Tag: DIY Landlord

Categories
Flipping

How an S Corp Election Can Help Flippers

While house-flipping is potentially very profitable, there’s an expensive catch.

You might have to pay a self-employment tax, which is a whopping 15.3% of your profit. That’s a significant amount of money that can go to your next vacation or property you want to flip!

Nevertheless, there is a way to set up your business in such a way that you’re not required to pay the tax. Let’s take a look at how an S Corp election can help you pocket more of your flipping profits.

Why House Flipping is Subject to Self-Employment Tax

While the usual real estate investments such as buy-and-hold are considered a passive activity, flipping homes conducted in a limited liability company (LLC) are active transactions—required to pay self-employment tax on top of the income tax.

Let’s define these two things that come with flip-and-fix projects.

Active Income. Active income applies to anybody who runs a business where one earns ordinary income from performing a service or selling a product. Business owners must pay the 15.3% self-employment tax up to a net profit of $128,400. (Beyond this threshold, you’ll only pay 2.9% as the Social Security portion of the self-employment tax is removed.)

Self-employment Tax. In essence, self-employment tax is similar to payroll taxes withheld from an employee’s wages. For self-employed individuals like house flippers, however, they must cover both the employer and employee portion of the tax. In addition, members of an LLC taxed as a partnership are considered self-employed individuals—which means their earnings will be subject to self-employment tax if they participate in the partnership’s trade.

The 15.3% self-employment tax of your gross salary does chip away at every dollar you earn. Moreover, 15.3% comes in before including the marginal tax rate from the federal and state perspectives. For example:

So, naturally, we want to find a way to save on taxes. One way is to run your flip-and-fix business out of an S Corp instead of an LLC or C Corp. Let’s talk about how you can do this.

How an S Corp Election Can Save on Taxes

First, set up an LLC or C Corp, then elect to have it taxed as an S Corp. Said structure is a tax entity or federal tax election—not a legal one. It’s not for asset protection but for reducing your exposure to tax.

By conducting your business this way, self-employment taxes only apply to a “reasonable salary,” and you’ll pay the remainder of your income as a dividend—not subjected to self-employment taxes. 

Here’s how it’ll go: Set up the S Corp, set up payroll, and begin paying yourself a W2 wage. The self-employment tax will only apply to the W2 wage, and the rest of the income will be considered a cash distribution or cash dividend. Of course, you can only do this with an S Corp route.

Take a look at how the situation now changes and how much you can save:

If you earn $100k with no S Corp (either as a Sole Proprietorship or an LLC), you’ll report your income as Schedule C. You’re going to pay $15,300 on self-employment taxes even before the marginal tax rate or state taxes come into play.

However, if you’re taxed as an S Corp, you can pay $50k to yourself as a W2 wage and have the other half as a cash dividend. With the $100k split up, half of it won’t be subject to the 15.3% tax—and you can pocket $7,650 just like that.

Just remember to never pay yourself the entire profit in W2 Wages. The whole point of setting up an S Corp is to help you reduce taxable income!

Conclusion

There are so many other factors that will come into play, so make sure that you talk to your accountant before considering this tax election for your flipping business. You may be able to amend your LLC to take advantage of this technique or establish a new LLC to start conducting your business as S Corp from the get-go.

Either way, it’s a good strategy to save on taxes legally!

Image courtesy of Jopwell

What do you think of this technique? Any additional tips on how to save on taxes?

Categories
Landlords

How to Market your Rentals Online: Screen Appeal and Listing on Digital Platforms

From digital walk-throughs to Zoom tenant interviews, real estate marketing has officially transitioned to digital in light of the COVID-19 pandemic.

Virtual showing techniques aren’t new, but COVID-19 has certainly pushed the industry to adapt as a necessity. Landlords that didn’t have videos of their properties pre-COVID are now rushing to create virtual tours and trying virtual staging methods.

At this pace, digital marketing will fast become an integral and permanent part of real estate marketing before we realize it!

What does this mean for landlords? 

Prospective renters are now viewing and shortlisting properties from their screens, making “screen appeal” a crucial factor to promote your rental property. You want your offer to stand out where the prospective tenants are: online.

In this article, we’ll go through the ways to increase your property’s screen appeal, write an effective ad online, and list your properties where tenants are most likely to find them.

Increase screen appeal with noticeable features

First, you need to make your rental look impressive in photos. To do this, invest in features that will stand out in photos—even if the prospect browses on their tiny phone screens. 

These are the things that will make a huge difference in digital listings:

  1. Sparkling kitchens with shiny appliances, glossy countertops, and newly-painted walls and cupboards
  2. Spotless bathrooms with new showerheads, clean mirrors, and re-grouted tiles
  3. Fresh blinds and curtains without any mold or grime that are updated to fit the aesthetic of the property
  4. Blemish-free walls freshly painted with a color that makes the room look bigger, brighter, and homier
  5. Brand-new fixtures everywhere—from light switches to faucets to doorknobs and fly screens
  6. Clean carpets that even look like they smell great
  7. Bright lights in every room to make the rental property feel new, and more importantly, show that you’re confident enough to put everything in the spotlight

Make sure that you use a camera that does your rental justice! None of the spectacular features you updated and cleaned will be seen if you use the front camera of your beat-up phone. If you need to hire a photographer for decent equipment, it’s worth the one-time payment to get a lifetime of great photos for your listing. 

