All Forum Posts by: Daniel A.

Jonathan,

While you can find many template leases online, you should really take the time to learn about what clauses are necessary to make a lease that conforms to your particular rental situation. You will find clauses that apply more to multifamily settings or toward appropriate use of land, etc. While many leases outline generalities that are cross-applicable, you may find that a "standard lease" doesn't specify something you may deem important to your particular situation.

What I did for my lease was I went and found a "standard" lease for my state and I read through it. I then Googled "important rental lease clauses" and spent the better part of a day reading through various articles that explained the importance of certain clauses and phrases. I added clauses to my lease and now have a twenty page lease that covers what I feel is applicable to my rental property.

Now, a twenty page lease sounds intimidating, but it's double spaced and a reasonable sized font. I personally have signed leases from corporations that (literally) are fifteen pages long, two columns with size 8 font. In addition, they throw out addendums for smoke alarms, for pest control, for parking, for appropriate cleaning, for house rules, for trash expectations, for yard maintenance. While I understand that this property management company manages many properties, when you spend the better part of three hours filling out paperwork and leave with a stack of papers that could be used as a weapon, that is excessive. 

But they have created a lease that is as airtight as it gets. You don't want to think that a "standard lease" you download from a website will cover everything that applies to your particular situation. Remember, what may be obvious to you may not be obvious to your tenant who thinks it's acceptable to flush kitty litter down the toilet and who dips into your fridge and eats that brisket you were saving. (A plight a friend of mine had.)

I like the lease that I use because I took the time and the attention to make it applicable to my particular rental situation. I realized that leases are like relationships in that not every one is a perfect match. You have to take the time and give it the attention it needs for it to work out. 

When I hear someone who says real estate is not for them because they don't want to have to unclog a toilet, I inwardly laugh. Sometimes outwardly. You see these people who wake up at 6am and work until 4 or 5, talk about how they hate their job, about how their boss sucks, about how crummy the pay is.

Yet, they wake up every day and they repeat. And they repeat. And they repeat.

They are comfortable with that lifestyle even though they want more. That lifestyle brings them a paycheck every month. It's as certain as you can expect.

Real estate, on the other hand, brings with it uncertainty. A lot is at stake. 

But, for those who say they avoid real estate because they don't want to unclog a toilet, I want them to think about that for a moment. How long does it take to unclog a toilet? Usually it's just a minute or two. Ten minutes, on the upper end. If you have a rental property that brings in $300 bucks a month after expenses and you have to unclog a toilet once a month and it takes ten minutes, you just got paid $300 for ten minutes of your time. Of course I'm not including time to go to the property, etc., but my point is that people will work 30 hours to make $300 before taxes, yet they don't want to do real estate because they don't want to unclog a toilet.

Now, we could go into detail about how it's a miasma of other reasons as well, but if you're saying that you don't want to get into real estate because of clogged toilets, then really you're just using that as an excuse to mask your fear. Why not just say, Real estate isn't for me? Oftentimes people just don't have the mindset to handle the responsibilities associated with running rental properties, and there is nothing wrong with that. You have to figure out what works for you.

But for me, I will gladly unclog a toilet if it means I get paid $300 a month for it.

Cecilia,

I lean toward privacy myself, which is why I understand your desire to create an environment where you can have rental income along with privacy, all in a single family house. Challenges do arise but the crux of the matter is that a single family home is just that: a single family home. By and large, they're not designed under an umbrella privacy scheme. Installing a kitchenette might be a good idea, but you want to take into consideration associated fire hazards and building codes. Last thing you want is your tenant to forget about a pot of chili on the stove or to have him or her cooking up some extravagant, yet smelly, dish without the proper ventilation.

Really, though, what it boils down to is what you're comfortable with. While codes and fire hazards should remain on your mind, figure out what works for you. Are you going to have a door for them to enter that is away from the areas you want your privacy? Are you okay with them waltzing in while you're on the couch watching TV? What about the washer/dryer situation? How about parking?

Then you have the question of whether you already own this place or if you've got the place in your sights. You said that this house hacking method is the only way you can afford to live in a HCOL area. If you don't already own the home, what are the possibilities of you finding a duplex or maybe even a 2 floor house where you can rent out the basement and reside in the upper floor?

Whatever you choose, understand that by having tenants alone creates a diminished level of privacy. Even if you do create a setup where they have their area and you have yours, there is always a chance of a "wanderer" or a "habitual complainer" (you know, the type that will walk into your kitchen while you're eating dinner or who will knock on your bedroom door to complain about things that could wait).

