal
prosecution. Even though proper management is such a very
important part of real estate investment, it is often ignored by the
get-rich-quick book and tape offers presented in TV
info-commercials. When an investor decides to manage their own
property, they quickly learn that the job requires totally different
knowledge and skills than the investing aspect of income property.
In view of the importance of the property management subject, we are
developing an e-course called Managing
Income Property that covers this subject in considerably more detail so we
will provide only a brief discussion of the subject in this lesson. However,
RHOL has devoted many pages to the subject in our
Property Management Web and
you may want to spend some time reading and researching there when you reach
that point in your rental property investment business.
Using A Property Manager
Some people want to reap
the benefits of real estate investment, but don't want to personally manage
their properties. If you are in this category, there are a couple of
issues that you need to keep in mind.
First, you need to take this factor into account
when purchasing the property because you need to include the cost of outside
property management in your analysis of the property. This cost must
include not only the management and/or leasing fees charged by a property
manager, but must take into account a few other factors.
Second, it is imperative
that you use care in picking a property manager. You should first read our Selecting A Property Manager page. And, even if you do hire a property manager, you should also be knowledgeable
about the aspects of management so that you can recognize when your hired
manager is doing his job properly and react quickly if he is not.
One advantage to utilizing
a property manager is that it puts a third party
between the property owner and their tenants. We all tend to develop
relationships that become personal, and those between landlords and tenants must
be kept on a business basis.
General Management Principles &
Procedures
Being a landlord is
really a business of managing people more than of managing property per
se. Most problems associated with owning rental properties
results from bad behavior of individuals or misunderstandings
between the parties rather than any defects of the property itself.
Accounting
The better your records,
the more you can write off on your taxes. Then, if you are audited, the more
likely you are to be to keep your deductions . . . and your money.
Accountants and Bookkeeping Services
A survey by RHOL of several bookkeeping services and
CPA firms a few years back found that the average cost for a typical
landlord with four or five units, from accountants familiar with the rental
housing business, was approximately $50 per month for bookkeeping services and about $150 per month
for CPA firms. That fee included rent
deposits and preparing the schedule E for the
federal tax return. As is probably obvious, these services are relatively
expensive for the owner of one or two units. You also need to take into account the time and trouble to
interface with the service, phone calls and/or visits to their office.
Doing It Yourself
Many small landlords still try to
keep books on slips of paper - and determine profits by how much money is
left in their pockets. Amazingly, some larger landlords do almost the
same thing, even in this day of computer-assisted bookkeeping and tax
preparation.
Small business people sometimes keep track of
their finances in a slipshod manner because of what is certainly an
understandable, but perhaps misguided, attempt to keep government from
learning very much about their business. It has been our experience, however,
that landlords and property managers who keep good books and use the
deductions that are legally available to them do much better with the IRS, and sleep
much better at night than those who don't.
There are still a great many incentives built
into the Internal Revenue Code designed to promote housing, and particularly
low income rental housing. Consequently, if real estate investors learn the
rules and take full advantage of the deductions and tax credits, they will
likely pay as little tax as those who try to circumvent the law and deal in
cash whenever they can.
Good books and legitimate tax returns will also
improve their chances of borrowing successfully and leveraging themselves into
real wealth. There is also less chance of a devastating encounter with our
friends from the government because of some new
technological advantage to the IRS. Finally, documentation that
verifies the income and expenses of a property is important when you sell the
property.
Rent Roll
Create a simple form, either
on paper or in your computer, showing the building number, address, tenant
information, move in date, security deposit amount, rent amount and, if
applicable, the source of rent payments. We have included a sample of a Rent
Roll for you to compare or copy if you
wish.
You are expected to have a receipt and deposit
system for your collected rents. If you are audited, the IRS is likely to want
to trace all your deposits. That means that they will want to know where all the
money came from and will want to know what happened to all the rents you
received, or should have received. The better your records, the less IRS auditors are
likely to look for fraud or errors.
Maintenance Log
A record of tenant maintenance complaints and
the timely solution or resolution can save very expensive legal costs in the
event of accidents on rental property to tenants or their guests. There are a
great many other reasons for good maintenance records as well, including
evictions and the IRS.
