Thursday, December 30, 2010

Landlord…You have to start somewhere…

I have been getting a lot of questions about being a landlord. Several people have expressed interest in pursuing the landlord world. Some of the question that have been asked are like:

  • “How do I respond to someone that doesn’t pay rent?”
  • “What is the law on heating?”
  • “Where do I place my advertisements for my rental property?”
  • “How do I get background checks?”
  • “What is considered a repair and/or improvement expense?”
  • “Will I get rich?”
  • I had the same questions when I started this little adventure back in July 2008 (In the Beginning). With a lot of hard work and upfront planning, I’m happy to say that I’m successfully on my second tenant for my second floor apartment. This coming Spring, I’ll be accepting applications for the first floor apartment (my current residents). By Fall 2011, I hope to have a second property that will be accepting additional tenants.

    To be honest, I really don’t know how I’ll  initially respond to a tenant that doesn’t pay their rent. However, if I conduct my pre-application credit and background checks appropriately, I don’t expect to experience this… Although I do know that if a tenant did do this, then I’ll need to send a “Pay or Quit notice”… What is a “Pay or Quit Notice”…. Well it just that, pay the rent or Quit the lease, thus move out. However, evicting someone in Massachusetts isn’t that easy… There are many more rules that need to be followed when evicting a tenant. But, let me stop you here… We could do this all day, you ask me a question, then I answer. Then you ask another question and so on… But the real question that you should be asking is, … ”how do you know all these answers?” My answer to you is, I certainly don’t know all of the answers, but I do know where to get it. That is the key… So let me help you get started….

    I was once told that you can give a person a fish and they will eat for a day.. Teach a person how to fish and they will eat for a lifetime or until the pond dries up… However, I’ve always wondered, does the person already know how to cook a fish? But I guess that is another lesson…

    Anyway, back in 2008 when I started this little adventure, I quickly realized that getting the “correct” information was a little more difficult than I originally thought. I began my research by utilizing the internet and by visiting the local book stores. All of the information that I encountered were extremely general. Because the books were too general, I could not find the appropriate information that I needed.

    Here is one piece of information that you should certainly know… Every State has their own laws and requirements with regards to renting to tenants. So you need to find out what they are. I say this, because I remember someone telling me, “Because you live in a duplex, you can tell people that you don’t have to accept them because they have children.” Let me tell you this, in Massachusetts, that is against the law, so good luck with that battle in court…

    To be honest, it wasn’t until I took a Landlord Tenant Law class that I had realize that statement to be false. When the apartment upstairs was ready for its first occupant. (April 2009) I happened to be reading the newspaper and found that a local college was actually offering a class on being a landlord in Massachusetts. In the class, I was taught the “ideal” practices of being a landlord in Massachusetts… The class covered how to: generate a lease, get credit history, understand sanitary codes, communicating with tenants, generate eviction notices and procedures, manage security deposits, advertise within the law and so on…

    The biggest thing that I took away from the class was the horror stories. The repeat offenders that understand the law and use it to their advantage… Basically they take advantage of a landlord that doesn’t require the background checks. The class was taught by an experience landlord that saw all aspect of being a landlord. The one thing that was stressed within the class was to conduct the credit and background checks on ALL applicants. I feel that by doing the background checks on all potential tenants, 95% of the would be bad apples, would not apply. The other 4% would get caught… And the 1% will be the new beginners… I highly recommend this class and/or a class like this…

    Second advice, you have to realize that your rental property is now a small business. You have to treat your property like a business… You need to be able to manage the property, the tenant and finance, like a business. I’ve experience cost overruns and mental breakdowns. Those issue may have been caused by weather (Where's the tarp), injuries (Thank you) and/or life in general (I give you cabinet doors)… But, I’ve overcome the stated stresses because I’ve created a plan and was able to fall back to working the plan… (Finally some motivation) Most importantly you need to be patient. 