Don't let this be a negative line of thought, however. Take these as thoughts to ponder. Even if you think you have it all figured out, you will always happen across something you overlooked. And remember, there are certain concessions you will undergo in the pursuit of money. That's just the way it is. People will say they don't want to get into real estate because they don't want to unclog a toilet or deal with stupid inquiries. I say I'd rather unclog a toilet once a month and yield inquiries, taking up maybe one hour a month, at most, and make $500 rather than labor eight hours a day for a week to make the same amount.

I wish you the best of luck and I hope you find an answer that works for you.  

I am in the process of selling an older, somewhat run down Victorian-style house. I, of course, want to make the most that I can off the sale and while I am eager to invest in more properties, the town in which I live has one legal professional who does 1031 exchanges. His fee, while less than the amount I would loose to capital gains, is enough to urge me consider other alternatives.

I spoke with a few people who have many more properties than I, and one thread that I've heard is having the buyer buy you another property, then transfer the deed over to you. Of course, assuming you happen across another property that is selling for more than your property is selling, you bring the remaining financing to the deal.

I bring this topic to the BiggerPockets forums to see what thoughts arise. For? Against? I'd love to hear thoughts, explanations, and stories.

Thank you,

Daniel

Hey Diamond,

DO continue your education. There is so much valuable material out there. Books, forums, blogs. Whatever platform, always keep learning. You will never know enough.

DO ask questions. Whenever you hire a contractor, learn their processes. Whenever you speak to a real estate agent, learn what they do and ask questions about investing. Some agents aren't investor-centric and their advice might not be investor-friendly.

DO enjoy yourself. If you enjoy what you do (and by that, I mean real estate), then you will prosper. You will view what others view as cons or setbacks as learning opportunities.

DO NOT think you know enough. Real estate, while sedentary in many respects, is an ever changing field. In order for you to prosper, you must keep abreast of what is going on around you. What can you do to be a better landlord? What can you do maximize profits while remaining true to your tenants? What can you do to improve the community?

DO NOT cut corners. Horror stories begin with those who cut corners. While there are exceptions, if you spend the money to have a qualified attorney make a lease rather than getting a free "standard" one online, you will thank yourself when your tenant becomes an armchair lawyer. If you spend the extra money up front on a licensed, reputable plumber to handle plumbing matters, you won't have a busted pipe, wet drywall, an annoyed tenant, and an exorbitant repair bill. (There are exceptions, I hasten to add, but you mitigate them by not cutting corners.) If you take the time to explain all the provisions of the lease to your tenants when they are signing it, you won't spend as much time down the road telling them that the lease says they can't have a motorcycle in the living room.

Suffice it to say, so long as you take the time to educate yourself and learn from others' mistakes, you will have a lot of fun in the real estate world. Just remember that there is a lot to learn. Be ready, be prepared, be prosperous.

Hello Kim,

While you can find out quite a bit of information online nowadays, it's always great to check out where you're going to invest. Not to mention, it's a great reason to travel.

I had searched for a lot of properties in a town in Texas of which I had never even heard. I had a friend down there and that was the extent of it. He would immediately reject certain areas and recommend others, but it never really hit home for me until I actually visited the town. I saw most of the areas that he said were passable were still in a part of town that I otherwise wouldn't desire to invest in. Once I had the time to see properties and to see the different parts of the city, it quickly became apparent to me which properties were worth investigating.

My price point wasn't necessarily guiding me to the wealthier parts of the city, but nonetheless there were options. I naively went into contract on a couple of properties that I ultimately backed out on. Those were the ones that caught my eye prior to visiting the city. When I finally did visit, I had just entered into contract on a duplex. Upon seeing the duplex and the part of the city it was in, I was somewhat disheartened. But as the inspector arrived and started his work I happened upon a triplex across town. I paid the inspector, let him get to work and headed over to the triplex. It was three minutes from the downtown business district and was at a great price. Yes, it needed a good deal of renovation work, but the difference in price from that of the duplex was enough for me to, yet again, back out of the duplex and enter into contract on the triplex, which I ultimately purchased.

I feel bad for having my agent work up contracts on three separate properties before finally settling on the fourth, but that's part of the business. I feel even worse for getting the seller's hopes up. But what I learned from this experience is that, for me at least, I feel a lot more comfortable seeing the city for myself. My judgments on the areas differ from those of my friend, as I am sure they would differ from those of an agent who didn't know I existed before he received an email or a phone call from me.

As for proactive steps … I am sure there are agents who would be happy to show you around. I am sure you can reach out to some investors in that city. But sometimes, seeing how the area is landscaped is enough to give you an impression.

People invest in properties in cities they've never been to before and do quite well, but I will always prefer to visit the city myself. Buying a house or acquiring a rental property is a big investment. Why not take the time to feel confident in that decision?