Write an effective ad that highlights relevant details

Once you’ve updated your rentals with photogenic features, you need to post them on digital platforms. But what do you say? How do you write an effective ad that attracts your tenant pool? 

Here are the important factors to focus on:

  1. Write a great headline. Rentalutions’ formula suggests including the key information tenants look for (e.g., number of rooms or location) plus one feature that makes your rental unique.
  2. Use professional word choices that add value to your listing, as long as they’re an accurate description of your property. You want to avoid generic words such as “great” and “nice”, instead, choose words like: upgraded, spacious, tasteful, landscaped, modern, luxurious, and charming.
  3. Add more information on the key features. Knowing what tenants want (as you should), make sure to highlight these features in your ad. Are you expecting to attract tenants who put importance on parking spaces, walkability, nearby supermarkets, or proximity to a great school? Your copy should indicate that.
  4. Add detailed property descriptions. Similarly, also indicate what the tenants will want from the property itself. How many rooms, floors, and bathrooms? Will they be attracted to a lush backyard or extra storage areas? Flesh out all of the important details to attract tenants.

Lastly, prove what you said with great photos! When you use great photos to compliment everything that you verbally promoted on your listing, your screen appeal will skyrocket. This is where the prospective tenants should go “Wow! They weren’t kidding!”

List your rental on industry-popular websites

Armed with your impressive photos and well-written ad content, it’s time to post your listing where it matters. Most people are baffled by how many options there are to list online, especially since there isn’t a one-stop-shop solution that posts to all the rental listing sites. 

Zillow—the favorite of most landlords—allows you to create detailed listings that they’ll syndicate out to 26 partner sites (including Trulia, Hotpads, and MSN Real Estate), but it still doesn’t cover all of the sites available.

To get started, check these sites that are known to be effective and user-friendly:

  1. Zillow
  2. Trulia
  3. Hotpads
  4. Craigslist
  5. Facebook

Apart from those, you can also consider these lesser-known platforms:

  1. Apartments.com
  2. Apartment Finder
  3. Apartment Guide
  4. Apartment Home Living
  5. Apartment List
  6. Backpage
  7. Byowner.com
  8. Cozy
  9. Doorsteps
  10. Move
  11. My New Place
  12. Nextdoor.com
  13. Oodle
  14. Realrentals.com
  15. Realtor.com
  16. Rent.com
  17. Rentals.com
  18. Rentdigs.com
  19. Rentlinx
  20. Saletraderent.com
  21. Sublet.com
  22. Walk Score
  23. Zumper

All of these websites allow you to post for free. You just need to do some research and decide which platform enables you to attract the tenants that you want. For more details on the sites we mentioned above, check Smart Move and Landlordology.

Conclusion

Technological development waits for no one. In order to keep up and remain competitive in the rental property business, it’s time to level up with online marketing!

The steps are easy enough—simply increase your property’s screen appeal, write an effective ad describing the best parts of your property, and list them on websites where tenants are likely to browse for new homes.

Any other tips on how to market rentals online? Where are your rentals listed so far?

Image courtesy of Joshua Miranda

Categories
Landlords

Eco-Friendly Tips to Maintain Lawn and Garden

As a landlord, there are several reasons you need to take care of your lawn and garden:

  • Good landscaping is a great way to increase your property’s curb appeal.
  • Allowing weeds to thrive or leaving soil exposed might lead to flooding and pipe damage.
  • Large weeds can even destroy foundations, fences, and outbuildings.

For all these reasons, it’s actually more cost-effective to do preventative outdoor maintenance (and make sure your tenants do, too).

One of the ways to make the task easier, cheaper, and healthier is by using sustainable, eco-friendly methods. Taking care of plants and greeneries without harmful pesticides isn’t as hard as many would think! And, depending on the type of tenants you’re aiming to attract, your eco-friendly garden could be a major selling feature.

Even if you don’t have a green thumb, these quick and easy tips will help you maintain a healthy lawn and garden while being environmentally friendly! 

Leave grass cuttings on the lawn.

Grass cuttings act as natural fertilizers, providing essential nutrients to the lawn and garden. They decompose quickly into the soil, adding nitrogen and acting as a moisture barrier. They also eliminate the need for commercial chemicals that pollute the atmosphere, taint the groundwater, and add unnecessary maintenance costs to your property.

After mowing the grass, skip the rakes and leaf blowers! Just leave the cuttings on the ground—you’ll save time and money, without compromising your garden’s lushness. 

Use yard waste and kitchen compost as fertilizers.

