All Forum Posts by: Daniel A.

Hello Donald,

Wow, that's quite a lot to take in. Let me see what I can do to provide some guidance. I am sure I will miss something, and if you like the responses I give, feel free to hedge further inquiries about what I omitted.

You could always consider suing the property management company for breach of contract. Assuming, of course, you had a contract with them stating clearly that they needed to screen and accept tenants according to specific criteria, etc. But that is a costly and complex process. Oftentimes you're better off taking the loss there.

What I recommend: establish your authority with the tenants. As you have mentioned, they are giving you some push back. That is because they've had such success in doing that with the property management company. Granted, you don't want to be rude or abrasive in your undertaking -- you should be courteous but firm. It's not their fault that the previous PM didn't follow the screening criteria, but they are in your rental, not their own home, and with that comes conditions.

Explain the situation to them: You are here because the property management company didn't manage the property to your expectations. These inspections should have been occurring, but they haven't. (Because of that, things have gone into disrepair. Your presence here is solely for their benefit.) Rent payments have been lenient, but now they aren't. From this point forward, you (the tenant) will be expected to abide by the contract to which you agreed when you moved in. You can even let them know that you are willing to let the past issues slide. But from this point forward, you pay rent on time or incur a late fee. If you do not pay the late fee along with the rent, you receive notices, then get evicted if you still think you don't need to pay.

You could even go so far as to tell them how things are going to be and if they don't like or agree with that, then offer them the option to break the contract and move out.

As to the pets, it's tough to impose fines if the contract doesn't say anything about it. I can't elaborate on it too much unless I see the lease, but you said you have a clause about prior approval. I wouldn't recommend letting much anything "slide" at this point. To establish authority, you need to bring everything up to par on your lease. They didn't follow the approval steps, even if the dog is outside. Offer them the opportunity to "approve" the pet. If your lease says anything about a pet fee, tell them that they need to satisfy that.

This is definitely a tough situation because you don't want to come in looking like the bad guy and then have these tenants damage your property out of anger. If their credit scores are that low, chances aren't high that they'll care if you threaten to report them to the credit bureau. You could always offer them the "cash for keys" option. Tell them you'll give them three hundred bucks to move. They just have to tidy your place up.

If I missed anything, feel free to reach out. But to reiterate, they signed a contract, they haven't been following that contract, it's been okay up until now, but now you (the tenant) will follow the contract just as I (the landlord/owner) will. You (the tenant) are contractually bound to pay the rent by the first of the month and I (the landlord/owner) am contractually bound to assess a late fee if you don't pay it within the legally permissible time frame.

Hello Cameron,

I just wanted to reach out to congratulate you on being so decisive and understanding the importance of education. I see so many people who decide they want to get into real estate because they see how others are making money, they then start asking how to get financing from lenders other than banks. They don't take the time to learn and to understand what all goes into being good at real estate. They think it's as cut and dry as buying a property and letting someone stay there for X amount per month.

Once you start delving into the nuances, you realize there are a whole bunch of laws you have to follow, a whole lot of ethical guidelines you must acknowledge, and a whole lot of work you have to put in before you can get to that point where you're bringing in the cash.

But I also mention that there comes a point where you can only educate yourself but so much before you bog yourself down with facts and knowledge, but nothing to which to apply it. And the thing about education, as I am sure we all know very well, you can read a book on tenant screening, but until you actually screen a tenant, there is a dichotomy between knowledge and experience. You can become knowledgeable about how to screen a tenant by reading a book, but the experience is where you apply the knowledge to create a more in-depth understanding.

I will throw out a quick story. When I worked up all of my documentation for a tenant to sign before moving in, I though it was all perfect. I had my friend look it over and he pointed out a few discrepancies - small stuff, you know, different penalty amounts in the Lease from those in the House Rules Addendum. Small stuff, but things that would come back on you were you to need to enforce them in a court of law. And then I had my Move-In Accounting Sheet. When I had a tenant sitting in front of me as I filled it out, I realized how disorganized it was on a practicality scale. It had all the lines for the security deposit and the first month's rent amount and so on and so forth, but once we actually sat down to fill it out, I realized it could be so much more fluid if I moved some fields around.

Keep the education a priority, as you will never learn everything, but also, be proactive. Get out there and talk, tell others what you do (or what you want to do), as it sounds like you're doing, and most of all, enjoy yourself. If you enjoy yourself, you lessen the stress and anger when you go over budget or when a drywaller doesn't show up.

Hello Brian,

The way you come to terms with that much debt is all in how you look at it. Having mortgages on rental properties is not consumer debt. You didn't rack up a credit card with ding dongs and ho hos, which you've long since consumed and are now paying off.

Mortgages are good debt. Look at that $800,000 not as debt but rather as money coming your way. Look it as a retirement fund. Look at it as your dreams. Look at it as financial security. In ten years, if all goes well, you will have a substantial amount of equity built up. You will have experience. You will have equity. You will have confidence.