Check Register
A check register, with good detail, is about
all the actual bookkeeping that many small landlords need to do. Every check
should be coded, or contain the kind of expense that the check paid - when,
who, what for & why. Every deposit of income should
contain the same kind of information. Even if you don't deposit all of your
income, it is a good idea to note the cash income and what you did with the
cash in this same register, just don't carry the amounts over to your bank
balance.
If you think you need to keep track of cash in
a separate book, that's fine, as long as you actually write everything down so
that you can have an accurate picture of what is really going on in your
business. We all tend to loose track of cash, even substantial amounts.
Bills & Receipts
Pay your bills by check or credit card whenever
you can. The reason is that
you have both the receipt and the canceled check or credit card statement.
When you write a check, note what it's for on the memo line and always write
the check number on the receipt. Use the same credit card for business
purchases whenever possible.
If you can't resist, and pay by cash anyway,
write the relevant address and purpose on the receipt. A box of receipts may
become your most valuable asset in the event of an IRS audit, where you are
forced to reconstruct what happened two years or more ago. A dated receipt
also helps to show where you were and what you were doing if you need to
reconstruct a portion of your mileage log.
When an IRS auditor sees that you have all your
records in good order, with detail, and easily accounted for, they are likely
to do a cursory check and move on to someone else.
Computerize
There are now many good reasons to use
property management software that were not there just a couple of years ago.
Everything about using computers has become much easier and
much of the new "Landlord" software is designed to look and feel a
lot like your Web Browser. We believe that you can start using a powerful
program to manage your properties, tenants and finances without ever having to
read a manual or understand how it works.
Any landlord sophisticated enough to have found
us on the Web, has enough computer literacy to keep their own books and
prepare their own tax return using any of several good computer programs.
Quicken and TurboTax are two inexpensive and very popular
programs.
Quicken is an accounting program and TurboTax is a tax preparation
program, both published by Intuit. You can learn
more about the products by visiting the Intuit
Web site.
There are certainly other good bookkeeping and
tax preparation programs available. You can check out
the wide selection available on our Property
Management Software page.
Summary
You can use a pencil and paper
with a few simple forms like a rent roll, maintenance log and a check
register. You can do a good bookkeeping job with an easy to use program like
Quicken. The important things is that you do maintain complete and accurate
records.
Maintenance
The upkeep and
improvement of rental property is vital to
continuing economic viability. Property that is not regularly repaired and
refurbished is not able to compete effectively for new tenants, except with
discounted rents. A practice of deferring maintenance, and lowering
rents, leads to a downward spiral that is hard to reverse.
Many mom and pop
landlords estimate and allocate 5% of gross income for maintenance and repair.
However, national studies indicate an average annual cost of $700 per unit in a
large complex, to $1,100 for single family homes. If you think you are not
spending that much, perhaps Pop, or Mom, are not being paid for their labor.
There is a tremendous
quantity of information available regarding maintenance, in both book and Web
formats. RHOL provides some information and links to other of the many
maintenance-related Web sites are found on RHOL's Maintenance
Online page.
Selecting vendors to do
your maintenance is an important issue that can have both financial and
legal implications beyond the task at hand itself. Be sure to read
RHOL's Selecting
A Contractor page. This subject is covered in detail in our
Managing Income Property e-course.
Laws
It is important
that a landlord have a good understanding of landlord-tenant laws because
failure to obey the laws can be costly. Landlords should have access
to the actual state statutes, not just depend upon books or web sites for
interpretation of general law. The
RHOL site provides members with access to to laws of each state.
In most states, commercial landlord-tenant
law is significantly different than residential. For example, many states
allow the landlord to lock out a commercial tenant, essentially shutting down
his business, for non-payment of rent.
Civil Rights
The
Federal Civil Rights Act of 1866 - Prohibits
discrimination based on race without exception. The United States Civil Rights
Act of 1968, and its Amendments in the Act of 1988, are commonly called The
Federal Fair Housing Act of 1968 - These laws
prohibit housing discrimination against certain classes of individuals.
