Note to readers: The below tips are shared by landlords nationwide –please be sure to check the rental laws in your jurisdiction as they may differ from suggestions in this article.
First Sign of Trouble
A landlord had questions regarding damages found in his rental home and the responsibilities of the resident to immediately notify the landlord at the first sign of trouble. When do you hold residents responsible for any damages that were caused by them not promptly reporting a problem? And if there are unreported damages or even modifications to the property that ultimately result in the resident owing more money, how do you address these matters in your lease?
These are all issues that landlords should proactively address in their lease.
A few landlords who visit the MrLandlord Q&A Forum have suggested sample rental clauses regarding these issues. They include clauses in their lease related to property damages, residents making minor modifications to the rental and money owed that is added to the resident’s account balance. A few of the clauses are well worth considering, adding, or modifying for your lease, if you are not currently addressing such matters in your lease already. Below are a couple of the sample clauses.
Prompt Reporting of Damages: The tenant must promptly report to the landlord any item on the premises that needs repair or maintenance. If the tenant fails to report needed repairs or maintenance to the landlord as soon as it is discovered and this failure to report causes more damage that could have been prevented if it was addressed promptly, then the tenant shall be responsible for the cost to repair such additional damage. (Example: a leaking drain under a sink goes unreported and it causes the cabinet underneath to rot – the tenant will pay to repair the damage to the cabinet).
Damages of Negligence: The tenant shall be liable for any damage done to the premises as a result of the tenant’s or the tenant’s invitees, guests, or others authorized to reside in the premises, direct action, negligence, or failure to inform the landlord of repairs necessary to prevent damage to the premises.
No Alterations: The tenant shall not make any alteration or addition to the premises, without the prior written consent of the landlord and shall under no circumstances install any additional lock or security devices to the premises or the property which could impair the landlord’s access.
Payments Not Made: Any amount due for unpaid rent, late fee, insufficient funds fee, damages, penalties, fines, citations, liens, money judgment, award of attorney fees and court costs, etc., will be added to the tenant’s account; will be considered “additional rent”; and will be due and payable to the landlord, no later than on or before the next rent due date.
Tenant Snuck in Cat and Dog
After a landlord did a walkthrough with a vacating resident in a duplex, a discussion with them followed about the other resident still residing in the property: “They have snuck in a dog and an unneutered cat …” Here is what the landlord had to say regarding this matter: “I reviewed the lease and they stated no pets at the time of rental. There have been some unpleasant confrontations between the front and back rental home neighbors, too. My question is this – the only evidence I have of the animals is a noise complaint from the back home tenant, who said the dog would bark a lot during the day. And there was dog poop in the front yard. I did not see a cat; so how do I address this with the tenants?”
Here are a couple of the tips that were shared by another landlord in response to the question:
- Take a camera and dog whistle (that you can buy) from PetSmart, blow the whistle and (be ready to) take a picture of the dog jumping at the window, or barking in the cage. Knock on the door and advise (that the dog has to be promptly removed).
- Suggested lease requirements:
- Management needs a photo of the animal
- Vet records of required distemper shots,
- Owner or Management must be added as an interested party on the renter insurance policy
- Exit flea treatment fee
Disclaimer: State Laws vary. Check your state laws before implementing or adding any additional lease or fee requirements.
Know Your Neighbors
A landlord shared the following tip that could be invaluable to you when owning rental properties.
If possible, know your neighbors. One of the neighbors next to a problem property saw an additional family moving in and let me know. If you’re visiting, you don’t bring your furniture. The last time a neighbor tipped me off was when a resident was moving at midnight on the 31st. Also, my gardener is a great “mole” for me.
One Way to Maximize Your Tax Benefits
Real estate investors most often want to lower their tax bill as much as possible. For example, you will want to learn tax strategies, like how to make expenses that would normally be considered improvements into items the IRS will consider repairs. Thus, you’ll get an immediate write off for the total expense rather than having to depreciate the expense.
Actually, many improvements can be written off completely at the time the expense is incurred. Use the bonus depreciation rules or the de minimis rules to get an immediate write off. The de minimis rules say that any expense under $2,500 can be fully written off, even though it would otherwise be considered an improvement and have to be depreciated. The de minimis rule “converts” the expense to a repair even though it would otherwise be considered an improvement. That means you get the write off today and the expense doesn’t affect your basis.
Every year that you claim a de minimis write off for an improvement under $2,500, you have to file a De Minimis Safe Harbor Election under Section 1.263(a)-1(f) form with the IRS. The form is a piece of paper attached to your tax return. That piece of paper has to be there, or the IRS may disallow the de minimis expenses you have written off. The problem is the form is not automatically generated by your accountant’s software. Most of the tax returns we review do not have the election. You have to be aware of the de minimis opportunity and make sure the election gets filed.
By the way, the $2,500 expense is a “per item” expense. Each expense you claim has to show as a separate item on its receipt. If the contractor bills you $30,000 for the deck, you are stuck depreciating it and it will affect your basis. If, however, he bills you $2,000 for the railing, $1,800 for the subfloor, $300 for the stair stringer, $500 for the bullnose stair treads, etc., then those all become de minimis expenses and can be written off as if they were repairs.
If you can get immediate write offs for your real estate and business expenses, you can cut your tax bills. Simply put, you can create future success and wealth for yourself. Your real estate investments and your little business are your two most important tax shelters. Unfortunately, your accountant/tax person isn’t going to coach you through the year on how to cut your taxes. If you give your tax person the $30,000 bill for the deck, he/she will not even bother to question whether or not some of it could be written off using the de minimis rules. You just lost money.
The tips in this column are shared by regular contributors to the popular MrLandlord.com Q&A forum, by real estate authors and by Jeffrey Taylor, [email protected]. To receive a free sample of the Mr. Landlord newsletter, call 1-800-950-2250 or visit their informative Q&A Forum at LandlordingAdvice.com, where you can ask landlording questions and seek advice of other landlords 24 hours a day.