Hello TJ,

Denying an applicant is solely up to you, the landlord. Granted you must be Fair Housing compliant, but adverse records on a credit report is grounds for denial. It is generally wise to let the tenants know beforehand (before they submit the application, I mean) of your qualifying criteria so they are not caught off guard if they know of something on their report.

If you deny an applicant based upon what you see in their credit report, be advised that you are required by law to tell them that you denied them based on something you found in their credit report, and you are required by law to provide them with information regarding how to obtain the report. Generally, this would be a document sending them to the credit screening company who will then mail them a copy of the report.

As to what the adverse actions are on their reports, I would almost say treat it on a case-by-case basis. If the applicants are otherwise within your criteria, inquire into why a certain adverse action is on their credit. They might have a valid reason out of their control.

But if it's previous landlords who have filed against them, if it's previous utility companies who have filed against them, and if it's failure to make car payments, those are generally red flag adverse actions. Steer clear of those tenants.

Hello Tim,

I probably won't have much advice that you don't already know, but I'll toss some things out there for you.

When it comes to rehabbing a house, so many variables come into play. The main one of note would be the contractor that you hire. Contractors vary in prices. I generally get at least two, if not three, quotes from different companies for anything that I hire out. This procedure came about for me by accident. The first time I had a contractor come out, they bid $70,000 for the project. I immediately dismissed that as absurd. So, instead of having one company take care of everything, I decided to take on the role of the general contractor. I called out an a/c guy. His bid was $7,000 and he we was very vague about what it was that needed to be done. He skirted my questions and exuded indifference. The second guy that I had out quoted me $2,600 and walked me through the property and showed me precisely what he would do and what needed to be done. He had been in the business for 20+ years. I hired him on the spot.

This instance has taught me first hand that the best way to learn what needs to be done and how to estimate those costs is to have the contractors you hire tell you what they're doing. Plain and simple. I can go to Lowes and see that a new A/C unit costs X dollars, but I don't know how to hook it up. I don't know how long it takes. I don't know what the going rate is for a licensed a/c guy. But after asking my a/c guy these questions, I got the answers. These are the types of answers that you won't find in any book. I would be surprised if there is a book out there that will tell you that it takes X amount of hours to run ductwork for this or that type of structure and that the going rate for an a/c guy in city Y is X dollars per hour.

While you can try and work out percentages and algorithms to determine rehab costs, there are just too many variables. Maybe your bathroom doesn't need much work, but the kitchen needs 2x the work. Maybe it's vice versa. Kitchens are notoriously expensive. Then you get into what kinds of material you're using. Are you going to buy cheap unfinished cabinets from Surplus Warehouse and then have them stained, or are you going to splurge and get some custom oak cabinets made from a reputable cabinet maker? Are you going to get a Tuscan Stainless Steel French Door fridge or a white Frigidaire?

Once you read The Book on Estimating Rehab Costs you'll have a better idea of what needs to be done, but the costs will still be a mystery until you start getting bids. And when you get those bids, ask questions. Sometimes if it's a big job a contractor won't want to itemize things unless they're sure they have the job. Itemizing any rehab is time consuming. What you could do is offer to pay them to create an itemization for you. That way if you get an exorbitant bid, like I did, you can see why the price is that high. You can see if they're just overpricing, or if they're getting eight $350 doors when the $150 dollar doors will do. Are they thinking your bathroom needs that $1,200 vanity when you know a $300 vanity will work?

You also must take into consideration, regarding the materials, whether the rehab you're doing is so you can flip it, or hold it and rent it. If you're renting it, you're going to want to be using different materials than if you were just flipping it.

To sum up, talk to contractors. Ask them questions. Learn their process. While the cabinets for your rehab might cost you $3,500 all-in, one contractor might charge you $2,000 to install them whereas another contractor might say $850.

Hello Crystal,

It's a shame. I live in Beaverton, OR but am in the process of moving to Texas. I am absolutely swamped for the time being as I have a renovation happening down in Texas. But I want to reach out and let you know that there are a lot of opportunities here in Oregon. Whatever route you choose, so long as you keep confidence in yourself and you keep continuing your education, you're going to do great. 

Also, continue to let others know that you're starting your real estate career. I cannot stress this enough. I never realized how many people had rental properties until I started telling other people that I was in real estate and that I'm currently working on renovating a triplex. Most people will open up, talking about their rental properties, so on and so forth. That's a great way to make connections and to boost your confidence.

Hello Daniel,

From a business standpoint, if the tenant wants to make any modifications, I generally ask for them to pay for it unless it brings the value up for future tenants. A storm door doesn't strike me as an "investment" on your end. A prospective tenant, in other words, likely won't be so awe-stricken by this property with a storm door that they'll dole out an extra $20 a month. Yes, they're nice to have, and I am sure they have their perks, but to me it seems like more of an aesthetic preference - one that generally isn't a deal-breaker.

