Keeping Poor Files on Your Tenants
- “If you don’t start paying your rent on time, I’m gonna…”
Dealing with ongoing tenant issues can be a pain, and can be time consuming. Landlords have a tendency to not document, or post notices with a tenant when the ‘House Rules’ are not being adhered to, especially for smaller infractions. Worse yet, maybe you have not provided your residents with a ‘House Rules’ agreement for your tenants to sign at all.
Properly documenting every time a tenant fails to pay their rent on the day it is due with a ‘3-Day Notice to Pay Rent or Quit’ can be bothersome, especially for the do-it-yourself-landlords. Unfortunately, these kinds of practices, all too often, end up costing the property owner(s) more than just a headache. Failing to keep proper files on your tenants can lead to losses in court when trying to evict bad tenants, loss of income, and ultimately a decline in the value of your property.
Remember, when it comes to landlord/tenant relations: Documentation = Enforceability.
- Not Properly Screening Tenants and Rental Applications
“If I meet you, and I like you, you’re in.”
Choosing the right rental applicant for an investment property goes beyond a simple application and credit check. Screening tenants is about digging into their backgrounds and discovering who they really are. Applications can only tell you so much, and they can be easily falsified. Many landlords make the mistake of only having the “head of household” complete an application and credit check, ignoring the other adult tenants (such as a wife or relative) with large amounts of bad debt, or worse, a criminal record. Another mistake often made is failing to verify the information provided by the tenant. Actually calling past landlords, employers and references can identify a bad tenant from a great one.
A good tenant should not just have the ability to simply pay rent, but they should also possess the willingness to pay rent on time. They usually have job security, are relatively clean and will value your property as their true home. Quality tenants should have monthly gross earnings of at least two and a half times the monthly rent for an individual, and at least three times the rent amount for a couple or more. Desirable tenants usually come with good references, clean backgrounds, and no evictions. This means landlords managing their own properties must be willing to collect the documentation, do the research and make a reasonable decision in a timely manner in order fill their vacancy’s with the best tenants they can get.
- Not Knowing and Following the Fair Housing Laws
“FOR RENT: Charming 1 x 1 upper unit in quiet complex. No children please.”
The Federal Fair Housing Act was established in 1968 and aims to eliminate discrimination in any housing related activity. The belief is that every person as the right to buy, rent or obtain a mortgage without being discriminated against because of their background. This sounds fairly simple; however the degree to which the Fair Housing Act goes to identify “discrimination” is specific. First, by identifying protected classes of people, then by carving out both ‘Acceptable’ and ‘Unacceptable’ language and phrases that can or cannot be used in print, advertising, applications, signage, photographs or verbal communication.
HUD (The Department of Housing & Urban Development) is responsible for enforcing the Fair Housing Laws. They do so in couple of ways:
- Fair Housing Testers: HUD hires people to pose as renters or home buyers to see if discriminatory practices are being used. They monitor what is being said by landlords and property professionals in person, over the phone and in housing advertisements.
- Investigation of Discrimination Claims: Any renter, buyer or borrower who feels that their civil rights have been discriminated against or violated under the Fair Housing Act can file a claim with HUD for investigation. If HUD determines that there is any merit to the claim, then they will also determine the legal action necessary. Violators of the Fair Housing Act can be pursued both criminally and civilly.
The U.S. Department of Justice published a notice increasing the civil monetary penalties for violations of the Fair Housing Act in March of 2014. Under the new rule, the maximum civil penalty for a first violation was increased from $55,000 to $75,000. Subsequent violations (repeated offenders) now have a new maximum monetary penalty of $150,000 (per violation). The rule also increased the maximum civil penalties under the Americans with Disabilities Act (ADA), and the Service Members Civil Relief Act.
- Slow Response to the Maintenance Requests of Your Tenants
“I will swing by and fix that leaky faucet for you… sometime next week.”
One of the biggest and most frequent mistakes made by landlords revolves around the maintenance of the property. Some owners see maintenance and repairs as an opportunity to save dollars and increase their bottom line. Do-it-yourself (DIY) owners don’t understand when a standard maintenance issue arises; failure to address it quickly and accurately only costs them more money in the end.
