How to fail as a landlord in 3 easy steps!

Question

It seems like a lot of landlords have certain certain messes that they made fixed and most of the time we are able to help them untangle their messes. Some of the of things that I’ve seen over the years boil down into a small handful of issues, where if they had taken the proper steps, a lot of these things could have been avoided.

The number one thing I would say why invertors fail is they do not treat their properties like a business. I will always tell an investor/owner, while you own properties or you are buying properties you own a business. And whether it’s one property or fifty properties you are viewed as a business. There are a lot of legal entities that are watching you to make sure that you are treating it like a business. IRS, Fair Housing, Discrimination, and here in Texas we have the Texas Real Estate Commission and the Texas Property Code. If you do not have policies and procedures not only in place but followed, chances are your business will fail and it’s not just a matter of if but a matter of when.

Some of the other things that I’ve seen are a lot of these investors don’t actually know what the laws are. There are Tenant’s Rights and Property Code Laws, certain things that need to be fixed in a certain amount of time. A lot of investors come to us and think that no matter what, tenants should pay and that’s the tenant’s responsibility. Unfortunately, that is not always the case and that is not the law. During that situation they can be putting themselves in a very precarious position. They are actually violating the law without even knowing it. So, a lot of times we need to educate the owner and let them know that there are certain things that legally they are responsible for and very simply if they are making the house unsafe or inhabitable by not fixing something, they could be possibly in violation of the tenant’s rights and the property code.

Lastly, I have seen owners that violate Fair Housing Laws. There are seven protective classes, soon to be another one added, but right now there are seven. The real estate owner is the highest sued in Real Estate of all the different real estate entities. Normally it’s because they don’t know what the protective classes are and they sometimes would ask questions that violate those laws and maybe don’t listen to people that are in the protected class while not understanding they have rights. The other thing is maybe they do violate the law while the tenant is living in the property. I always explain to owner that tenants are very smart and educated, so you want to make sure that you are more educated than your tenant. It should be part of your business model to know these laws and make sure that you don’t mistakenly break these laws.

Josh C. · Answer

Perhaps you could offer practical advice? Maybe share what the seven protected classes are and the soon to be 8th? Thanks

Randy Johnston · Answer

Sorry, the income ratio is based on income plus subsidy, not as I suggested in the prior post.

Randy Johnston · Answer

@Steve Rozenberg Number 8 is already a law in Oregon. As a landlord, you cannot disqualify a Section 8 applicant if they meet all your criteria, including rent to income ratio, but they only have to meet the ratio based on their personal income, not the total of their income and the subsidy.

Sharon Tzib · Answer

I won't even buy in a new area unless I know the laws at all levels (state, local and municipal) - once you're an owner, it's too late if you find something to be objectionable to your business practices. TX is still very landlord friendly, compared to say Calif, where I started my RE investing career, but you still need to have sound and fair business practices based on the existing laws. I'm studying for my TX RE license now, and one great piece of advise the course gave is when advertising is to stick to commenting on the property, and not the people, and that is a good rule of thumb to follow. Great points in your post @Steve Rozenberg !

Steve Rozenberg · Answer

@MONICA WATSON Hi Monica, since we are a full brokerage and management company as well as investors we found to use the standard TREC forms with a bunch of addendums to protect the owner and ourselves. If you needed some help as to what you want to make sure is in your lease I would be happy to help you. We do about 30-40 leases per month and we have a 2% eviction rate on over 400 single family homes, we think we have a good working model based on our data we track. A lot of things we put in our addendum's for your lease could be very valuable should you ever be standing in front of the judge defending your position. If you like PM me and I would be more then happy to share stuff we have.

MONICA WATSON · Answer

Thanks @Steve Rozenberg , I'm also here in Houston. I was so busy researching how to purchase a house, then how to fix repair, now screening. I have not even got around to laws as I'm still trying to find a tenant. I will get on that asap. It has been a whirlwind. Do you know where I can find a good lease for Texas?

Steve Rozenberg · Answer

HI Josh, Good question the 7 Classes are as follows:•Race•Color•Religion•National Origin•Sex•Disability•Familial StatusThe one that is possibly coming down the pipeline we were told at the last Fair Housing informative session is "Financial Status". Basically what they told us is they are deciding whether or not to make it illegal to discriminate on someone based on where there income comes from. Meaning that if they get government subsidy and it meets your financial qualification you can not turn them down based on that fact... In plain english what the person told us is you can not say 'No Section 8', based soley on that fact. Whether that will become a law is anyones guess but they are definitely looking at it. Just passing on what we were told.

Bill Wallace · Answer

Here's a good link that explains protected classes - http://realestate.findlaw.com/landlord-tenant-law/your-rights-as-a-tenant.html