E-Renter News

It seems like an easy enough question: when is the rent due? Is it the 1st of the month, but your tenants know you’ll accept it on the 3rd?  Do you routinely offer a 5-day grace period? Is the rent due in full or will you accept half when your tenant gets paid on the 1st and the other half when she gets paid on the 15th? Or is rent due for some tenants on the 1 1st and others on the 10^th of the month?

If you have more than one tenant, any of the above scenarios could become a nightmare to manage. Life doesn’t have to be complicated—nor does your rental property business. When it comes to collecting rent, applying the K.I.S.S. principle (Keep It Simple, Silly) is a good idea!

While a landlord and tenant can agree to any sort of rent schedule, most experienced landlords recommend having the full amount of rent due on the 1st of the month. Accepting half or partial payments can be a problem. Not only does the practice create more work, paperwork, banking, and hassle for you, it could come back to bite you.

How? If a tenant stops paying rent on time and you start eviction proceedings, accepting subsequent partial payments can throw the case out of court. A history of accepting a tenant’s rent in smaller chunks rather than in full could create a confusing situation for everyone. Your tenant could claim they were planning on paying the rest of the rent later, just like they always do.

And what about grace periods? Sure, most landlords allow a little wiggle room—usually a few days. But most would agree it’s best to not wiggle to your own detriment. Giving tenants the ability to pay after the due date encourages late payments. If there is no consequence, why pay on time? To combat this behavior, consider adding a late fee for rent paid after the 3rd of the month.

(Note that some states have laws requiring grace periods; check your local and state guidelines thoroughly.)

Finally, make sure your lease agreement contains specific language regarding rent due dates and that you have the right to refuse rent payments after any legal demand notices expire. This will allow you to move toward eviction when the need arises.

In some good-for-a-change housing market news, S&P/Case-Shiller reports that 2009 home prices actually increased in several of 20 metropolitan areas studied. Overall, prices dropped 2.5 percent, mostly because of hard-hit areas like Las Vegas, Tampa, and Detroit, where prices declined 20.6 percent, 11 percent and 10 percent respectively.

But in San Francisco, Dallas and San Diego, prices rose by 4.8%, 3% and 2.7%. Overall, there is an indication that year-over-year declines in some markets are reversing, which may mean the market is beginning to show signs of stabilization. In fact, Las Vegas actually showed an increase in home prices in December, 2009—the first such increase in three years.

Do these price reversals mean the economy is finally on a rebound? Maybe not. With unemployment still high, and all indications pointing to a slow recovery in the job market, we probably should not plan on rapid home value appreciation and another housing boom any time soon. More likely the government’s involvement through the home buyer tax credit and buying up mortgage-backed securities is bolstering the housing market.

What does this mean to investment property owners and buyers? Is now a good time to get back into the market? There is no single answer to that question; like most investment questions, it’s best to ask your professional financial advisor. The experts say that while mortgage rates won’t stay this low forever, we’ve probably seen the last of the housing market buy/flip mentality for a while. We should all put our “buy before the price doubles” mentality on the shelf. At least for now!

The U.S. Department of Housing and Urban Development (HUD) estimates Fair Market Rent as what a household can expect to pay for rent and utilities in a given area’s current rental market for non-luxury efficiency, one-, two-, three- and four-bedroom rental units.

Fair Market Rents (FMRs) are revised annually. They become important when dealing with HUD’s Section 8 housing assistance program, but are also handy for landlords and rental property managers in determining rent for their properties.

A landlord who is new to a certain market and needs to determine what rent will provide enough income to cover P&I, insurance, and other expenses could use FMRs to get an idea of what the rental market will bear.

FMRs are set at the 40th percentile of gross rents, which is the point at which 40% of rents are at below or equal to, and 60% of rents are greater than or equal to. So, FMRs are set among the lower half of average rents. It’s important to remember that HUD’s gross rent refers to rent PLUS utilities (electricity, gas, water, sewer, and trash—but not telephone service) paid by the tenant.

HUD publishes proposed FMRs each year in April or May, to cover the upcoming fiscal year that begins October 1. The public is then invited to comment on the proposed rents, and after a period of review, the final FMRs are published in September and effective October 1.

To use HUD’s Fair Market Rents data, you can choose your area by state and then county, or see a state-wide summary. Or, you can choose from dozens of metropolitan areas, from Abilene, TX to Yuma, AZ.  Examples of FMRs range in Abilene from $486 for an efficiency to $1,062 for a four-bedroom unit, while Yuma’s range is $574 to $1,408.

HUD provides calculations and charts to show how its figures are derived; if you’re a math whiz, you might want to check their results for accuracy—but most of us will likely gloss right over this section!

Check out HUD's Fair Market Rents for more rental market data than you'll know what to do with!

Good Tenants are Out There

Landlords are reporting sketchier applicants, deteriorating credit scores, and generally more challenges in finding good tenants. That doesn’t mean they’re not out there! It’s true that while rental inventories are up, so are the number of potential applicants—and when the numbers increase, they do so at both ends of the scale. But just keep your standards high, and you’ll still be able to attract the tenants at the high end of the curve.