Hello Nathan,

To gain confidence in jumping into a flip, you must gain confidence in yourself. You can do this by educating yourself into what it takes to effectuate a flip. Are you looking to take a hands-on approach? Or are you looking to hire everything out? Have you read any of the leading books on flipping? J. Scott has a couple must-reads.

I would suggest that you read his books and then talk to some contractors. If you're mechanically inclined, you could always offer to provide help, free of charge. Most likely won't take you up on that offer seeing as how they'd view it more as babysitting than anything. But you could also find a house that you want to flip, then have a contractor walk through to give you an estimate. During his walk-through, ask questions. Learn. Then repeat the process.

By and large, I get at least three contractors to bid on a project. The reason for this is that the first contractor might come in and say it's going to be fifty thousand. The second might come in and say it'll be twenty-three thousand. The spread there is so wide, who do you believe? If you bring in a third, that third number will give you a better idea of whether that first person is seeking a payday or if that second person is underestimating. Last thing you want is to go in thinking twenty-three thousand is a steal only to have him return asking for more and more money whereas had you brought in a third contractor and he bid forty-three thousand, you could have sniffed that out.

Best of luck to you.

Greg,

Thank you for mentioning that it is 30 days, not 60. I had briefly scanned over Texas Property Code section 94.055, which states, in part, that "[t]he landlord shall provide a tenant a notice to vacate the leased premises or an offer of lease renewal … not later than the 60th day before the date the current lease term expires[.]"

As I went back through the statutes, I now see that that statute applies to manufactured home tenancies. 

However, I completely overlooked Texas Property Code Section 91.001, which outlines the notice for terminating certain tenancies.

Thank you for pointing out my error.

Hello Cody,

While texts aren't legally binding documents, they can still hold up in court under certain circumstances. If you're looking to cover your a**, then having as many different, documented forms of communication only goes to help your side were you to ever take it to court. The judge will look at you, see that you've sent X amount of texts and that you've provided her X amounts of notices, that you've followed the law, so on and so forth, whereas she is going to have one heck of a hard time having anyone side with her.

What you really want to do is what the law says to do, and that is to provide the notices within the appropriate time frame. (I believe it's 60 days in Texas.) You can't control whether she dodges you or the notices, but the law will side with you so long as you can prove that you did what the law said. Document when you place the notices on her door. Document when you send the notices through the mail. You do this by having it sent via certified mail. Have your texts printed. The law also outlines legally acceptable forms of service.

Is she a month-to-month tenant? Or on a longer lease term? So long as you provide her the notices within the legally permissible time frame, you're good. A tenant can't live somewhere forever because they can artfully dodge the landlord.

Also, how does she pay rent? In person? Online? By mail? Once her lease term is up, make sure you do not accept any payment.

(A side note: If you don't have a clause in your lease agreement about how the tenant must abide by all the HOA rules, then make sure you add one.)

Hello Peta-Gay Merrick,

While it's always recommended that you seek the advise of a qualified attorney who specializes in rental real estate, sometimes that option is costly. Granted, you can look at it as an insurance investment, because when we get down to the bare bones of it, the lease is the main thing that covers you. If two tenants occupy a dwelling, having the right clause in the lease holds them both equally accountable. If a law is enacted that renders a clause in your lease illegal, having the appropriate clause will render that one clause irrelevant while keeping the rest of the lease in tact and legally enforceable. If you pay to have a professional create a lease for you, then you can use that lease again and again, having it updated every so often.

What I personally did was I downloaded a standard state-specific lease for my state, and I then read over it. It was basic. What I then did was parsed through Google results and read through blogs and forums of people outlining "necessary clauses for a lease." After going through maybe ten articles, I had turned my three page boilerplate lease into an eighteen page tank. The standard lease did not include clauses about severability, about trash in common areas, about banners in public view. It breezed over late fees and outlined nothing in regard to a termination clause. Nothing about pets.

Once you get yourself a standard lease, verify what you see. When it outlines how and when late fees are assessed, check your state statutes regarding the matter. Each state has different grace periods and late fee caps. You don't want to put into your lease that if rent isn't paid by the second of the month, they get a $300 late fee when local law says you can't assess more than $50 no sooner than 4 days after the payment due date.

And for every clause that you see, find other examples of clauses. I personally used www.lawinsider.com. Or you can Google, for example, "Tenant early termination clause example" and find examples that way. Doing this will show you how simple or how complex you can be. "Tenant pet fee clause example"; "Tenant severability clause example," etc.

Just remember this: You are letting a complete stranger into your rental property. You're not letting them borrow your blender. You're not letting them borrow your lawnmower. You're essentially letting them borrow your $500,000 (+/-, of course) investment. Don't you think it is worth it to spend $2,000 to have a professional work up an iron clad lease for you? (Side note: It could be cheaper to have a lease made. I'm not too sure.)