Composting is a great way to reuse resources and create high-quality fertilizer that’s completely free. It’s achievable even in apartment buildings that don’t have garden space—you can use countertop compost containers or a technique called Bokashi composting.

In most cases, you can simply have a compost bin where tenants can throw in their food scraps, then add them to an outdoor compost pile. If they’re not interested in doing so, you can also maintain your own compost and bring it to the rental property during the turnover period to fertilize the lawn and garden.

Avoid gas-powered equipment.

Using electric or battery-powered lawn care equipment will cut down your fossil fuel consumption and emissions—especially if you use manual push mowers (which are also free to run). The US Environmental Protection Agency (EPA) reports that a gas-powered lawn mower produces as much air pollutants as 11 cars, and that’s if the equipment is brand new!

If the old-school push mower isn’t quite your style, you can take advantage of electric technology with the many options available in the market. A corded electric mower will also cost you less than a gas-powered one, running anywhere from $150 to $250 on average.

Water deeply, but less frequently.

Your lawn and garden obviously need water, but not all methods will contribute to healthy growth. Here are a couple of techniques to water them properly:

  • Water the area three times a week instead of every day.
  • Program your sprinkler system to go off at midnight for minimal water evaporation.
  • Keep the sprinkler system on for an extra 10 minutes to have the roots absorb enough water.
  • Use smart watering systems to operate them remotely.
  • Devote a few sprinklers to drip systems for water efficiency.

Additionally, consider turning the system off when rain is forecasted. Not only do you get free water, but you also avoid over-watering the lawn and garden.

Create a buffer zone between lawn and waterways.

This last tip is simple yet crucial, especially for homes in locations that are prone to natural disasters.

If your property is near a lake, river, or stream, try to leave a 10-foot buffer zone between the waterway and your lawn or garden. Allow the zone to thrive naturally with vegetation and plants, binding the soil underneath into a strong barrier. 

The area will serve as a physical barrier to prevent fertilizers from entering the body of water, protecting your area from erosion and keeping your property safe during storms, floods, and more.

Conclusion

There are many ways to implement eco-friendly maintenance of your lawn and garden. Most of them are completely free and only require a bit more effort in setting up. 

Pass these tips along to your tenants if you want them to maintain your garden perfectly during their tenancy, and you can hopefully prevent your outdoor areas from getting overgrown while the property is rented out.

By simply leaving grass cuttings, maintaining a compost pile, using electric equipment, controlling the water system, and having a buffer zone for waterways, your rental investment will have a thriving, beautiful lawn and garden designed to last for a long time. Plus, prospective tenants might love the idea of living in an eco-friendly property.

Any other tips that we’ve missed? How are you currently maintaining your lawn and garden?

Image courtesy of Pixabay

Categories
DIY

How Long Does It Take To Fill Rental Vacancies in Metro Detroit?

The amount of time it usually takes to fill a rental vacancy varies from area to area

Rental vacancy rates are an important indicator for investors to judge the strength of individual real estate markets, because these shows whether or not there is an adequate demand for the number of rental properties available in a given area.

Rental vacancies are also one of the biggest impacts on landlords’ net operating income (NOI) each year, so, apart from retaining tenants, having a short turnover time is crucial for minimizing losses. According to SmartMove, vacant rentals cost landlords in the US $1,750 each month, on average, so investing in an area with lower vacancy rates and quick turnover times is essential for maximizing the return on your rental investment.

Vacancy rates in Metro Detroit

Vacancy rates across the country reached their peak in 2008 and have been steadily decreasing year-on-year ever since. According to FRED, the average vacancy rate in the US in Q1 2020 was 6.6%. Census data for 2019 shows that rental vacancy rates in Michigan were at 6.8%, and 6.2% in the Metro Detroit area, down from a peak of 12.8% in 2010.

According to the most recent data from HUD, Oakland County has an overall vacancy rate of 4.68%, although apartments are in even higher demand, meaning complexes have only a 2.4% vacancy rate. By comparison, Wayne County has an average rental vacancy rate of 6.7%, with apartment vacancy rates at 3.4%, Midtown Detroit has a vacancy rate of just 1.9%, and the highest rates in Metro Detroit are seen Detroit, sitting at 5.3%, on average.

However, in the Metro Detroit area, vacancy rates have been steadily declining, due to population growth and the corresponding increase in rental demand. There’s been an increase in the number of rental home developments in recent years, but it’s estimated that the current planned construction projects in Oakland and Wayne will only account for roughly 20% of the new rental homes that will be required to meet this demand, boosting competition for existing rentals on the market.

This is good news for landlords, as prices have been going up, while turnover times are getting shorter.

You can find vacancy rates for the 75 largest metropolitan areas in the country at cccensus.gov, but this data won’t tell you what the average rental turnover time is for each specific neighborhood. The best way to find out how long it takes to fill a rental vacancy for your property type in your area is by talking to local real estate agents, landlords, and property management companies. They will be able to give you an insider view into the current rental demand in your market, the amount of time a typical turnover process takes, and the kinds of issues which generally slow down or speed up the process in your neighborhood.

