E-Renter News

A Missouri appeals court ruled that an apartment owner did not do enough to eradicate bed bugs and must return a tenant’s rent. The Missouri Court of Appeals upheld a lower court’s decision and ordered the apartment owner to return the tenant’s rent of $405. The company had sought an additional month’s rent and cleaning fees as well, since the tenant broke the lease.

A few weeks after moving in, the tenant notified the apartment owner that a dermatologist had determined the red welts on her and her daughter’s bodies were caused by bed bugs, and that she planned to leave the apartment.

The apartment owner called a pest control company, which said it found no evidence of bed bugs, but sprayed the rental unit. Court records indicated the property owner did not follow the pest company’s recommendation to spray the apartment two to four times to kill any bed bugs that could be present.

The apartment owner then notified the tenant that there were no bed bugs and she should look for a different source for the bites. Instead, the tenant moved out and the property owner filed suit. The tenant won, and the company appealed the decision.

Bed bugs are back, and they are a real challenge for rental property owners. It will be interesting to see what other lawsuits and regulations spring up in response.

Landlords often wonder how to handle the holidays with tenants, business acquaintances and staff. If you had a good year and want to show your appreciation to those who helped you get through it, here are a few ideas for whom to treat and how to do it!

Contractors, handymen, electricians and plumbers: Take care of these guys or gals. The gift should match how often you used them. Gift cards for gas or a local hardware store could be perfect. Be extra generous if one of them went of their way to help you out of jam. It’s just smart to let them know you appreciated it—and they’ll be more likely to help you again.

Real estate contacts, networking peers, anyone who referred a tenant. Show them you appreciate them. Think about who sends you tenants. Your lawyer? Accountant? The corner store owner? Make sure they get a basket of goodies or bottle of wine. They will remember next time someone asks them about a rental property.

Staff: If you have a bookkeeper or property manager, give them a bonus, if you can. If you can’t pay a bonus, give them a gift card to a restaurant so they can have a nice dinner out with their significant other. Paid time off is another way to show your appreciation.

Tenants: Remember, your tenants pay your bills. They may give you headaches, but they are your customers. A pizza shop gift card, one-month subscription to Netflix, or homemade jam can reward your great tenants and encourage good relationships with any you’ve had issues with.

In the spirit of the holiday season, generosity is always a welcome gift!

Now that you’re a landlord and have rental income, you might be tempted to start buying presents for yourself or your loved ones. Before you go new car or big-screen TV shopping, think about it: do you really want to spend money as soon as you make it—or are your investment dreams bigger than that?

Consider dividing your rental income into accounts that can help grow your investment property business—and your next rental property could be closer than you think!

Account 1: Expenses
Out of this account comes your immediate payments, like the mortgage, insurance, taxes, and property management expenses. Consider a goal of keeping at least three months’ worth of these expenses in this account at all times.

Account 2: Maintenance
In this account, you’ll transfer cash to cover scheduled maintenance and routine repairs. If you can keep a month of gross rent in this account, you should be in great shape. Of course, if the property is in need of upgrading, you’ll be spending more out of this account for the short term.

Account 3: Long-Term Expenses
Eventually, every rental property needs big-ticket repairs. A new furnace, roof or even tree removal can make a big dent in your profits. Better to put aside a set amount every month to cover the expenses that come along every 10 or 20 years. And if your roof looks like it will need replacing in, say, 3—5 years, start socking away a larger monthly amount.

Account 4: Emergency Expenses
This account should be as large as you feel comfortable with. Some landlords want three months’ rent, others like a six-month cushion or more. There will be times when your rental property is vacant and you need to make the mortgage payment out of this account. Or, you might access it when a storm knocks a tree over on your property, or when a fire or plumbing emergency causes an insurance claim and your deductible comes due.

Account 5: Future Investments
As regularly as you save for expenses and emergencies, save for your next investment, too. After all, the more cash flow you have, the sooner you’ll have the down payment for another investment property—which leads to more cash low.

Whether or not to allow pets in rental units is a hot topic. During the economic downturn, many landlords changed their pet policies, hoping to expand their pool of potential tenants and fill vacancies. There are many other compelling reasons to allow pets in rentals.

But there are just as many reasons to not allow pets in rental properties. Here are a few for landlords to consider:

1. No-pets policies appeal to certain renters. It may seem hard to believe that statement, when you consider the number of pet stores and boutiques, the aisles of pet products in the stores and scores of people walking their dogs through the neighborhood. But it’s true: not everyone is a fan of cats and dogs. Some people do not want to live next door to dogs of any size. They may not appreciate stepping in or over pet waste in common areas. And some folks cannot stand the sight of a cat.
2. Pets are only as good as the people who care for them. Everyone knows this, but seeing it in action will make one a believer. There are people who allow their animals to misbehave, who refuse to correct them, who fail to bathe or pick up after them, or who simply cannot handle the responsibility of caring for a pet.
3. Pets often contribute to unwanted noise—and complaints. No matter how great a dog is, its instinct is to bark when alarmed. Or excited. Or lonely. And with more people telecommuting, their apartment may not only be their home—it could be an office, too. There are few things as annoying as a barking dog when one is trying to work. Landlords who allow pets often receive noise complaints from tenants who don’t have them.
4. A unit where pets have lived may be difficult to rent in the future. People with allergies won’t be able to rent it. Anyone sensitive to cat and dog odors may keep looking. And what if there are fleas in the carpet?

