Monday, January 14, 2013

Advice to New Landlords


Some Advice for New Landlords


     For those who don't know me I've been a landlord since I was old enough to remember.  I wanted to share a couple pro-tips for new landlords that want to avoid losing a lot of money and time (I've done it).  The following are just a few things I learned the hard way over the years.

  • Eviction is a colossal waste of time and money for you! If you're thinking of evicting someone anticipate it costing you about five times one months rent PLUS whatever damages the tenant has made and I assure you there will be damages. I'm going to do a separate post about why eviction is the last resort shortly.
  • Bring air filters for the A/C with you once a month when you go to pick up rent. As sure as you're born you're tenants are not replacing that filter. And while it may seem like a hassle to go to Home Depot and buy one every month, it's a lot less expensive than having an A/C unit burn out on you and having to spend $3,000.00 for a new one.
  • Make your tenants pay you in cash or certified funds. I can't tell you how many hot checks have been written to me over the years but there's been a ton.
  • Make sure you have a clause in your lease that reads something to the effect of, “First $20 (or whatever amount you agree upon) of any repair is the tenants responsibility to cover.” If you get a hypochondriac tenant who is always calling you for repairs it will drive you crazy. Also place an amount for going out to complete a repair, usually the same amount they need to cover. This will prevent you from having to drive over to the house fifteen times a month.
  • No dogs. They chew siding on the house, dig holes in the yard, and generally just destroy things. You can put a pet deposit on there but the repairs you'll have to do for that dog will surpass any typical amount on a lease.
  • Bullet-proof the house on your first rehab. Ceramic tile or vinyl throughout the house and semi-gloss paint. Carpet will be destroyed instantly and semi-glossed walls are a lot easier to wipe stains off of then flat paint.
  • I've been trying to build a “No Crayons” clause into my leases for years. Hasn't worked out yet but I would still try to give it a shot.
  • Try to make sure they're watering the yard. The last thing you want is foundation problems because you're tenant let the ground around the slab get too dry. This is Texas, if you drive by the house during  the summer there's a good chance the grass will be struggling but try to make sure they're making an effort to water.
  • Don't take a security deposit after a tenant moves in. You must get it up front. If you try to work a payment plan out with them you will never get the deposit.
  • According to the Texas property code a landlord is not required to make any repairs that do not effect the health and safety of the tenant if they are not current with the rent.
  • Any request for repairs must be sent to the landlord's address listed on the lease via certified, return receipt mail. The landlord then has a reasonable amount of time, usually interpreted as seven days, to make said repair. The tenant must then send a second letter certified mail, return receipt and allow for another reasonable amount of time for the repair to be made. At this point in time the tenant may either pay to have the repair made and deduct the cost from the rent, provided it is less than one months rent, or cancel the lease, provided they are current on payments.
  • Pick your rent up yourself. It gives you a chance to make sure everything is ok at the house and change that air filter. It will also let you make sure that there aren't more people living at your house then are listed on the lease.
  • Rent is due on the first, late after the third. Most tenants get paid on Friday so I typically go to collect rent the first Friday after the third. Then again, my tenants have horrible credit and have been in the houses since before I got control of them. You can avoid this situation by running credit checks. There are too many renters in San Antonio for you to settle for one that is going to cause you a headache.
  • Don't let tenants fix a problem themselves. The work will never get done, you'll give them a break on the rent, and is all around a bad idea.
  • Always remember that a security deposit does not cover the last months rent. Tenants will try to sucker you into this from time to time but the security deposit is to ensure no damages are done to the  house.
  • Tenants that are college aged do more damage to a house. You may want to consider a larger security deposit or having them get a cosigner.
  • I usually let tenants break leases early as long as they are on time with the payments and they let me know a full thirty days before they move out. If they can be out a week early and leave the place in decent shape even better because I can show it and get another tenant in there right away.
  • Some people use real estate agents, I don't. Pitch a sign in the front yard for $5 and throw a couple ads up on Craigslist. You should have no problem getting tons of calls. If you use an agent you typically have to pay them a months rent which is split between the agent representing you and the agent representing the tenant. San Antonio has so many renters it should be no problem to do this yourself.
  • I don't recommend property management until you get to about ten rentals. Going rate is about a months rent and 10% of rent collected. I'm pretty cheap and until you're juggling more than ten rentals and a full time job I don't think the value is there for you.
  • Cheaper houses cash flow better. A $120,000 house on the North side will rent for about $1,000-1,200 a month. A $40,000 house on the West side will rent for around $800 a month. You could have three of these houses and be making $2,400 a month as opposed to $1,200 a month and diversify your risk over three assets. Do I want a nicer house? Sure, but I like making money.
  • Military tenants are fantastic. If you can buy something out buy 151 and 410 or in Converse close to the bases for a good price the quality of tenant will be substantially better.

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