Rental turnover times in Metro Detroit

So how do vacancy rates translate into turnover times? Higher vacancy rates in an area means less demand for rental properties, which in turn creates longer turnover periods for landlords looking for new tenants. In Metro Detroit, rental homes on average remain vacant for 52 days, and turnover times can reach up to 90 days, depending on several conditions.

The amount of time it usually takes to fill a rental vacancy varies from area to area, with rural properties generally experiencing longer vacancy periods than urban rentals. The type of property also has an impact on vacancy rates – for example, student rentals have longer turnover times, owing both to the summer holidays and more intensive repairs requirements. Single and multi-family rental vacancies also experience seasonal swings, with turnover periods taking longer during the winter months than in the summer, when rental demands for family homes are 51% higher, on average.

In Metro Detroit the tenant turnover process is particularly fraught with difficulties: finding quality tenants can be a challenge, meaning there is a greater risk that landlords will have to deal with evictions or time-consuming and costly repairs between tenancies. All of this can drive up the number of days your rental sits empty throughout the year. The best way to combat these issues is to be highly selective when choosing tenants and to manage your rentals well to avoid unforeseen issues when the lease ends.

Pricing is also a key determinant of rental turnover times. Interestingly research indicates that, across all rental property price brackets, slightly lowering your asking rent correlates directly to a shorter turnover time. On the other hand, overpricing a rental and later reducing the asking rent leads to properties spending longer on the market and achieving lower rents. Ultimately, pricing your rental competitively will lead to a shorter turnover time and drive up competition for your property, letting you be more selective when it comes to choosing the best tenant.

Working with a good property management company, having a solid rental marketing strategy, and carrying out thorough tenant screening are the best ways to ensure that the turnover process goes as fast and smoothly as possible for your Metro Detroit property. Vacancy rates in the area have been steadily decreasing, so if you’re still experiencing longer-than-usual turnover times, it might be worth talking to your property manager, or revising your pricing, advertising, and tenant selection strategies.

Image Courtesy of Sarah Trummer

Categories
Flipping

Time vs. Cost: What Jobs are Worth Doing Yourself?

Don’t you love it when people watch house flipping and renovation TV shows and say, “wow, it looks so easy to flip houses for great returns”? But the reality is that flipping is a risky business that requires a lot of hard work, excellent project management skills, and savvy budgeting in order to succeed. 

One of the most important parts of flipping houses is the way you restore it for reselling. Some flippers like to do nearly all the renovations themselves to save on costs, but others would rather pay contractors to do it to save on time. Many also opt for a mix of DIY and professional contractors, but in this case, which jobs should you handle yourself, and which are best left to the pros? 

While it’s generally cheaper to DIY, those savings could be nullified if you do it wrong and end up with expensive corrections. And while some tasks might look easy, you need to give up significant hours of your own time to learn and accomplish them. So if we look at the time/cost benefit analysis, which jobs are worth doing yourself?

PLAN OUT THE RENOVATION

Before you start swinging a hammer in good faith, go over the whole property and list down all the repairs that it needs, taking into account the cost and lead times for each. If you’re going to DIY, you have to be able to accurately calculate their costs and realistically estimate the time it will take to complete, as well as the order in which projects should be carried out.

DO WHAT YOU KNOW, HIRE WHAT YOU DON’T

SKILL REQUIREMENTS

Fixing high-ticket areas like the roof, floors, and kitchen areas yourself can save a lot of money, because professionals usually charge a premium for these services. However, the reason for that is these tasks require a high level of expertise to do them well. When done poorly, constantly repairing them will outweigh the money you supposedly saved by doing it yourself. 

You might be charged anywhere from $300 – $10,000 for a professionally installed drywall, while you can do it yourself for significantly less. Similarly, painting will cost you $2-3 per square foot if you get it done professionally, whereas you can do it yourself for just the cost of the paint – it also has a low skill requirement, so not much can go wrong if you DIY. 

So if you have experience in doing these, by all means, DIY. But being inexperienced will only leave you with wasted time, accidents, more repairs to fix, and a lower flipping profit.  

PAPERWORK REQUIREMENTS

Some repairs require specific building codes, permits, and inspections, like removing walls or installing new bathrooms. Better steer clear from DIY-ing these, unless you plan to leave your full-time job to be a contractor yourself. A professional will help you with the paperwork required and provide knowledge if the wall is load-bearing, or if you’d need more space for a bathroom. Their work is also insured, so if anything does go wrong, you’ll know that it’s covered.

A GENERAL GUIDE

Which jobs you do yourself should be based on your skillset and condition of the house, as well as permit requirements. Some jobs will require a licensed professional, like installing complete new plumbing, which you need a permit for, unless you want to get a citation from the city. A homeowner can pull their own permit in most states, without a license, because the homeowner is the one taking the risk. But if you do it wrong, you could have an electrical fire, etc., or end up failing your building inspection and being told to redo it.

