SS66: Tips For New Landlords

Becoming a landlord may seem like a straight forward endeavor but there is a lot that goes into managing rental properties and managing tenants. In this episode, Charles outlines some tips he has learned over the past 2 decades from owning rental properties.

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Talking Points:

I have been a landlord since 2006 and there are a few tips I wanted to share with new landlords.
Be aware of leasing scams when renting properties. Make sure to watermark images and if you are posting the rental on Craigslist; avoid putting the exact street address in the listing.
Be cautious of large up-front (usually cash) payments from tenants – why are they doing this – there is usually a trade-off. Now I personally have offered landlords to prepay a year of rent for 1 free month but in most situations, these are scams. Usually, you cannot verify their credit, criminal record, or employment. Make sure every prospective tenant formally applies and goes through a credit and background check.
Always have a written lease that your attorney has previously reviewed and always have important communications; written and documented and when in doubt; send them certified. This would include; a non-renewal, a renewal with the rent increase, a noise complaint, etc. It is crazy how many people rent apartments with a boilerplate lease they downloaded off the internet or with no lease at all. You must enforce anything that you put in writing or it could create a precedent that something in the lease is not enforced and then not required; like paying on time or paying late fees.
- Create a coversheet that you provide to the tenant when you present the lease to them and walk them through the cover sheet. (checklist)
Never have your tenants do any work at the property for a rental discount. You vetted them as good tenants when they moved in; you didn’t vet them as a contractor. Unless they are a superintendent; do not make any deals with them for discounts on rent or doing work around the property. Keep everything separate.
Have separate bank accounts; you should have one operating account; you should have one for security deposits and you should have one for reserves. When I owned and self-managed smaller properties; the property would be owned in 1 LLC and then I would have a management LLC that I set up. Under the management LLC, I would have an operating checking account that was swept at the end of the month and I would have another account under the management LLC that was just for security deposits. I would keep a savings account under another corporation and that is where I kept my reserve fund. Any profits at the end of the month from the operating checking account would be swept to the reserve savings account at the end of the month. The management company has most of the legal exposure so you want to keep none of your own funds in there after the month is done.
Always be professional with your tenants but do not be friends with them or become involved; even if you live at the same property. Limit text messages, no social media contact, no social meetups, and don’t socialize when seeing them face to face; be nice, and caring, and then move it along. Don’t stand in their apartment or the hall for an extended period of time talking about non-property issues.

Transcript:

Charles:
Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing tips for new landlords. So I’ve been a landlord since 2006. I self manage my own properties for six years prior to hiring a professional third party management company. And there are a few tips I want to share with new aspiring landlords. Number one, this is for run renters and landlords. Be aware of leasing scams when renting properties and make sure to watermark images. And if you’re posting the rental on Craigslist, avoid putting the exact street address in the listing. Now this is really important because a lot of scammers out there will try to imperson you by stealing all the information from your listing and the, and find someone that will send them a deposit and or first and last moms rents and all that stuff. And you can avoid the whole issue if you make it a little harder for them to copy.

Charles:
Now, if you’re renting an apartment and it’s from the supposed owner, verify where you’re writing the check is the person or the entity that is on record of owning the property. And if not, you know, ask for more documentation at that point, you probably can weed up. Most people they’ll go to an easier target. Number two, be cautious of large upfront, usually cash payments. And now I know this is really difficult. When a tenant shows up, they wanna rent it. They have all these months of money up front and security deposits and all the stuff that you want front and you’re kind of really pushed to wanting to rent to them. You’ve got a mortgage payment that’s due the a department’s been vacant for a little bit, but don’t do it. And you know, why are they doing this? There’s usually a trade off.

Charles:
And now I personally have offered to landlords to prepay your rent myself for one free month, but in most situations these are scams and usually you cannot verify their credit criminal record or employment and make sure every perspective tenant formally applies and goes through a credit and background check. Now, I, if, if you have every person, no matter how they’re gonna pay go through a credit and background check and pay you the application fee. The chances are that someone is going to go through that. If they know there’s something that’s going to pop up is rare. Now I’ve had some people go through and lie on the application and then, you know, a felony comes up and they didn’t think you’re gonna find it or something like this, but main mainly if you can go it through, you can verify the employment.

Charles:
You can verify income, you can verify, you know, credit and background. That is your number one thing that you can do to make sure there’s no issues. If you do all that, you probably won’t have the issue of someone waving a bunch of money in your face, cuz they’re not gonna want to go through the whole process cuz they know they won’t be approved. And that’s one thing about asking for or application fees. You can also ask for an application fee and then ask for a refundable deposit on top of it. If your application fee is $50, ask them for a refundable deposit of $50. If they don’t get the apartment, they’ll get $50 back. They won’t get the application feedback, but it shows they have more skin in the game. And I had one management company that did that. And I think it’s I think it’s a great way of of renting about properties.