People are one the move right now—out of their homes and into rental property, or from a high-end rental to a lower price point. You could be well-positioned to fill your vacancy quickly, provided you do your job right.

When you’ve advertised a rental vacancy well, your phone should start ringing. In this renter’s market, people are looking around for the best deals. If you are not seeing any responses, take another look at your advertising. If you’ve targeted your best tenant and placed advertisements where he or she will see them, you will get responses.

The first task is to write a compelling and complete ad. Include basic information, but go beyond that: think in terms of what your best possible tenant wants. Is it bright, sunny rooms? A fireplace or ceiling fans? A quiet neighborhood or proximity to late-night city life?  Hardwood floors or wall-to-wall carpeting?  Write down every positive feature of your rental unit and include it in the ad.

Next, put the ad where your tenants are looking. Usually —but not always—that’s Craigslist. Try going beyond one ad and again, target those good tenants! A neighborhood grocery, café, fitness center, or coffee shop might allow you to post an ad. Grab attention with a great, bold headline, like

FOR RENT: Immaculate 2BR 2BA Duplex
Close to Parks and Schools
Fenced Yard and Big Windows
Walking Distance From Here!

Include the monthly rent to eliminate prospective applicants who cannot afford it. Add nice photos and include an easy way for interested folks to respond.  If you are willing to work it a little more and outside where you usually advertise, you will see a better response by your best-fit tenants.

In a word, yes! Here are a few reasons why:

Right now might be the best time in years to buy—in certain markets. But crunching the numbers becomes more important than ever—if real estate prices have dropped, has employment dropped, too? How far have rents fallen? Will you be able to rent a newly purchased property for enough to cover your P&I, insurance, repairs, taxes and other expenses? Even if real estate is 20% or 30% down from the heights of 2006-2007, you still need to make sure the numbers will work. A bargain is not a bargain if you can’t rent it. But in some markets, bargain real estate can work for the right buyer.

Real estate builds wealth—when purchased at the right time and for the right reasons. This means not buying with the expectation of great appreciation—one reason for the high rate of foreclosures we’re seeing now. Steady month-over-month profit that grows over the years you own the investment pays off with less risk than the expectation of making a big payout when you sell.

More people are moving from homeownership to renting. Americans are re-examining the idea that everyone “must” own a home. For plenty of folks, that dream turned out to be nothing short of a nightmare. Many former homeowners will be renters for a long time to come, both because of the bad experience they’ve had and because of foreclosure’s subsequent hit to their credit scores.

Depreciation expenses are valuable to landlords. Each year, rental property owners may deduct depreciation, or the annualized loss in property value from their income taxes (please see your tax professional for advice and legal limitations and regulations). Even if the value of your property increases, you still get this annualized deduction.

Real estate does appreciate over time—in most cases. Even in the hardest hit areas of the U.S., the long-term picture shows that real estate values do go up. If you are planning to get rich quickly, real estate may not be the right investment for you. But for the long term, it’s a great investment for many landlords.

Please consult your legal and financial professional advisors regarding investment and legal issues. This is not to be considered legal or investment advice.

How to Go From "No Pets Allowed" to "We Welcome Pets & Their Owners!"

Love me, love my dog.  We’ve all heard that bumper-sticker-worthy line. But it’s more than just a saying. In the U.S., more people own pets, and lavish more time, attention, and money on them than ever before.

Landlords who allow pets in their rental housing have a clear advantage over those who do not: their pool of potential tenants is much deeper and wider. A recent study by the National Council on Pet Population Study and Policy shows that as many as 35% of non pet-owning people would have a pet if their landlords allowed it. A staggering 6.5 million animals could be out of shelters and into homes if all rental housing allowed pets.

Regardless of one’s feelings about pet ownership, the fact is that landlords who allow pets have an advantage when working toward filling vacant rental housing units.

If you are thinking about changing your current no-pets-allowed policy, a variety of resources are available online to help steer you in the right direction. It is possible to attract more potential tenants, and have a hassle-free experience—when you know how to spot responsible owners and well-behaved pets. Then, be sure your pet-owning tenants stick to the rules of your clearly-written pet policy.

Right at your fingertips are dozens of ideas on how to create pet policies, identify responsible pet owners, and weight the pros and cons of allowing pets in rental properties.

The Humane Society of the United States’ website features articles on developing an effective pet policy, sample application forms and addenda to rental agreements, and even tips to spread the word that you now accept pets—plus much more.

The San Francisco SPCA works toward matching pet lovers with pet-friendly rental housing, and increasing pets-allowed housing in the city. According to the SFSPCA, they increased cat-friendly housing from 33% to 55% and dogs-allowed rental units from 11% to 29%. Very impressive!  The SFSPCA features Guidelines for Landlords and Guidelines for Tenants on their website.