There are plenty of stories about successful pet-owning tenants; many landlords have no problems allowing pets. But just as there are renters who prefer adult-only properties, non-smoking properties or high-security properties, there are renters out there who prefer no-pets properties, too.

Keeping good records is step one to a clean and complete tax return. Landlords should know what to track for reporting income and losses from rental property, to be reported to the IRS on Schedule E. The better you track income and expenses, the better your chances to take full advantage of tax incentives.

According to the people who know a lot more about taxes than we do, here are the things to track, so tax time is not headache time:

• Rental Income: Obviously, the total of rent checks you bring in every month
• Security Deposits: Keep these tracked on a separate line item
• Accumulated Depreciation: The total depreciation you’ve claimed since owning the property
• Current Annual Deprecation: This month’s portion of the annual depreciation
• Purchase Price of the Property Owned

Check with your tax advisor on the amount of depreciation you should track, which depends on the purchase price, value of the land and value of the building.

Under the expense side:

• Security Deposits returned to tenants (not really an expense, but expensed against the income)
• Utilities, Landscaping, Garbage, Snow Removal
• Tenant Screening and Background Check Fees
• Property Management Costs
• Real Estate Agent Commissions
• Advertising Expenses
• Mortgage Interest
• Homeowners and/or Landlord Insurance
• Dues
• Real Estate and Property Taxes
• Cleaning, Maintenance and Repairs

Note that purchases of appliances and other capital improvements are not seen as expenses; rather, the item is depreciated each year until its total cost is zeroed out. For example, according to the IRS a $300 dishwasher might have a tax life of five years, so each year you’d deduct $60 in depreciation.

Your property is also depreciated over time—but it’s 27.5 years, not five years.

Tax issues can be very complicated, so while this list may help landlords organize income and expense tracking, consult a professional tax advisor for details on your situation.

Testimonials are one of the best advertising messages available. The best marketing writer can’t compare with the actual words a satisfied tenant uses to describe your rental property, property management and maintenance service you provided during their tenancy. And people are more used to writing reviews than ever before—as evidenced by websites like yelp and TripAdvisor.

So why don’t more landlords and property managers ask departing tenants for testimonials? Perhaps it feels awkward to make that kind of request—especially when tenants are busy getting ready to move. Perhaps they don’t know where to start.

Why not make it easier for tenants to give you a testimonial by providing a form they can fill out by hand or online? Here are some questions to include in a testimonial form you can provide your tenants before they move out.

1. Ask a few questions “yes” or “no” questions, like, “Did your experience at Courtyard Apartments fulfill your expectations?” Or, “Did the Courtyard Apartments staff respond promptly when you needed assistance?” Provide a space for them to add details.
2. Ask tenants specific questions you can use to highlight in your advertising, like “How long was the typical response time when you requested maintenance?” Or, “What was the best feature about your apartment at Courtyard Apartments?”
3. Include several questions that include a scale to rate various aspects of the property and management. A typical question might be, “How would you rate the onsite manager at Courtyard Apartments?” with responses running from 1 (Excellent) to 5 (Needs Improvement).
4. Don’t forget to ask if the tenant would recommend your rental property to a friend or family member—and provide a way for them to do so, such as giving them a business card or two to pass along.
5. Provide enough space for tenants to add as many comments as they wish. Some will say nothing. Others will expound on their rental experience—whether or not if was positive. Criticism can be as valuable as praise, so encourage tenants to tell you exactly how things went for them.
6. Be sure to ask the tenant if you have permission to use their testimonial in advertising. It’s a good idea to reassure them that you’ll use only a first name or initials.

Testimonials can be easy, quick and result in some of your best rental advertising ever!

Janet is a six-year landlord who has recently instituted a no-smoking policy in her 4-unit rental property. She allowed an already-smoking tenant to stay, but will not allow new tenants to smoke. The smoker recently moved out, and Janet is having a difficult time ridding the unit of cigarette odor.

Matt is newer to the income property business. He has a tenant complaining about cooking odors coming from the next apartment—namely, the strong odor of curry. Matt would like to help, but doesn’t want to appear to be discriminating against the East Indian family who lives next door.

John has been landlording for twenty years; he tends to let tenants deal with issues like cigarette smoke and cooking odors themselves. But lately, he’s been losing out on signing leases with new tenants due to odors in his rental units.

