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With continued talk of a down-turn in the economy, the
Fed keeping interest rates low and first-time home buyers buying new homes at
record rates, rental property owners should be employing any and all means
possible to "recession-proof" their investments in real estate.
1. Revamp your application process....clean up/update rental
application forms and strengthen credit requirements. If you are using an
old "retail CBI" report, update to the use of a scored credit
report - much like mortgage credit reports - where the application's current
obligations can be viewed v the amount of the proposed monthly outlay for the
rental home. If the applicant is over extended in credit card
debt, student loans or other high-cost consumer debt, these types of reports
will automatically calculate their monthly obligations and advise if they will
be able to pay the stated monthly rent from their current income. Some
tenant screening services now have the availability to screen for lawsuits and
evictions. Consider using these services as an added protection.
2. Rewrite lease documents....to tighten up unstated landlord's
options....in VA, rental property owners, with proper lease wording, are not
required to serve a 5-Day Pay or Quit for rent prior to filing a UD. Insert
this wording so that at the expiration of the late fee period, you can file the
UD immediately rather than having to wait an additional 5 days. Learn how
to file a UD, have these forms on hand so that you can prepare them, file them
as appropriate on the 6th and get the brown-shirted sheriff on your tenant's
doorstep ASAP. Insert wording to the effect that you can mark up any
security deposit costs to cover your time/energy if they leave it dirty, don't
make necessary repairs or leave with rental monies owing. Tighten up your
late fee policy. Consider allowing 5 days for rent to be received and then
charging a large, late fee. Update any NSF to cover any charges assessed
by your bank and make sure your lease wording applies your late fee to
"each adult applicant". Encourage "group" tenants to
issue one rent check so that you are not tasked with collecting the stray
roommate's money. The most responsible tenant should collect from
roommates and issue one check. If a roommate's check bounces, let them
handle between themselves.
3. Get ‘web active' with your rental marketing and
communications.....as ad revenue is dropping, print media are routinely
increasing their advertising rates to cover their printing costs and revenue
shortfall. Rental property owners with web access can post FREE internet
ads on YAHOO and can maintain rental listings on the RentConnection site for a
nominal membership fee. By insisting that your residents maintain an
e-mail address, you can communicate more easily and eliminate postage costs for
all but the most essential communications. By collecting prospective
resident's e-mail addresses on applications, you can assume they are maintaining
a checking account or have access to a credit card in order to maintain an ISP.
4. Get a handle on maintenance and repair costs....if you have the
time and skills to maintain your rental properties yourself, establish a
"back up" program in case you are not available for emergency or
routine maintenance issues. Establish outside providers for cleaning
gutters, servicing HVAC systems, changing furnace filters, responding to
appliance breakdowns. Cancel or don't renew costly maintenance service
contracts on appliances - they are expensive and in most instances, replacement
is cheaper. Maintaining these contracts provides a "false sense of
security" especially when you must wait with a key at the property to meet
the assigned technician who is driving from F'burg and will be there between
10AM and Noon. Your tenant is not going to stay home from work to allow
entry and neither should you.
5. Get realistic on increases and FMR......As a proponent of ALWAYS
increasing rent for lease renewals, now is not the time to miss the opportunity
to increase your rental income - even nominally.
ALWAYS increase your tenant's rent on lease renewal - ½
the market rent would be reasonable OR, absent their ability to pay on a
routine/regular basis, shift some of the property expense burden to them. Agree
that they pay first $50 of any minor repair costs such as leaks, drips, or minor
upgrades to save on energy costs. Task residents with changing furnace filters
monthly. Residents should pay for ANY plumbing stoppage and if you lease does
not address this, insert this provision either at initiation or renewal.
Address landscape and yard issues. If tenant can not maintain
the yard and exterior appearance of the property, increase their rent for next
12 months to cover costs of professional yard maintenance. They pay over
12 months for an expense outlay you have for only 5-6 months of the year.
6. Address utility costs and task residents to pay where applicable.
In SFRs with separate meters, most residents knowingly pay their
utilities; however, on duplex or multi-unit buildings, this may not be the case.
In the case of large apartment complexes, management can have third-party
billing services assume payment for these services and bill residents separately
through sub-metering or utilizing historical usage. Smaller unit owners
can bill residents on basis of unit square feet, number of occupants OR on a
fractional basis of the use of the dwelling. The easiest method is for
owners to continue to maintain these services in their names and then bill
tenants for their usage. Lease wording should specifically address that
billings for usage must be paid within 5 days of bill and that accumulated
delinquent utility reimbursement will accrue as rent and subject tenant to
assessment of late fee. Make sure that departing residents fill any fuel
oil or propane tanks and don't assume they have done this. Owners should
specify that tenants maintain their fuel delivery on an "automatic
fill" basis so that costly furnace repairs are not called for when a
delivery of fuel would have solved the problem.
7. Start re-renting process earlier as needed......With students,
contract employees, landlords should know well in advance when to start their
re-renting process. Have your application and any instructions you
routinely utilize in your application process. Applications can be scanned
into PDF for e-mailing to applicants. When faxing, realize that they
returned faxes will be slightly reduced in size so accommodate this in your
procedure. Get as much information to your applicants ASAP so that you are
not spinning your wheels showing your unit to unqualified prospects - wasting
your time as well as that of your current tenant and prospective applicant.
Screen for specific qualifications in your web or newspaper listing - when
available, features, pets allowed, rent.
8. Consider having many of your administrative costs covered by terms
of the lease. Make your late fee, NSF charge reasonable. Consider
a "notice service fee" for service of any notice required to initiate
an eviction action. If tenant needs to assign and/or sublet a re-lease
their unit, institute a $200 lease administrative fee to re-write the lease for
the new resident. Many large property management firms in areas with
scarce rental inventory charge residents for lease renewals - $50 to $100 for
offering an additional year's lease.
Whether you have one or 20 rental units, remember that you are operating a
business and need to look, act and operate the management of your rental
property as a business in order to maximize your investment's potential.
Published in FPG's March Issue
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