Or you could view it as an insurance investment.

Now, if I had a tenant who happened to be a carpenter and who wanted to build a storage shed in his yard, I would offer to pay for the supplies because I could market that to future tenants and hike up the rent. 

To me, it sort of boils down to this: Yes, you want to be an amenable landlord, and offering to pay for it is nice, but by merely allowing them to install it, as opposed to saying "no," is amenability in its own regard. Also, if you pay for this addition, who is to say they won't want you to pay for a new bathroom vanity lamp? (I'm not saying this as if tenants are leeches - most of them, if screened properly, aren't. It's just that some tenants start getting ideas and get to a point of, "ah, just do it, he won't care.")

Just make sure, if you do have them pay for it, that you have a written agreement on what happens to the door when that tenant moves out. Sounds dumb but trust me on that one. Have everything in writing.

Hello Desmond,

I just wanted to reach out and congratulate you on your decision. Real estate is a great field to get into if you love to learn and if you love to make money. It has its ups and downs, but if you're passionate about it you take the "downs" as opportunities to learn.

Keep educating yourself and keep asking questions. You might think you know something, until you read what someone else has to say about it. I continually read forum posts that are full of information I've never considered on matters about which I thought I knew a lot. Different people have different methodologies that work for them and the best way to succeed is to learn how different people do the same thing.

Hello Jared,

Welcome to the world of real estate. There are so many options, so many possibilities. While everyone has their ideas, here is mine.

If you are interested in getting into real estate  and you're looking for a place to live, don't settle on one or the other. Settle on house hacking. Find yourself a duplex, a triplex, heck, even a fourplex. Get it. You live in one unit and you rent out the others. Doing this gives you experience in managing tenants, it gives you "street cred," and it gives you a place to live - rent free … if the numbers work.

As to choosing whether to do a flip or not, consider your personal position on the matter. Are you good at keeping costs down? Have you done any renovation projects before? Are you good at managing people? Unless you hire and pay for a general contractor, you'll have to coordinate electricians, plumbers, drywallers. While it's not impossible, it can work away at your spirits when things don't go smooth.

But if you have a passion and a drive, then whatever route you choose will great. So long as you actually get out there and do something. You can educate yourself by reading books, but nothing quite compares to actually getting out there and doing it. I've read books and blogs and forum posts about loans, but I learned the most from sitting down in front of a lender with my personal information for them to scrutinize.

Get out there and learn and enjoy yourself.

Hello Brandi,

I, too, have never heard of a 3 day contingency. There could be one, you'd just have to parse through the law to figure it out, but by and large, once the tenant signs the lease, they're liable to you for the entirety of the rent until the lease expires. That is unless you have in your lease a termination clause.

Of course, you being the lease holder, you can elect to tear the lease up, but in my preference that creates a bad precedent. The tenant signed a contract with you. And now they want to break the contract. There are consequences to breaking legally binding contracts and this should not be foregone. Who is to say that you're not the second, third, or fourth person this person has broken a contract with? How many more people will this person break contracts with?

If, after you speak with your attorney, he/she says that they cannot break the lease, I strongly recommend that you impose financial ramifications for their decision. I am hoping that you have a termination clause in you contract. If you don't, then make sure you update your lease to include one before signing on another tenant. My termination clauses generally impose a two month penalty. If the tenant is in month three of tenancy and they want to back out, that's fine with me, but they're required to pay two month's rent.

What you might also want to consider is why they're interested in backing out. Have you asked for the reason? Maybe they feel that the property has been misrepresented. Maybe they just found a different property that they like better. If the latter is the reason, you need to "educate" them (I dislike that term - "educate" - it sounds so pedantic) in how a contract works. You will be doing them a favor and you will be doing anyone they sign a contract with down the road a favor.

The way I see it with tenants and the contract is that if you don't hold up on your end, they're quick to call you out on it. Tenants are quick to become lawyers, citing law (they usually can't articulate any law in particular - just, "that's against the law") and telling you that they're taking you to court. A contract is a contract. Plain and simple. If you let this tenant back out without imposing the penalties outlined in the contract and those outlined in contract law, you open yourself to a discrimination suit down the road if you do hold someone else accountable. They'll look back and see that you didn't hold that person accountable, but you're holding me accountable.

And I will allude to a route I generally take when dealing with such instances: create a "bad guy." Make the contract the bad guy. Apologize, but remind them that they signed the contract and it is legally binding. Tell them that your attorney said you will be open to liability if you do not strictly adhere to the contract. (Make the attorney the bad guy.) This is assuming your attorney visit yields a result saying they can't back out, even this early on.

You can also go so far as to explain why you must be strict in these matters. You ceased searching for a new tenant once the lease was signed. You now have to start the process over. You are losing rent income because of them. This is called "consequential damages." 

I wish you the best of luck. If you get a chance, let us know what the attorney said. I'm curious to know.