Similar articles, tips, and ready-to-go agreements and policies are available all over the web. Just search “Pet Guidelines for Landlords” and you’ll have what you need to begin accepting pets from happy new tenants!

Protect Your Property and the Community

Prescreening tenants is a common practice for smart landlords. Checking an applicant’s rental history and credit background are both vital to your rental property business’s success. Before renting to a new tenant, you should know if they are credit worthy or have been evicted by previous landlords.

Credit checks and previous rental history checks can help protect landlords against financial losses. They are the best way to predict whether a tenant will pay rent on time. But as a landlord, you are responsible for more than just your own financial protection.

Keeping crime out of rental properties is a goal every landlord shares. By failing to conduct criminal background checks on potential tenants, landlords risk bringing harm to other tenants and the residents of surrounding neighborhoods. No landlord wants to be responsible for a crime against a family, a child, or a business committed by their tenant.

And crime hurts more than just its direct victims. Quality of life is affected when people are afraid to go outside. Neighborhood home values and rents drop when crime rates go up. Increased crime puts everyone at more risk, including residents, pedestrians, drivers, business owners, and police.

There is no way to prevent a tenant from committing a crime. And since past behavior is a good indicator of future behavior, knowing what’s in a potential tenant’s criminal past is the best way to keep crime out of your property. Conduct a criminal background check on every tenant applicant.

Many Former Homeoners Moving Back to Rental Housing

The fourth quarter of 2009 saw U.S. homeownership fall to the lowest point in nearly ten years. While pending sales of existing homes ticked up 1%, the National Association of Realtors saw reason to hope that the real estate market is steadying.

Still, the number of Americans owning their home reached a low not seen since 2000, when the percentage stood at 67.3%—exactly where it was in the fourth quarter of 2009.

Some experts see the decline as a positive shift away from recent years, when homeownership was considered attainable by everyone, regardless of credit history, income, employment status, or ability to repay a mortgage. The current mess in the housing industry, overbuilding by construction companies, and entire financial industry collapse of late 2008 is blamed in part on “creative” mortgages to feed the homeownership frenzy.

That frenzy peaked with a high of 69% in 2004 when the combination of low interest rates and easy credit moved families out of rental housing and into houses of their own. Fast-forward to 2007 through 2009, for the results of the bubble: nearly four million homes lost to foreclosure.

The homeownership rate would likely have fallen farther, without the federal first-time buyer tax credit boosting sales. The credit is scheduled to run thorugh April 2010.

The news signals that homeowners are moving back to alternative housing situations: while some are moving in with family, many others are becoming renters—again.

Ask and You May Receive

If your vacant rentals are seeing little action, with few potential tenants calling you for a tour, you have many tools at your disposal to increase interest. Have you considered asking and/or paying for referrals?

Referrals are a great way to drum up business –no matter what business you’re in. Word of mouth has always been the best form of advertising; referring someone to a particular business is a perfect example of word of mouth advertising.

You probably do this all day long without thinking about it, like when a new tenant asks, “Where’s the best pizza in town?” Suggesting your favorite is a referral—and could mean the pizza shop owner owes you a favor! Next time you’re picking up a pie, let the owner know how many folks you’ve sent their way, and ask them to refer back to you. New employees, friends, or relatives might be in the market for a rental home or apartment.

This type of referral is common among business owners, and the reciprocal agreement is usually not fee-based.

Realtors are a good source of referrals. They are in the house-hunting business, and while their mission is to sell houses, some work with or run across renters as well. Try widening your realtor contacts; let them know that you welcome referrals. You can either work out a non-fee reciprocal agreement with one realtor, or accept all referrals and offer a small fee, like $50 in cash or a gift card whenever a realtor sends you a tenant. Of course, it makes the most sense to wait until the tenant has passed your application process, background screening and paid the first month’s rent and security deposit before you pay the fee!

Offer the same deal to your current tenants: a $50 or $100 referral fee paid when they bring you a good tenant (who signs a one-year lease and passes the tenant screening process, or whatever definition you prefer) can be a great incentive to folks these days.

Referrals can bring you new tenants. Working with other businesses, realtors, and your current tenants takes a little effort and creativity, so get out there and network—and ask for referrals!

Consider Incentives Instead of Rent Reductions

Having trouble filling vacancies? Here’s an idea: offer a free Wii for every rental agreement signed this month. For anyone who’s been living in a cave for the past few years, Wii is a Nintendo game console that turns televisions into game central. Options include fitness programs, interactive music games, sports like tennis and golf, and hundreds of classic video games.

A broad cross-section of people seem to love the Wii, with enthusiasts getting together to play games, practice sports, or work out at home.

In this tough rental market, the only alternative some landlords consider is lowering rents to incentivize prospective tenants to sign their lease. But a lower rents will impact cash flow for the life of the lease. A popular gift like the Wii can be a great alternative, with a one-time payout of $200 or so.

Consider offering incentives rather than reducing  rent to attract tenants.--and keep your cash flow healthier in the long run.