    Managing the three items can be a daunting task. But everything comes in stages… The one thing that is certainly a constant is finance. As a small business owner, we don’t start a business wanting to be in the red all of our life… So create a budget… Do the required research on your property: i.e. local rental cost, compare benefits, compare amenities, insurance, taxes, current utility expenses, improvement cost estimate and repair cost estimate. I would recommend basically do a cost analysis on your property. Your goal within that cost analysis is to have your expenses less than your income. Basically you want to generate a profit… However don’t shoot for the stars when it comes to profit. I have to admit, you are not going to be rich overnight… But the extra income certainly helps around Christmas time…

    By having a rental property, the government recognizes your property as a small business. Thus you are permitted the same tax benefits that a small business would have, with limitations of course. Also remember, your tax season is really all year long… Everything you purchase that is required for the rental property can possibly qualify for some type of tax break… Be it a repair, improvement, overhead expense, and so on… I highly recommend the book below if you are going to be become a landlord. The book gives excellent recommendation on financial bookkeeping for landlords. If you don’t feel comfortable in doing your taxes, you can always hire an accountant to do your financial books and taxes… But remember, that will cost you money as well… When doing your tax returns, Turbo Tax, the Premier version is extremely helpful for people with rental properties.

    tax book
  • Paperback: 547 pages
  • Publisher: NOLO; 7 edition (December 1, 2010)
  • Language: English
  • ISBN-10: 1413312772
  • ISBN-13: 978-1413312775
  • Product Dimensions: 8.9 x 7 x 1.2 inches
  • tax book2
  • Paperback: 336 pages
  • Publisher: NOLO; 1st edition (February 27, 2009)
  • Language: English
  • ISBN-10: 1413309119
  • ISBN-13: 978-1413309119
  • Product Dimensions: 8.9 x 6 x 0.8 inches
  • I’ve been fortune enough to have some excellent tenants. I think partly because I’ve been honest and upfront with them. (Its Official) The relationship of a tenant and landlord should be just that, tenant and landlord. Being a friend to a tenant is possible, but it become difficult if issues arise. However, getting to this point requires you to be diligent in doing the required background and credit checks up front.

    I personally have an outside company that conducts the required background checks. The information is all stored with this company, thus if they fail your criteria, the company denies the tenant. Basically the company only gives you a Yes or No recommendation. Thus if the applicant feels that they were denied incorrectly, they must contact the company. Additionally, one item that I’ve told my tenants, “if you know you’re not going to be able to pay the rent on time, please give me advance notice of the issue.” For example, if the first of the month is on a Monday and you don’t get paid until Thursday, I can wait… But don’t wait until Monday to tell me… This has certainly helps both the tenants and me.

    I also recommend that you read a lot about how to fixing things around the home. Visit the hardware store, ask for advice, go online… It’s ok to purchase the Big Box Hardware store self-help books, they are filled with so much useful information. If you are not comfortable with tools, it might be helpful to take a woodworking class. Many schools still offer after school programs for adults. The cost of doing things yourself is both rewarding and less expensive.

    All of this becomes especially helpful when you have to hire a license contractor. Basically when they are trying to explain things to you, you have an idea of what they need to do. Or better yet, realize they maybe over-charging you… For example, I had a contractor tell me that to replace my windows it would cost me $1000 per window. That would include the window and installation… I have over 32 windows or $32,000… I read a couple of books and realized that I only needed to remove 4 screws and install a replacement window… At my local big box hardware store, I found some replacement energy efficient windows for about $150 per window… If I replaced all 32 windows, I would have saved over $27200 by doing it myself…(How much again...)

    For my final advice, I can’t guarantee that you will be rich. I can’t guarantee that you are going to find the model tenant. I can’t guarantee that you will find the perfect multi-family house that doesn’t need repairs…But when you are fixing your place, remember it’s just a rental property… What I mean by this statement is, when you are debating on 2 different colors of paint that are extremely similar, however, one is just a smidge lighter… Does it really matter? It’s just a rental property…

    I hope you enjoyed this segment. I know it’s a departure from my normal postings, but it’s the New Year and I’m not in the fixing mood… If you have any questions please don’t hesitate to ask within the comment section… Until next time, Happy Building and Happy New Year…
    new year baby

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