In a significant 1968 case, the Supreme Court
decided Jones v Mayer where the Court upheld the Civil Rights Act of 1866. The
ruling prohibits all racial discrimination, private or public, in the sale and
rental of property. The decision was important because the 1968 law, as it was
written, exempts homeowners who rent a part of the home they live in, and
certain groups who, for example, may wish to rent to members of their own religion
or club.
In addition, some state and local laws prohibit
discrimination based on a person's sexual orientation, family, marital or even
military status. Others prohibit discrimination based on even wider ranging
issues, including: source of income and political affiliation.
Religious Organizations and Senior Housing that
meets certain conditions are exempt from fair housing laws.
Federal Fair Housing Laws
Federal Fair Housing Laws prohibit discrimination if it is based on: race, color, religion, gender, national
origin, familial status, mental, or physical handicap.
State and local Housing
Discrimination Statutes and fair housing laws sometimes provide even broader
coverage. They often prohibit discrimination based on: age, occupation, source
of income, marital status, sexual preference, ancestry, or even military
background.
The most obvious example of
discrimination is refusing to rent to a member of a protected class. But housing
discrimination can take many forms, including: offering different lease terms to
members of protected classes; using discriminatory or preferential language in
an advertising; treating certain classes of applicants preferentially or
segregating protected classes into separate areas of a rental property or
community.
The Fair Housing Act prohibits landlords from
taking any of the following actions based on race, religion or any other
protected category:
- Advertising or making any statement that indicates a preference based on
group characteristic, such as skin color or age
- Falsely denying that a rental unit is available
- Setting more restrictive standards, such as higher income, for selecting
tenants
- Refusing to rent to members of certain groups
- Refusing to accommodate the needs of disabled tenants, such as allowing a
guide dog, hearing dog or service dog
- Setting different terms for some tenants, such as adopting an inconsistent
policy of responding to late rent payments, or
- Terminating a tenancy for a discriminatory reason.
Penalties for violation of fair housing laws can
include Actual Damages, Civil Penalties, Punitive Damages. Injunctions,
and
Attorneys Fees.
Americans with Disabilities Act
Individuals with disabilities have a right to
equal housing opportunities under both the Fair Housing Act (FHA), which made
them a protected class, and the Americans with Disabilities Act (ADA) of 1990,
which requires that a landlord make economically feasible
"reasonable accommodations" and "reasonable modifications" for
disabled tenants. Fair Housing requires that a
landlord not discriminate based on a tenant applicant's mental or physical
handicap. The American's with Disabilities Act goes much further. Those
covered by the Act include: any physical, mental and emotional impairment that
limits one or more of life's major activities.
Disabled Americans are
protected by both the Federal Fair Housing Act and The American's with
Disabilities Act. We have several pages on the subject under a web called Barrier
Free. You may also wish to visit the U.S. government pages on Fair
Housing Requirements for People With Disabilities
Health & Safety
Landlords are sued more than any other group
of business owners in America. The average settlement paid by a landlord's
insurance company is $600,000, and the average jury award is $1.2 million.
Aside from civil rights violations, most lawsuits are related to health and
safety issues.
Health
Lead, asbestos, radon, and mold are
some of the health issues about which a landlord needs to be aware. While
not necessarily a health issue, pests must also often be dealt with. These
issues are covered in some detail in the Managing Income Property currently
under development.
Safety & Security
Although safety and security can be somewhat
intertwined by the broadest definitions of both terms, we will consider safety
issues to be those related to accidental injury and security issues to be those
related to injury caused by others. Hence, a hole in the sidewalk that
might cause someone to fall is a safety issue, whereas, hiring a convicted
sex-offender as gardener is a security issue. Inadequate lighting can be
both a safety and a security issue. The list of items that should be of
concern to the landlord includes locks, lighting, smoke detectors, carbon
monoxide detectors, and employees and agents.
These issues are covered in some detail in
the Managing Income Property e-course.
Insurance
Having the proper types of insurance and adequate levels
coverages is an absolute necessity. A well-designed insurance program can
protect your rental property from losses caused by everything from fire and
storms to burglary, vandalism, earthquakes, floods, and personal injury.