Whether you want to get rid of cigarette, garlic, curry, fish or other strong odors between tenants, there are a variety of solutions to try:

• Coffee grounds: they seem to absorb odors when sprinkled into carpets or placed in refrigerators. Let it sit at least 24 hours, then vacuum or dispose of the grounds.
• TSP (trisodium phosphate): Works to clean nicotine (plus grease, soot, and mildew) from walls and ceilings prior to repainting. It’s available at any hardware store.
• Ozone machines: These machines produce ozone (O3) and are purported to remove odors from unoccupied areas. The EPA states that ozone can cause lung damage. Landlords report ozone machines work very well—but take care to post a notice and do not allow anyone to enter during use. Check your local and state regulations, too.
• Caulk: For odors that seep between units, try caulking around pipes under sinks and sealing electrical outlets with plastic or foam.

Refusing to rent to groups of people based on their cuisine could get you into trouble. Ask tenants to keep cooking pots covered if possible, and use kitchen fans. If your units don’t have ventilation fans, install them—for everyone’s happiness.

With bedbug infestations making the news, the question arises: “Who pays for the motel when a tenant must vacate a rental unit during pest treatment?” The days of a tenant coming home to an unpleasant odor and realizing a pest treatment has occurred are long gone. Today, people are much more aware of chemical hazards and odor sensitivity; and landlords must be more proactive to prevent complaints and claims.

In most states, tenants are entitled to compensation when they are forced to leave their home for any reason. However, this can be interpreted a number of ways. Is a landlord required to pay for a motel, meals, and mileage? Or just the amount of prorated rent applicable to the time the tenant is out of their rental unit?

The prorated rent amount probably would not go far in the motel search. A $1200/month apartment's daily rent is $40; you wouldn't expect a tenant to stay in a motel with a daily rate of $40, would you?

The fairest arrangement is to determine the quality of the rental unit and offer to pay for a comparable motel . Your upscale apartment renter gets a nice hotel room, while a tenant in a less-expensive unit would stay in a less-expensive motel. It’s not fair to require a high-paying tenant to “rough it;” nor is it necessary to provide a lower-paying tenant with a fancy hotel room.

As far as meals go, providing a set amount per person per day is generally acceptable. Research how your state government reimburses its employees for meals and use it as a guide.

Real estate investors are entrepreneurs for a variety of reasons. The one we hear the most is that they long to have control over their own lives—especially their work lives and income level.

Smart investors begin on a part-time basis while holding down the 9-5 job that pays the bills and keeps the family in medical insurance. Others jump right in and try to make a go of landlording full-time. Sometimes it works and sometimes it doesn’t.

Just as with garden design, novel writing or acting, deciding when and how to pursue a side gig as a full-time occupation is a personal decision. Here is some advice from the experts—other landlords who have done it:

1. Determine the cost of continuing to do both jobs. Do you love your day job and can handle the extra time and effort required for managing your rental properties? Or is juggling both taking a toll on your health, your personal life or your stress level? If the answer is that you can only do one well, you may have to quit the day job or sell the rental property. If the answer is, “I love my job,” then keep it.
2. If you quit your job, can you handle the loss of security of knowing where your next paycheck comes from, how much it will be for and that there are benefits that come with it? There is probably no financial cushion large enough to give you the peace of mind that a regular paycheck provides. But it has its downsides, too!
3. Taking on your rental business as a full time job is a huge commitment that spurs many investors into out-performing their expectations. If you’re analytical, a careful decision-maker and smart about how you run your rental business, many landlords we know would say, “go for it!”
4. Be mindful that you’re not retiring—you’re trading your day job for a new day job. It might be the hardest thing you ever do, but it might be the path to a lifestyle that makes it worth it.

Recently we heard from a tenant named Mike who was upset with his new landlord. He rented an apartment believing it had an on-site laundry facility. After moving in, he discovered it did not. Now Mike wants out of the lease.

Here’s what happened: Mike found Kerry’s “For Rent” ad on Craigslist and called to set up an appointment to view the unit. Kerry, the landlord, was unavailable to show the apartment at the agreed-upon time, so she asked a friend to meet Mike and show him around. The unknowing friend answered “yes” to Mike’s question about the onsite laundry room.

Eventually, Mike was approved to rent the apartment and signed Kerry’s lease. Only after he moved in and discovered the non-existent laundry facility did he contact Kerry and ask about it. She apologized that her friend misrepresented the property, but there was indeed no laundry room. “I told her I was promised a laundry facility and now I want to move out,” he said.

Kerry offered to allow Mike to break the lease—but only after she finds a suitable tenant and signs a lease with him or her. Mike wants to be released immediately.

What is the landlord responsible for in this case? Not much! Mike should not have relied on the verbal representation given by the landlord’s friend. Not only did he not ask to see the laundry facility, but neither the ad Kerry placed on Craigslist nor the lease specified that a laundry room came with the apartment.

Kerry is being generous in offering to allow Mike out of the lease—she is under no obligation to do so.

The bottom line? Unless it’s in writing, don’t expect to hold a tenant or a landlord to any promise.