Thursday, April 26, 2007

Taming the terrible tenant (Part 4)

By Joel Persinger
YourRealEstateDude.com

It may seem like a cynical statement, but it has been my experience that human nature has an irritating tendency to rear its ugly head in the form of emotional attachment at just the right moment to cause disaster in a business relationship. The relationship between a landlord and tenant is by no means immune to this phenomenon. Landlords will go to all the effort to screen the prospect completely and get an excellent lease signed ahead of time only to let the tenant get away with murder at some later date simply because they’ve become friends or the landlord doesn’t want to stir up additional trouble. What some landlords don’t seem to realize is that once the tenant has gotten away with causing problems without reaping consequences, the problems, in all likelihood, will get steadily worse.

The simplest and most effective way to avoid such situations is to remember that the relationship between landlord and tenant is based upon a mutually beneficial business foundation. The tenant benefits by having the use of the property in a leasehold estate and the landlord benefits by receiving payment in the form of rent. Once we take the position that the relationship is based upon a business footing, it is easier to keep an arms length “friendly, but not friends” approach to the deal. This is best done by using the lease as the cornerstone on which the relationship is built.

Since a lease agreement is essentially a legal document which spells out the responsibilities and obligations of both the tenant and the landlord, it is essentially the document which defines the relationship. I wish I had such a defining document that covered the relationship I have with my kids. They are constantly testing the outer edges of my resolve, looking for loopholes that will allow them to get what they want without paying the price. If you have kids, I’ll bet you have had a similar experience. Here’s a wakeup call for you: tenants are no different! They will take every opportunity to chip away at the limits of the lease. As the old saying goes, “if you give an inch, they’ll take a mile.”

This past year my wife and I rented a home we own to a young lady with her children. She came with glowing recommendations, passed the screening process with flying colors, had an excellent job and seemed like the perfect tenant. She paid her first month’s rent in advance as require along with her deposit and everything seemed right with the world. Then the first of the next month arrived with no rent check. By the sixth of the month I was sending her a three day notice to pay rent or quit. She paid the rent the next day and asked me to waive the $50.00 late fee. I said, “No, we do not waive late fees,” and mailed her rent check back to her because it did not include the late fee. She was absolutely beside herself and scrambled to send us a cashier’s check by “next day air” in order to avoid the eviction proceedings we intended to begin at the end of the three days’ notice.

Over the six months that followed I heard every excuse imaginable to explain why she was late with her rent. Each time I sent a three day notice right on time and required her to pay the late fee. After six months I told my wife, “I hope she pays late again, I’m getting to like receiving the extra fifty bucks.” But, after six months of testing my resolve and $300 in late fees, she finally gave up and paid her rent on time. She still does.

This is but one example, but the moral of the story is the same in every case. Stick to the terms of the lease no matter how compelling the sob story or how challenging it may be for you to do so. Tenants will do their best to take advantage of you. If you let them, your life as a property owner will be a misery. If you hold them to the lease, the majority of your tenants will eventually get tired of suffering the consequences and either move or abide by the lease terms voluntarily.

Thursday, April 19, 2007

Taming the terrible tenant (Part 3)

By Joel Persinger
YourRealEstateDude.com

Once you have properly screened a prospective tenant by performing a credit check, criminal background investigation and had the records searched for previous evictions, the next step is to write a strong, tight lease for the new tenant to abide by.

There’s an old saying that a verbal agreement isn’t worth the paper it’s written on. While it’s certainly possible to strike a mutually beneficial verbal agreement, proving who agreed to what when things go sideways is no small project to be sure. As a result, the written agreement has become the standard for renting or leasing property. But it’s not enough to simply “get it in writing.” It’s also important for the lease to be legal in the jurisdiction where it is used, understandable to both you and the tenant, detailed and specific.

Not being an attorney, I gravitate toward using one of the many standard leases that are available. You can buy a standard lease “form” at just about any office supply store, but the best leases I have found in San Diego are produced by the California Association of Realtors. You might also contact your local apartment owners association for legal documents they might have available to members.

Once you have a standard lease make sure you read it completely and understand what it says before you use it. If there are places to fill out on the lease it is best to make sure that you fill it out completely and accurately.

Remember, standard lease agreements are just that, “standard”. Since one size does not generally fit all, you may want to tighten up your lease by adding a list of rules and regulations incorporating them into the lease. It would be wise to consult your attorney to make sure that any rules you include are legal in your area.

Some examples of rules you might wish to include are restrictions against storage of junk vehicles or non-operating vehicles on or in front of the property, performing mechanical work or repairs on vehicles, parking or driving vehicles on the lawn, damaging, killing, destroying, uprooting or chopping down any tree, bush or shrub, mounting the roof or allowing any guest to do so, performing structural work, adding room additions or otherwise altering the property, renting rooms to roommates or otherwise causing anyone to move into the property other than those persons who are listed on the lease, having loud and or destructive parties and so on.
It takes time, effort and forethought to put together a good lease agreement with tenant rules, but the benefits of having established a clear framework of boundaries on which to base your relationship with the tenant is invaluable. Next week I’ll give you the straight dope on sticking to the lease agreement once you have one.