Which company provides
the best coverage at the lowest price continually changes, so it is important to
obtain new quotes for the desired coverages prior to expiration of the current
policy for a property. This subject is covered in detail in the
Managing Income Property e-course.
Forms & Agreements
Landlords and property managers must utilize a large
number and variety of forms and agreements including applications, lease
agreements, checklists, letters, legal notices, and court forms. It is
important that the landlord use forms that are both legal and adequate for its
intended purpose. RHOL provides a large variety of documents on our Forms
Web.
Applications
The first line of defense against bad
tenants is having an adequate application form.
Checklists
Checklists are not only a good idea
for protection of both the tenant and the landlord, but they are required by law
in many states.
Letters
Letters are required for a variety of
matters where the landlord wishes to simply communicate with tenants in a way
where proof of the communication and of exactly what was communicated is
desired.
Legal Notices
By legal notices we mean a more formal
communication that is related to terms of the lease and which might later become
part of a court action.
Court Forms
Forms in this category are those
that must be filed with the Court. It is usually best to use forms that
are actually provided by the Court itself rather than generic or "printed
elsewhere" versions.
This subject is covered in detail
in the Managing Income Property e-course.
Filling Vacancies
Advertising
Advertising is often the only way to
attract qualified prospective tenants to a property. The methods property
managers traditionally use vary from a simple sign in the window to slick
brochures, ads, and mailers to, more recently, the Internet. What works best often depends on the
competitiveness of the market and even on the time of year.
What ever advertising
medium is used, property owners must always be aware that housing discrimination
laws apply to all forms of advertising relating to housing offered for sale or
rent. Fair Housing Laws make it illegal to print or publish any real estate
advertisement that indicates a preference, limitation, or discrimination based
on race, color religion, national origin, sex, handicap, or familial status.
HUD has even selected 67 words that they believe
should be prohibited in advertising for housing. They are listed on our Fair
Housing Advertising Page.
Vacancy Listing on the Web
The newest, and perhaps soon
the best way to advertise rental housing vacancies is to post them on a
searchable vacancy listing site like our VacancyList.Net.
The Internet allows, landlords, tenants, buyers and sellers, to post their
information directly into a searchable database that can be accessed by others
from anywhere in the world. They can search for your listing by using keywords
like: country, state, city, metro area, price, housing type, description, and a
large number of other variables.
If you are a Landlord or Property Manager who
also owns and/or manages commercial property, you should visit our HavesWants
Web Site.
Print Advertising
Newspaper classified advertising is the
traditional medium used for
rental housing. It should briefly describe and sell the primary benefits of the
property, but must not contain any discriminatory language.
There is a real
estate axiom that if they call on a for sale or rent sign, they probably can't
afford the house; if they call on the price in the ad, they won't like the house
when they learn the address and drive by it. Save yourself a lot of wasted time
by always listing both the price and the address in your advertising.
Other Kinds of Advertising
- For Rent signs are usually effective and are the reason
most tenants apply for a
particular rental unit. Friends and family of your property's neighbors are
always your best prospects. For Rent Signs should be clearly visible,
simple, attractive, and well-maintained, but they must not contain anything
discriminatory. The number of bedrooms, the words: "For Rent" and
a phone number to call is generally adequate.
- Apartment guides or magazines are effective in some
areas, particularly for larger high end apartment complexes, but they are
not designed to fill just one current vacancy. Guides are usually published
monthly, printed on attractive glossy paper, in color, so advertising rates
tend to be relatively high.
- Apartment locator and vacancy listing services can be
effective in areas where such companies are well established, or in a
high-vacancy rental market. These services typically charge the owner a fee
for each successful referral. Fees can equal one-half to a full month's
rent.
- Direct mail of flyers and brochures to tenants in other
nearby properties can be an effective marketing tool. Although that may be
upsetting to your competition. You can also post the material in
supermarkets, stores, Laundromats and other places frequented by area
residents.
- Word-of-mouth advertising from existing tenants is often
the best advertisement. If state laws permit, many landlords pay a finder's
fee for each successful referral. Some states classify finder's fees as
commissions, however, which may be paid only to persons holding a real
estate license. Landlords who want to establish a referral payment program
may be able to contact their local real estate board to learn whether finder
fees are legal.