Charles:
Next is always have a written lease that your attorney has previously reviewed and always have important communications written and documented when in doubt send them certified and this would include a non-renew letter, a renewal with rent increase a noise complaint, et cetera. It is crazy how many people rent departments with a boiler plate that they downloaded off the internet or off of some social media site or something like this or, or with no lease at all. And you must enforce anything that you put in writing, or it could create a precedent that someone in the lease is not something in the lease is not enforced and then not required like paying on time or paying late fees. If you don’t charge late fees, then it’s something like, well, that’s not really a thing cuz you’ve never enforced it. So when I’m getting evicted months on the road you can’t you’re not, you can’t add that into fees that are owed.

Charles:
Now, when I used to rent properties, I used to create a cover sheet that you provide it to the tenant when you presented the least to them and walk them through the cover sheet. So I can go through a couple of things now on what is in that cover sheet. So usually what I would do is I would say it’s, it’s like a two page. It would I’d call it the move in checklist, tenant checklist. And I wrote this all myself and it was like, you know, and I would have them initial each page of the lease lease. I would have them sign and date the last page of the lease. And they include payment for the first month’s rent and security deposit in the form of money order, cashiers check or back then I used to take cash. I’m just reading it all verbatim here of what I had clear photocopy of ID for each resident, 18 years of age or older, and then contact utility companies at least one week before moving in to have your services turned on.

Charles:
Now this is very important because keys are not provided until this is completed. And I put that in big bold letters and that’s really important because you wanna make sure all of that is taken care of before you hand over keys. And if you see when I’m accepting payment for response and secure deposit, it is there’s no check, right? It is a money, it is a payment that has been guaranteed payment on. So I have, I would list my U utility pro utility providers for the electricity, the natural gas. You know, I have a little note there. It says tenant must contact our office prior to the installation of satellite dishes. I have contact numbers there for any maintenance issues. They would call one number any payment or rent issues. They would call me and then I’d have a way for them paying rent.

Charles:
It would be a PO box. Back then I did, when I self-manage, I did pick up cash, not what I would really suggest. I, but at that point I would have them call me and we’d set a time to paying cash. Late fees and evictions. I’d always have a space there and I would tell them, your late fee is blank for rent paid after 5:00 PM in Connecticut, it was on the 10th of the month. In other states it might be the first, it might be the third, whatever it is. And I would remain, I would write in there with a with a, with a pen or a marker or something like this, so they could see it, it and it wasn’t in black, it being blue or red or something like this, so they could see exactly what the amount was and it would pull attention to it that, Hey, you gotta pay on time.

Charles:
I’ll tell them about a, anything else going on with the property any type of snow what you do during snow band, stuff like that, stuff that we had to do up north. I talked to ’em about the base and storage areas that this is completely, you know, they can put some stuff down there, but it’s all at their own risk. I tell ’em about the trash pickup day and I tell them if they have any issues to contact and we’ll respond within 24 hours. And that was the whole tenant checklist cover sheet that I used to send out. And the reason for that is because most tenants don’t read the lease. So to, instead of hoping and praying that there’s never an issue, I’d rather go through what I would consider to be the most important parts of the lease.

Charles:
Because as a landlord, we’re looking for we’re looking for people that are going to maintain the property and they’re gonna be friendly to their neighbors and they’re gonna pay the rent on time. I mean, that’s really what it comes down to. And so if I can outline that what you need to move in marry straight forward, they’re not gonna look through a 15 page lease and try to figure that out. And I give ’em the amounts of what they need need. Everything’s very straightforward and I run to apartments too, and they don’t do this and it’s kind of silly, make it as easy as possible. You have an, you have a tenant that you vet it. You want them living in your apartment. You, you want to rent the apartment make it as easy as possible for them to move in and writing up a little checklist, a low cover sheet that you add to the lease.

Charles:
When they say, Hey, you’ve been approved, here’s the lease and you can email to them or what happens as, and, and I go through the cover sheet with them, they can read the lease. You’re not gonna sit there and go through the lease with them. You’re not their attorney. But the thing though is the cover sheet goes through everything that’s most important, which is you know, utility switched over what they need to move in. And what happens with the late fee, if there’s issues you call for it and all the kind of stuff that happens, whatever your process is, you want to train them to get into the mode of it. And now what I used to do is I did used to give one free, late fee when I managed myself. And after that, I wouldn’t do it. If I do any again, I probably wouldn’t do that.