Wednesday, April 11, 2007

Taming the terrible tenant Part 2

By Joel Persinger
YourRealEstateDude.com

As a second generation real estate broker and investor I’ve heard just about every landlord horror story one can imagine. Some of them would frighten even the hardiest of souls out of ever wanting to own rental property. But no matter what the storytellers may say, the majority of tenant disaster stories can be avoided by following these three simple rules from the beginning: Screen them well, Write it tight and Stick to it. This week, we’ll take a look at screening them well.

This may strike you as a shocking fact, but most mom and pop landlords do a very poor job of screening prospective tenants if they screen them at all. Screening a tenant is the process of checking references and running credit and background checks. In order to keep your life as a landlord from being miserable, you should screen every tenant for credit history, criminal background and previous evictions. Checking references is also important although less reliable since the prospect will generally leave out any poor references.

The key behind screening prospects is less in the screening and more in telling them in advance that you are going to do it. Since the law allows me to charge prospects up to $30.00 for the background check I insist upon the money up front in cash. After the prospect has filled out the rental application I explain the background check procedure, tell the prospect I need $30.00 in cash (non-refundable) and ask, “When I check your credit, criminal background and to see if you have ever been evicted am I going to find anything I don’t like?” Those who have a questionable background will generally make some excuse about the money and promise to return with it later. They never do.

People with poor backgrounds know they can’t possibly get through the screening, so they keep applying with different landlords until they find one who doesn’t bother to check. In my experience, it is the people who seem to be the least likely to cause a problem who are the most devastating. Problem tenants learn how to manipulate prospective landlords and property managers. They can be the nicest people and can give you all the warm and fuzzy feelings you are looking for. The next thing you know, you haven’t bothered to check their background because they seem so perfect for the property. Many are the clients who have called me to talk about tenant problems singing the old refrain, “but they were so nice.” I can give you no better advice than to run the background check on everyone who applies regardless of impressions and make everyone of them pay the non-refundable fee up front and in cash.

Screening all prospective tenants well is easily the most important step toward avoiding tenant problems in the future. I’ll give you some tips about leases and sticking to them in the next couple off weeks. In the meantime, if you do nothing else remember to screen them well.

Tuesday, April 03, 2007

Taming the terrible tenant part 1

By Joel Persinger
YourRealEstateDude.com

This past week has seen my phone ring off the hook with a number of clients who are planning to sell rental homes that are tenant occupied. Among other burning questions has been, “How do I get my tenant to cooperate with the sale”?

Selling a home or condominium is best done when prospective buyers have the opportunity to visit the home. Buyers like to walk through the home, hang out in the yard and generally get the feel of the property. They like to imagine themselves living there to see if it fits their needs and desires. This requires the buyers and their agents to have access to the home.

There are several ways to grant access to buyers, but the best and most efficient comes in the form of a “lockbox”. A “lockbox” is essentially a little safe in which your real estate broker places the key to your property. The safe is attached to the home on a doorknob, gas meter or some other secure location and is only accessible to real estate professionals who have a computerized access card and PIN. Using a “lockbox”, an agent can get to the key and show the property even when nobody is home. When you’re selling a home that’s vacant, providing access to agents and buyers is no big deal because nobody is there to be inconvenienced by agents showing the home. But, when you have a tenant living in the property, you need that person’s cooperation in order to make the property available for showing. If the tenant is unwilling to cooperate, selling the property can make your life very interesting.

Unlike you, your tenant has no vested interest in your property being sold. In fact, the reverse may be true. Your tenant may not wish to move and may take every opportunity to sabotage your efforts to sell. It is quite common for tenants to refuse to allow buyers to see the property or to make it so difficult to see that it might as well be nailed shut for all practical purposes. Tenants who are willing to allow the property to be shown often leave it in such disarray that any buyer visiting the property would swear that a natural disaster had struck. In many situations tenants keep the property from selling simply by being rude to every buyer and agent who comes along. Regardless of the tactic used, it is quite possible for your tenant to make your life miserable and keep the property from selling or force you to sell it for less just to get rid of the problem.

One answer to this age old dilemma is often found in my grandfather’s old philosophy he called, “everybody wins.” Grandpa Charlie liked situations in which everyone came out a winner to one degree or another. If selling your property is going to benefit you, then you must find a way that selling your property will benefit the tenant as well. If you want the tenant to cooperate, then you must provide a reason to do so. I advise my clients to put themselves in the tenant’s shoes and consider what the tenant will need in order to find a place to move. Three things come to mind almost immediately: the return of the tenants deposit, a good reference and money. Following this revelation we devise a “tenant compensation plan” which offers to provide the full return of the deposit, a favorable reference and some extra money if the tenant will cooperate with the sale by keeping the home presentable, permitting a “lockbox” to be placed on the property and making it easy and convenient for agents to bring their buyers. The tenant agrees to this in writing and only receives the full reward if and when the property sells. Taming the terrible tenant is not always easy and not every tenant will agree to such a plan, but it has been my experience that the odds of gaining the cooperation of your tenant using this kind of arrangement are pretty good.