- Employers in the local rental market. Try to contact
human resource managers to get permission to place notices on company
bulletin boards or in workplace newsletters.
In a tight rental
market many successful property managers advertise an open house at the vacant
property and make a party out of it, rather than arrange for separate private
showings. When several prospects show up together, they will occasionally bid
against each other for the chance to rent an attractive unit and even pay more
than the advertised price to get it. It is a good system if you are careful to
always offer the property to the "first qualified tenant" who will pay
the price, not the "most qualified".
Special Advertising
If you are an enlightened landlord who has
discovered the value of allowing pets, cash in on it by marketing your pet
policy.
All Advertising
No matter what types of media you use, avoid charges of
discrimination by ahering to the following advertising guidelines:
- Do not use words such as "desired" or "preferred."
Using that kind of language can indicate a discriminatory preference. For
example, "working females preferred" indicates discrimination
against ... say, male dead-beats. "Singles desired" obviously
indicates a discriminatory preference against families.
- Always avoid words that imply discrimination against families or children.
"Security deposit for children," "adult building," or
"retirement community" is generally discriminatory, unless the
property qualifies as housing for the elderly by conforming to one of the
few legal exceptions.
- Do not use ethnic and religious connotation. An ad that reads, for
example: "Village Manor Apartments are located near the Catholic
Church," indicates a preference for Catholics, and implies that
non-Catholics would be happier elsewhere. "Convenient to
Chinatown" may indicate a preference for Asian tenants.
- Don't use photographs of people. Using people in advertisements can
indicate a preference for the kind of person depicted. If a particular
protected group is not represented in the advertisement, discrimination may
be inferred.
- "Absolutely no pets" could indicate to a prospective tenant who
is blind that you will not even allow seeing eye dogs. Using the phrase
"no pet policy," is acceptable because it does not imply a strict
prohibition against all animals. Besides, responsible but lonely older
adults, who make great tenants, often fill their lives with caring for a
pet. No pet policies can therefore be expensive and short sighted.
- Avoid discrimination in the selection of places to advertise. It is
usually a good idea to place your advertisements in general circulation
print media, read by the public at large. Newspapers targeted to Hispanic,
Haitian, Korean, Polish, or any other group could lead to possible expensive
allegations of discrimination. However, if you own property near a hospital,
factory or college, there is nothing wrong with advertising in their
newsletters. In fact, it is often the best place to advertise.
- Use the Fair Housing Logo. It indicates that you know and obey the law.
- See our Fair
Housing Advertising Page.
Tenant Screening &
Selection
Landlords and property managers must understand that adequate
tenant screening and proper selection are crucial to their success. If
landlords and property managers always selected ideal tenants, their would be
nothing but millionaires in the rental housing business. Read everything you
can, here and elsewhere, then join a local Rental
Housing Association. Many of them have lists of tenants who are
chronically evicted and landlord groups can also offer a multitude of other
services. You must always check out your applicant before you commit. You can
also collect an application fee from your tenant to pay for this service.
Collecting this fee is a common practice and it is a very small cost to your
tenant compared to a deposit.
Property managers must not only
select tenants who are good credit risks, but also people who will coexist
peacefully with their neighbors and other tenants. Middle of the night calls are
much more likely to deal with some kind of disturbance than with leaky plumbing.
Application
The first line of defense against bad
tenants is having an adequate application form. An adequate form is one
that requires the applicant to provide information that can be used to verify
his identity, obtain a credit report, verify employment, contact previous
landlords, and do a criminal background check. And, the application should
contain a clause specifically stating that the applicant authorizes you to do
all these things. The application should also warn that failure to provide
all items of information being requested (unless not applicable) is grounds for
not considering the application. We suggest that the following information
be requested on an application:"
-
First, last, middle names of all applicants
-
Current and most recent previous address of residence
-
Current employer with address and phone number
-
Make, model, year, and license number of each vehicle
-
Driver license state and number for each applicant
-
Bank name, address, account numbers
-
Has tenant ever filed bankruptcy. If so, when?
-
Emergency contact (can be useful for tracing a skipped tenant)
It is also important that your
application include permission to obtain credit reports on all applicants and
that all applicants sign the application or individual forms.