However, this list should give you a general guide on when to DIY and when to hire a professional:

DO IT YOURSELF

  • Fix an outlet, doorknob, lights
  • Painting
  • Install baseboards
  • Install laminate flooring or luxury vinyl
  • Insulate open walls
  • Install a toilet (bowl)
  • Install minor PEX plumbing

HIRE A PROFESSIONAL

  • Additions
  • Replacing sidewalks and driveways
  • Replumbing the whole house
  • New electrical service panel and circuits
  • Replacing windows
  • Install solid hardwood flooring
  • Installing a furnace or central AC

Timing is everything with a flip, so work within your set of skills. Consider splitting the workload between you and a contractor who can compensate in places where you struggle. That way, you can focus on the things you know how to do, and still save yourself some money. At the same time, you’re not being slowed down by more complicated projects which will take you as a DIY-er much longer than a professional team to carry out.

What are the fixes you DIY when you flip a house, and which do you always leave to the pros?

Image Courtesy of Laurie Shaw

Categories
DIY

Landlords: Tenant-Proofing your Rental Properties

Tenant-proofing your rental properties is kind of like baby-proofing your house–it saves both of you from unnecessary headaches. The key when tenant-proofing is to identify the things that get abused the most, and think about how you can minimize damage to these areas, or eliminate them altogether. This is especially true for properties in low demographic neighborhoods, whereas problems like these rarely occur in higher-demographic areas.

Here are some other things you should avoid if you want to minimize the risk of extra damage costs:

  1. Avoid Garbage Disposal – Have you ever watched a movie, and the characters threaten to drop something meaningful into the garbage disposal by the sink? Yes, it’s true, people love to put all types of things down that drain. It’s handy–but also very easily clogged. It’s a piece of high-failure, time-consuming equipment to fix.
  1. Avoid Air-Conditioning Units – This may seem necessary, especially during the sweltering summers in Michigan, but AC units are not a requirement. Repairs are pricey and window-mounted models often disappear in the hands of thieves. Leave it to your tenants to buy one for themselves!
  1. Forbid Wall-Mounting – People like putting up decorations on their walls, but strictly avoid any nails or screws that put ugly holes in the walls. There are plenty of adhesive hooks in stores that tenants can use as an alternative, and walls with adhesive residue are easier to repair than those with holes. If you do allow nails, plan on deducting repair costs from the security deposit, because most tenants won’t repair the holes themselves (even if it says so in the lease).

Instead, install features that can help keep your rental properties clean and easy to maintain:

  1. Install Durable Flooring – Vinyl flooring is your best bet here, as it’s affordable, durable, simple to install, and it’s easy to remove any stains that a renter would leave. Although having carpet is a preference for some, it gets old and stained easily, with some stains refusing to come out at all, and absorbs odors from pets and smoke. Similarly, hardware floors – while a great feature to have when selling a house – can easily get scratched or damaged, and cost thousands to replace. With vinyl floors, all you need is a mop and bucket of soapy water, and you’re pretty much good to go. 
  1. Install Door Stoppers – Doors swing open and close multiple times a day, and many people (especially kids) won’t care if the doorknob puts an indent in the wall. Installing door stoppers is a must-have in rental properties, as it will save both your walls and your doors from unnecessary damage.

There are a surprising variety of door stoppers on the market, from baseboard stoppers and ones affixed to the back of the door itself, to wall-mounted handle stoppers and magnetic stoppers. One of the best options is the hinge pin stopper, since it has less chance of getting overworn through constant use (or played with by children).

  1. Install Window Coverings – Blinds, drapes, or curtains might seem like an added expense (and another thing to replace if damaged by a tenant), but it’s a good idea to install some kind of window covering to avoid giving thieves or squatters a clear view inside the property. Cheap coverings will do the trick, and if they’re damaged when the tenant moves out, you can deduct the replacement cost from their deposit.
  1. Opt for Durable Fittings – Some things, like faucets, can be bought as cheap plastic pieces, costing in the region of $40. While this may seem like a good cost savings in a lower-demographic rental, these cheaper fittings usually break down quickly and will need to be replaced every 2 years, on average. Investing in a more expensive, more durable option, like a $120 metal faucet, will mean that fittings can last for up to a decade before wearing out, saving you more money in the long run.
  1. Keep Pests Out – When doing property turnovers, consider conducting routine checks for pests and take preventative action, if necessary. Pests and insects hide well, and pest control services can add up to a fortune if the problem is left to worsen. So better to discover any potential infestations early, and fight back with rodent traps, chemical-free solutions, and an exhaustive scrub-down between rentals.

Follow these tips, and you should have a property that’s as tenant-proof as it’s possible to be. Of course, there will always be repairs and maintenance that need to be carried out at the end of every lease, but by planning properly, you can minimize the chance of incurring additional expenses for damages that could have been easily avoided.

Image Courtesy of: Ksenia Chernaya

Categories
Landlords

Should You Allow Tenants with Pets?

Pet-owners are everywhere in the U.S., where roughly 68% of households have a cat or a dog. Yet a recent survey by Avail showed that only 55% of landlords allow pets in their properties. 