Tenants become frustrated when repair issues go unattended to or they take too long to fix for seemingly simple jobs. There’s no shortage of complaints from angry, frustrated renters who have suffered through what turned into a mountain, which started out as a mole-hill.
Tenants seem to always draw the same conclusions:
- “The owner of this building doesn’t care.”
- “I am tired of paying rent on time so that I can wait weeks or months for my heat to work.”
- “I took time off of work to meet the repair man and he didn’t show up.”
The proper maintenance of your property goes a long way to keeping your tenants happy (tenant retention), reducing the number of days your units are vacant, and warding off high-dollar, unexpected repairs due to deferred maintenance.
Bottom line: Cutting Corners on Repairs Today = Higher Costs Tomorrow
- Not Keeping Up With the Rental Market
“I would rather keep my rents low than have a vacancy.”
Vacancy seems to be the greatest of the apartment investors’ fears, followed by rent increases (because one begets the other, right?). Have no fear! Rent increases play a very important role and are necessary to the success of every apartment investor. As a matter of fact, failure to keep up with the current rental market can bring more harm to the overall health and value of your property than any vacancy. The value of your property is anchored to its cash flow, and increasing the rents is an integral part of growing your investment in rental property.
As a landlord, rest assured, your costs of doing business are going up every year. Raising rents helps to offset the inflationary costs of goods and services, materials, utilities, energy, property taxes, and insurance. Let’s not forget the soon-to-come rise in mortgage interest rates. As with any business, at least some of those costs get passed along to the consumer. If they didn’t, even Walmart would be out of business by now. Renters are consumers, and they are as aware of increases to the cost-of-living as you are.
Increasing rent does not automatically equal vacancy. As a matter of fact, most rent increases do not justify the cost of a tenant moving. Landlords have a tendency to see themselves as the bad guy when thinking about raising rents. This is wrong. What is even worse, they become so fixated on the ‘what ifs’ and the ‘worst case scenario’ that they refuse to raise rents at all…ever. This is also wrong.
Let’s explore the tenants’ perspective for a moment: True, it’s not fun to get an increase in rent. This can be downright infuriating for a tenant that has suffered at the hands of a slumlord. Let’s assume that you are not a slumlord for a moment. Assume that your primary focus is to take good care of your investment and your tenants. You make the effort to be a good landlord by addressing and resolving your tenants’ issues promptly. Let’s assume for a moment that you enjoy living the lifelong dream of financial independence and real estate investment ownership. You and your residents show pride in the building.
Apartments.com™ National Survey Reveals 2015 Moving Plans for Renters©
|Top 5 Reasons Renters Are Moving||Top 5 Reasons Renters Are NOT Moving*|
|Affordability 24.7%||I like my neighborhood 36.9%|
|Change in Relationship Status 9.4%||I can’t afford to move 34.9%|
|Bigger Apartment / More Space 9.3%||I like my apartment building 34.0%|
|Moving Closer/Farther from Family 8.3%||I already moved 25.8%|
|Wanting to Live Alone 7.7%||I am secure in my job 13.5%|
*Those surveyed were asked to check all that apply.
According to the recent survey conducted by Apartments.com, less than 25% of all renters move due to affordability issues. “Increased Rent” did not even show up in the top five reasons for a renter moving. “Affordability” encompasses all affordability issues such as job change, rising living costs, and changes in general financial well-being. It’s including all financial causes and effects, not just increase in rent. Let’s say, that “Affordability” as shown in this survey really does mean “Increased Rent”. That would mean that less than one quarter of all renters move based on a rent increase. To understand why, look at the top five reasons renters do not move. The second highest answer: “I can’t afford to move” by nearly 35% of renters surveyed.
Shawnee Ament has more than 22 years of experience in multifamily investing. She has had the pleasure of working with some of the industry’s most influential investors, lenders and property owners across the U.S. Shawnee now dedicates her time to RTI Properties, Inc. where she oversees the company’s marketing efforts and develops long term relationships with industry professionals. Shawnee lends her expertise to apartment owners in Southern California to improve the performance of their investments. To see how Shawnee and RTI Properties can help grow your investment, call her at 844-RTI-MGMT (toll free 844-781-6468) or email her at [email protected]