Some rental property owners and agents require that tenant applicants provide a
deposit of $200 or more to cover application screening fees and to hold a rental
unit until their application and credit is approved. In most cases, the
"holding portion" of the deposit is returned if the applicant is
denied - and some landlords apply the screening fees to the first months rent if
the applicant is accepted. Whatever the policy, be sure that it is clearly
stated in the application form or other document that is signed by the
applicants.
Many landlords with high-quality property hire a tenant
screening service to check evictions, credit, employment and references. Those
costs usually range from $20 to $100 per person. Low-income landlords must
also find a way to cover those costs, or do much of the work themselves. Credit
reports from RHOL can cost as little as $9.00.
If the tenant applicant withdraws their
application because they found more suitable or less expensive housing, the
landlord may elect to keep all or part of the deposit. Particularly if the
landlord incurred an economic loss as a result.
When the landlord holds the rental unit for a
tenant applicant, it is off the market and unavailable to other qualified
prospective tenants who may have to be turned away. If the applicant later
changes their mind, the property owner may have suffered financial harm in the
form of a lost business opportunity. In such a case, the landlord is justified
in retaining all or part of the holding deposit.
Landlords and agents should use good judgment and
be fair in their deposit policy. An applicant whose holding deposit is retained
without adequate justification may well have a cause of action for damages
against the property owner.
In the event a landlord elects to retain a
deposit with good cause, it is imperative that all records pertaining to the
application be kept for at least the time period prescribed by law, generally
three years. Keeping the application, with documents supporting any reason for
refusal attached, will ensure that the landlord has good evidence if a rejected
tenant later decides to bring a lawsuit or complaint charging housing
discrimination.
Most professional property
managers now consider allowing some pets, providing the tenant pays a pet
deposit and signs a pet agreement. Pet fees at apartments now range from
flat fees of $20 to $700, and monthly surcharges from $6 to $25. The most often
quoted monthly charge for a pet is $15. The average up-front fee is about $225,
but the most often quoted fee is $100. High fees are usually for large dogs. A few states have limits on the amount allowed as a pet deposit (e.g., Nebraska
limits the amount to 25 percent of rent), but an overwhelming majority of states
do not have limits.
Investigation
Verify Identity
Identity theft has become a real problem throughout the country
and the prudent landlord will take steps to avoid such fraud. Obtaining a credit report on the wrong person is worse
than no credit report at all because it might put at the top of the list a
person who would have not made the cut if no credit report were available.
Require at least two items of identification. A drivers
license is usually the primary item. The second item should also include a
photo - for example, a photo credit card. Verification of a bank account
can also provide additional verification.
Credit Report
Be sure to provide the applicant a rejection
letter if the credit report is the reason for rejecting an
applicant.
Previous Landlord Reference
For reliable results, you want to
check a previous landlord, not the current one. Although you
wouldn't do so, a landlord with a problem tenant will be happy to
provide a good reference in order to expedite departure.
Employment Verification
In recent years it has become more
difficult to get information from employers because of the fear of
lawsuits. Some employers will not even admit to knowing their own employee over the phone. Many will not give out any information
without written authorization from the employee and will only respond to
a written request. The best approach
is to have a separate form for completion by the employer that has been
signed by the applicant employee.
Criminal Record Check
If you are going to use criminal
record check, be sure that you run the check on all applicants in order to avoid
possible charges of discrimination due to the applicants' appearances.
Selection
Qualification Criteria
There are many good reasons for accepting or
rejecting an applicant that are not discriminatory if they are applied equally
and fairly. Make a written list of all requirements and use them to evaluate
everyone who wants to rent a property in exactly the same manner. The list
should include all qualifying items, including identity verification, credit
report, employment verification, criminal record check, interview, etc.
Some property managers brag that they select the most
qualified applicant, but since any such definition can be subjective, it can
also be challenged as discriminatory. The mere allegation of discrimination can
lead to expensive legal costs, time and trauma covering months or even years
Professional property managers protect themselves
and their employers from expensive charges of discrimination by employing a tenant
qualification check list and accepting the FIRST tenant applicant who meets
their established qualifications.