Even if you’re a pet-lover yourself, you may be hesitant to allow pets into your rental properties. This is understandable – but are there situations in which it’s okay to allow tenants with pets?

First, let’s consider the pros and cons of allowing pets in your rental:

Cons:

  • Hard-to-eliminate pet odors
  • Noise from barking, etc.
  • Pet-related damage to your property
  • Possible physical injury or accidents involving neighbors, guests or yourself 
  • Remnants of allergens (saliva and fur) that get in the air ducts, carpet, etc.
  • Fleas and other pests

Pros:

  • Increase in size of tenant base
  • Higher rental rates or fees
  • Possibility of tenants signing longer leases due to limited pet-friendly rental options
  • If you allow pets, there are fewer chances of tenants smuggling them without permission 

At the end of the day, it’s up to you whether you’re willing to accept pets in your rentals. But if you do, here are some guidelines for safeguarding your properties:

Decide What You’ll Allow

Pets come in all shapes and sizes: dogs, cats, birds, fish, rabbits, gerbils, small-scale reptiles, etc., and some have a much higher potential for causing damage than others. So decide which types of animals you’re willing to allow, as well as the number of each and the total number of pets permitted. Will you allow more than one dog? How many cats? Would ten guinea pigs be too much? Put all of this in your lease agreement, as well as: 

  • A statement that allows you to forcibly remove any pet that becomes aggressive or dangerous. 
  • A clause that gives you the power to change your rules on pets, if it’s done with a proper notice period (in case you decide not to allow pets in your properties anymore).
  • The consequences for violation of these rules, like additional fees or eviction.
  • Lastly, you should have a “pet addendum” attached to the lease. This includes specific details about the pet that you are allowing in the rental, and states that any other animal that isn’t registered in the lease is considered an illegal occupant and a breach of contract. If they get an additional dog or replace a previous pet that passed away, they need to have their new pet cleared and registered again. 

And make sure it’s clear what you expect from the pet owner in terms of responsibility for taking care of their animal. So also consider adding these provisions to the lease or pet addendum:

  • They must keep up with the required shots, licenses, and tags for the pet.
  • They must register any pet with you, the landlord, prior to taking them in.
  • They must resolve and pay for any harm done to anybody or anything by the pet.
  • They must take care for and clean up after the pet on a daily basis.
  • When outside, they must keep the pets on a leash or in a cage (depending on the animal).
  • They must acquire insurance with liability coverage for their animal.

Check Your Insurance and Liability 

Check the coverage of your insurance policy before considering tenants with pets. What is the amount of liability coverage in the policy? Are there any limitations, exclusions, or requirements for this coverage? Will they use the list of “dangerous breeds” as a basis for breeds that aren’t included in the insurance?

Charge Additional Fees

Since there is more risk involved when renting to pet owners, you can either add a pet fee on top of the monthly rent, or simply increase the monthly rental fee. Some landlords charge anywhere from $25-$100 per month, per pet, on top of the rent, and they also sometimes charge a pet processing fee (up to $500) when screening applicants with furry friends. Just be careful not to charge anything for emotional support animals. 

Some states also allow you to collect a separate security deposit, called a “pet deposit.” In some states, there is the option to make the pet deposit non-refundable. However, there are states, like Michigan, where the maximum security deposit is only two months’ rent. You need to know the maximum allowable amount of your state and evaluate if this will be enough to cover for pet-related damages which could occur in your property. 

Decide Case-by-Case

Just like any other tenant, make sure you screen the tenant’s background thoroughly. Apart from their financial and credit history, also check their references and ask about their experience with how the tenant managed their pet. Not all pet owners are equally well-trained and equipped to look after their pets!

When interviewing them, make sure you ask: 

  • Does the pet have the proper vaccinations and licenses? Is it neutered or spayed?
  • What breed and how old is the pet?
  • Has the pet ever caused damage to items or bitten anyone?
  • Who will be responsible for caring for the pet?
  • How do they plan to take care of the pet on a daily basis?
  • What is their occupation? (A doctor would have to leave their pets unattended for longer hours than a stay-at-home mom would)
  • Who will care for the pet when they’re not home?

You should also request a recent photo of the animal to keep for your records, and can even ask to meet the pet in person prior to approving their application. 

So, now that the risks, benefits, and processes for allowing tenants with pets have been laid out, it’s your time to make the decision. Will you open your doors to the pet-loving community? 

As a final thought, be mindful that a Fair Housing Law protects disabled people who need an animal for their emotional wellbeing and/or physical safety. The term “disabled” now includes not only the blind or paralyzed, but also those with clinical depression and post-traumatic stress. You can request a note from their physician to verify their condition and need for animal assistance to keep things documented. 

Do you allow pets in your rentals? Why or why not? 

Image Courtesy of Dominika Roseclay

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DIY

Keeping It Legal for DIY Landlords

A legal hammer.