Charles:
But I had a, I had a really good relationship with a lot of tenants and, and professionally. So it was something that did work and you give one like kind of, you know, they have a late payment here, you work with him, but you have to make sure that you’re stern on it. That this is a one time thing. And some people that when, you know, went to had a second late feed on the road you have to start enforcing it. Next is never have your tenants do work at the property for rental discount. Now you vetted them as a good tenant when they moved in, you didn’t invent them as a contractor unless they are a superintendent. Do not make any deals with them for discounts on rent or doing work around the property, keep everything separate. And I have this happen many times when I self-managed properties.

Charles:
You know, you, you have a female tenant and her father is gonna, you know, paint something. Someone wanted to paint a back hallway one time for rent discount and or a boyfriend or something like this, or you know, my first tenants I would say, Hey, you’re handling part of know or something like this. Well, oddly enough, those tenants were never home when it snowed. So the thing though, is that it’s just easier to say, listen, nothing, you don’t have to do any work at the property. If there’s an issue you call us and don’t make any type of rent concessions or anything like that because someone’s gonna be doing work. And you also don’t know what kind of work they’re doing. Most people know they can put in a new door knob or something like this, but you don’t want people, you know, doing trim work and stuff like this at your property have separate bank accounts.

Charles:
You know, you should have one operating account. You should have one for security deposits and you should have one for reserves. Now, when I owned in self-managed smaller properties, the property would be owned in one, LLC then would have a management LLC that I set up. And under the management LLC, I would have an operating checking account that was swept at the end of the month. So you don’t really keep any money in that account at the end of the month. And then I would have another account under the management LLC, that was just for security deposits. That could be like a, you know, a checking account. It could be a savings account, whatever it is. And I would keep a savings account on to another corporation. That is where I kept my reserve funds at. So you don’t really keep any cash in the property accounts other than the security deposits, cause they’re not really your money.

Charles:
I would just kinda sweep that money at the end of the month from the operating account and anything left over, you know, you can put, I would put into a savings account that was outside of the property. And I can use that for any other properties. You don’t have to have a, a reserve savings account for every property. Now, if you’re dealing with you have a, you know, 30 unit apartment building, you probably keep a savings account under, you know, your, your LLC, where you’re gonna put money in every month so that, Hey, when that roof is required or boilers are required, whatever it is, you can move that money over. But for small landlords I put it into, you know, I’d have one savings account that’d be for all, or, you know, reserves for anything that happen with any of the properties.

Charles:
And you can pull money from that, but you can also put money into that every month. And the management company has most of the legal exposure. So you want to make sure that you keep none of your own funds in that after the month is done. Okay. If someone’s having issue with something they’ll prob they might put the property L see into some sort of legal proceeding, but they’re also gonna put who they have the agreement with the lease with, and that’s gonna be your operating company. And if there’s not really any funds in that, yes, you’ll have your security deposit funds in there, but those aren’t really your funds. So I think it would be kind of hard for a for a judge to say that you have to give over someone else’s money to some sort of, or something like this.

Charles:
I’m not an attorney always verify with an attorney before you do anything, but that should be part of your plan when you’re setting it up. Next is always be professional with your tenants, but do not be friends with them or become involved. Even if you live at the same property, you know, limit text messages, no social media contact, no social meetups, don’t socialize when seeing them face to face, be nice and caring, and then move it along. You know, don’t stand in the apartment or the hall for an extended period of time talking about non-property issues. If there’s an issue I always would just act that I was in a rush and say, yes, sure. We’ll take care of that. You know, give us a few days on that. Cuz you, you wanna make sure that and you wanna explain it to them because there’d be a lot of people that they want some sort of something special for the property, right?

Charles:
Hey you know, I’ve been here for two years. I wanna pay the, you know, I want get this room, paint it fine. You know, we can paint that room for you. That’s not a problem problem. I can send someone in to do it. And then he comes back that, Hey, you know, my rent’s gonna be late next time. Well, that’s not how it works. I mean, it’s, I’m doing something for you. I’m providing anything that’s broken, I’m fixing, I’m taking care of any issues any type of maintenance I’m handling and your, you know, your job in this whole thing is to pay rent on time and you really have to make that known and you have to do it from the beginning. It’s very hard to, to train or retrain tenants after they’ve moved in. And it’s, you know, you gotta really tell ’em that it’s your firm, but you’re fair. And however, it’s, everybody has their own way of doing it, but you’ll find your rhythm once you start with it and you’ll start learning the landlord business in inside and out. So I hope you enjoyed, please remember to rate, review, subscribe, submit comments, and potential show topics at globalinvestorspodcast.com. Look forward to two more episodes next week. See you then

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