Landlords are allowed to select tenants using
criteria that are based on valid business reasons, such as acceptable credit
history, a minimum income or a positive references from previous landlords, no
criminal record, no pets (with restrictions) as
long as these criteria are applied equally to all tenants.
Deposits
The failure of some landlords to establish a
clear and fair system of setting, collecting, holding and then returning
security deposits has contributed significantly to the negative landlord image.
It has also resulted in legislation in most states and countries that now
regulates almost every aspect of rental housing deposits. Neglecting to inspect
and document the condition of the rental unit before the tenant moves in often
leads to disputes or misunderstandings over security deposits when the tenant
moves out. Consequently, many landlord tenant laws now require that inventory or
move-in check lists be completed and signed, prior to occupancy, in order for
any charges to be deducted from security deposits for damage.
Rents
What Should They Be?
What the rent should be depends upon market
conditions, the ability of tenants to pay, and, in a very few jurisdictions,
rent control. Like most
prices in a free market, rents act like water and seek their own level based on supply
and demand. But today, tenant demand for a given rental property is an absolute
factor of the income in the area, and therefore tenants ability to pay. While it
was once considered that 25 percent of a
person's income to be the maximum that could realistically be paid in rent, tenants
today often have to pay 30 to 40 percent or more to find decent
housing.
Average annual apartment rents
in 1998 were $12.78 per square foot, up 7.8 percent over the previous year. That
means a typical 900 square foot, two bedroom bath and a half, rented for about
$958 a month. Is that what you are getting?
Rent Control obviously
effects everything you do in those cities that maintain government controls on
the amount of rent that can be charged. Some states, like Massachusetts, have
recently outlawed the practice, others have forbid it entirely. A few states still
allow it in some cities.
See several pages on the subject, including most
of the existing Rent Control Acts in our Property
Management Web available to RHOL members.
Raising Rents
Unless your property is located in one of
the very few local jurisdictions with some form of rent control, there is not
legal limit to what you can charges as rent. However, there are definite
real limits imposed by market forces and the smart landlord takes into account
that the cost of replacing a good existing tenant usually requires many months,
often years, of trouble-free tenancy by the replacement.
Collecting Rents
There are many things that a landlord can
do to make sure that rents are actually collected and collected on time.
Primarily, it comes down to proper screening and selection of prospective
tenants in the first place, good leases and other documentation, and having a
definite delinquency policy in place and following it.
Collection failure is usually the result of a
fear of vacancy, confusing kindness with business necessity, and the landlord
simply not being diligent.
Reporting Tenant Histories
Credit is a necessity in today's modern
American society. Yet more than half of the people who apply for a credit
card are turned down. Many because of poor credit history, many more because
of no credit history.
As a credit grantor, landlords
have the same opportunity to affect a persons credit report as Sears, a bank
or anyone else. Here is how it works: When a credit grantor signs up to
report credit, they must report all the information, both positive and
negative, every month. Your local rental housing association can make
arrangements to compile the information in a format suitable to the big
three credit data companies and transmit it electronically each and every
month.
It is a tremendous incentive
for every tenant to pay his rent on time.
If you are not set up to report every month
you can still report rent delinquency and damages on
a former tenant's credit report. Visit the RHOL
Credit Web
Evictions & Collections
In the event that a tenant does
not pay his rent when due, and you have asked him nicely for payment for the
very last time, landlords may still not take any action except that which is
proscribed by the law of their state for collection and eviction and the strict
rules of the federal Fair Debt Collection Act.
When all else fails: EVICT. For detailed
information visit our eviction
page or, better yet, take our Evictions
e-course.
If you have a money judgment on a former tenant you can
garnish wages, bank-accounts and more.
RHOL's Collecting
Judgments e-course provides everything you need to know.
Miscellaneous
Section 8
A Section 8 rental subsidy is a federal payment
to a landlord on behalf of an individual tenant. In a Section 8 certificate
tenancy, the household pays 30 percent of their income for rent. The difference
between 30 percent of the household income and the set "fair market"
rent of a unit is paid by the federal government. Detailed information
regarding the subject can be found on RHOL's Section
8 page.
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