ALWAYS have everything in writing. Specific terms should spell out exactly what is expected and legal from all parties involved

Working through the web of renting your properties can be mind boggling when you realize the details involved with signing a tenant. Knowing federal laws and local regulations will help keep you in business and profitable. Working from a template and a detailed checklist is a good way to keep everything legal from Day 1. If properly thought out, it can save you from the high cost of defending yourself in court.

Proper Documentation

ALWAYS have everything in writing. Specific terms should spell out exactly what is expected from all parties involved. Have a lawyer draft your lease agreement to help avoid the pitfalls of cookie cutter online forms. Rental agreements are legally binding contracts, know the rights tenants have and familiarize yourself with the Federal Fair Housing Act.

Advertising, Showings & Applicant Screening

You must study, and pretty much memorize, the Fair Housing Act to avoid discrimination violations. Your advertising, how you handle inquiries, showings and applicant screenings must all conform. Make one mistake and you could wind up in court.

Don’t forget about the Fair Credit Reporting Act and what your required to do if you deny an application or an applicant disappears.

Once you figure out how to legally operate — be consistent! Avoid potential discrimination lawsuits by treating everyone the same and avoid shortcuts — even when you know what the outcome will be.

Deposits and Fees

Check your state and local requirements regarding application fees, pet fees, security deposits, etc. Decide what you’ll charge and again, be consistent to avoid discrimination claims.

Keep In mind a security deposit is just that, a deposit, so it technically still belongs to the tenant, you are just holding it. Don’t go out and spend it. You may want to keep it in a separate account to make it easier to keep track of and explain when needed. Remember, the security deposit is used as a guarantee against possible damages or unpaid bills, but even during an eviction proceeding, it still legally belongs to the tenant.

Required Disclosures

Federal law requires disclosure to a tenant about potential lead-based paint issues. Make sure this disclosure is included in your lease and that you also have the government required lead-based paint pamphlet to hand out.

Your tenants may also have the right to disclosures regarding building ownership, landlord, or management company that acts on behalf of the landlord. Provide them with proper contact information for rent collection, complaints, maintenance issues, etc.

There’s also required disclosures like the Move-In Checklist, specific tenant notifications required in a lease like; Truth-In-Renting Act, Security Deposit Rights, Domestic Violence and Senior Living clauses. All are another reason to engage an attorney to at least review your lease annually.

Property Maintenance

Check your local ordinances for landlord obligations regarding property maintenance. Many cities consider it illegal to collect rent if a property hasn’t passed a city inspection. In addition to issuing tickets, they may also arrest an owner who fails to comply.

Know Your Landlord Rights

When dealing with landlord-tenant issues, there is usually more focus on protecting the tenant. As we all know, there are two sides to every problem, and as a landlord, you have rights, as well. Though not a complete list, here a few biggies:

  • Eviction – Depending on your lease agreement and state & local laws, you have any number of valid reasons for choosing to evict a tenant.  Keep it legal here, abide by all local laws and ordinances to prevent making the situation any worse.
  • Home Entry – You certainly don’t have unlimited access to a tenant’s home, but with proper notification to complete repairs or an emergency the law allows entry as needed.
  • Rent Increases – Many states and cities are passing laws limiting rent increases. Be sure to check and conform as needed. If there are no laws, you can legally raise the rent as much as you want, as often as your lease allows.

Housing is a highly regulated industry and need to be clear on fair housing laws and other local ordinances that affect your business. Pleading ignorance will not keep you out of trouble. Of course, you want your real estate investments to be profitable, but ignoring the laws set in place to protect the landlord-tenant relationship, will only do more harm than good in the end.  Before making any legal missteps, consult your attorney for clarification for any landlord-tenant issue.

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DIY

Why Do I Keep Attracting Bad Tenants?

Cops outside a house.

In the landlord sewing circle, conversations have a way of moving toward bad tenants.

No matter where your properties are located or how high your rental rates are, you’re bound to come across some bad renters — it’s just part of the business. Bad tenants affect more than just your bottom-line, they can wear on your sanity as well. If you feel like you’re attracting more than your fair share of “slumtenants,” maybe you are. Before things get any worse, take an introspective look at your policies and evaluate your business model.

Where Are You Purchasing Properties?

If you own properties in rougher neighborhoods, expect more problems and repairs. Lower demographic areas have lower income levels, higher levels of illegal activity, and many residents have a criminal past. Many will not have the decency to respect you or your property.

How and Where Do You Advertise?

If you’re nailing hand-written flyers to telephone poles, you give the impression that you’re desperate and probably will take anyone just to fill the vacancy. But if you take the time to take hi-def photographs and/or professionally made virtual tour videos to post on your site, you will attract a different type of renter. By including the rental rates in your marketing material and your website, you will instantly narrow the number of potential applicants. By charging higher rates, you’ll weed out much of the riff-raff.

The Application Process Is Your First Impression

Was the potential tenant on time for appointments? If they showed up late without calling or just blew you off with no consideration for your time, they’re probably not going to have much respect to your property either. Were they courteous and neatly dressed? If their appearance is sloppy, imagine what the inside of your rental will look like. 

For starters, charge an appropriate application fee. If prospective renters can’t scrape together the fee, how are they going to come up with the rent? Also, it’s smart to present a lengthy application, people who aren’t serious won’t bother to take the time to fill it out. Was the application written legibly, fully completed, and signed? Texting is ruining people’s penmanship, so that’s not the perfect marker, but if vital information or sections are left blank, you have to ask yourself, “What are they hiding?” These are some early red flags, though it’s not foolproof, it does you give an idea of how they will act as tenants.  

Don’t Skimp On Lease Details 

Sure, you can go online and just print out a lease, but be careful with cookie-cutter contracts. You want to be confident that every one of your required terms is in the lease. You’re better off getting an attorney to draft one for you, the initial cost will more than pay for itself when problems arise, or you find yourself in court. Make sure all tenants are listed and sign the lease. Once presented with the contract, many tenants will try asking for amendments, resist the urge to negotiate the terms of YOUR LEASE. By doing so, potential tenants will feel like they found themselves a “pushover,” you’re setting yourself up for problems in the future. 

Get The Scoop From Past Landlords

Your application has a section for references for a reason, make sure you contact previous landlords. A little extra time now doing basic research will save you the trouble of having to deal with the aftermath of damages or missed rent payments. Be glad to get the bad news early and weed out any subpar tenants. Past behavior is a good indicator of how they will treat you and your property. 

Max Out The Deposit

For the same reason it’s smart to charge appropriate application fees and rents, get as much of a security deposit as the law allows. It will weed out bad tenants that may have trouble coming up with cash on the 1st of every month. 

Don’t Be Lenient With Your Policies

Bad tenants are like sharks, they can sense prey in the water. You have a business to run and bills to pay. It is vital to be firm and consistent with all of your policies. Being passive about tenant screening, rent collection, and other house rules only cause more problems throughout their tenancy.  

You can’t always spot a problem tenant. Someone is bound to sneak through eventually. But with due diligence and proper screening, you should be able to limit your liability. You want to stay on top of your rentals and arrange for periodic inspections so you won’t get surprised when they move out. Finally, don’t rush the process just to fill a vacancy, if there’s any doubt, then there’s no doubt. 

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DIY

Tips for Novice Landlords

People dream of becoming landlords, how hard can it be to walk to the mailbox every month, and cash rent checks?

Tips for Novice Landlords.

Let’s get it out of the way early — making money as a DIY landlord is NOT going to be as passive you envisioned. Expect to spend many of your evenings and weekends dealing with property and tenants issues.

The whole point of investing in rental housing is to collect monthly rent payments, yet this can be one of the most challenging aspects for a newbie landlord. There will be times when you have to hound tenants for the rent. Be firm about rent payments, you rely on them for running your business. Being lenient with your tenants will open the door to a slew of problems. If they don’t pay, follow your state’s laws, and if needed, start the eviction process.

So you’ve got your first rental ready to go. You’re eager to start renting and making some money. Resist the urge to rent to just anyone because you’re concerned with vacancy. Make sure to stick your plan — be vigilant about screening new tenants. Leasing to a tenant that doesn’t meet your standards will only bring more problems than it’s worth, it’s better to be patient and wait for the right candidate.

Fair housing laws are in place to protect the tenant — they are a big deal. Don’t put yourself in a position where you’ll have to defend yourself in court. If you’re not sure about something, consult an attorney, or better yet, read up and educate yourself, it’s bound to come up again.

You want your rentals to be the best they can be to attract prospective tenants, but remodeling to your (expensive) tastes is not a good business decision. It’s fine to remodel but resist the urge to go overboard. Unless your property is in an area where you can charge appropriate rental rates, it will be difficult to recoup your investment.

The right marketing strategy will make a world of difference. Make sure to use the right avenues to market your vacancies. Newspaper ads are on life support. You need to place your ads where the right clientele will see it.

Place online ads and use dedicated web sites to find great renters. To entice prospective tenants, pay a professional to take brilliant photos and create a virtual tour. This will save you tons of time by not showing your property to people who aren’t that interested or can’t afford it.

First impressions matter, don’t underestimate curb appeal. Always keep your property looking good — inside and out. Prospective tenants will never get to see how beautiful the new kitchens and bathrooms are if they pass on your property because it looks dingy from the outside. 

BONUS: Stay Organized

You may be surprised how much work is involved with your rental property business. The mountain of paperwork alone can be daunting if you’re not prepared. Paying attention to details and staying organized will help you to stay focused and promote success.

Just because you’re starting a “side business” to produce a passive stream doesn’t mean it’s going to be easy —  this is not a hobby. There is a learning curve to honing the skills needed to run your rental property, but things get easier to manage with every new tenant and each additional property.

You will face challenges, you need to treat your new venture as a “normal” business. Plan on making mistakes when you’re starting out, but expect those growing pains to wane as you acquire experience and grow. Stay positive and focus on your goals. 

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