All Forum Posts by: Gil Wildridge

It depends on the state. In my state (NJ), if an LLC owned property evicts a tenant, they're required to have legal representation, so the LLC would need to get a landlord/tenant lawyer. That's an expense, but it also makes the process easier.

In places where evictions are quick or pretty open/shut, I'd just ask a court clerk or someone who would know as they've seen it hundreds of times before. It might be that a managing member needs to appear in person or have an authorized agent appear in person, which means you'd need to present the form showing that the authorized agent (like a PM) is allowed to manage the LLC's property (usually those forms are either one page or one page out of a slightly longer landlord registration form).

Those don't sound like major issues. I would focus on actual damage to the unit, if there is any, in order to make a case for holding some of the deposit.

I work with properties like this, but there are liabilities, and a local firm is the best bet because every city/town has its own laws around rooming houses. So I would look for a local company that knows the local government. Ask them what the ordinance is before you sign anything and quiz them to see if they know any inspectors by name.

I've used both Buildium and Appfolio. Appfolio allows you to do more things but isn't as intuitive, so there's a trade-off.

I'm not a lawyer and would ask a lawyer to draft up an alternative agreement that both parties can be satisfied with honestly. I also don't have the text of the management agreement in front of me. I can't say for sure if what you've mentioned here is standard, but I can say this:

The indemnification clause is pretty similar to the one in our management agreement, however ours includes an exception for negligence of any kind. Adding the PM to a liability insurance policy is pretty standard and doesn't mean that PM companies don't carry their own insurance if you wanted to negotiate that they carry the risk entirely via their insurance. That might be possible, but again speak to your lawyer on how to do that. Both parties need to be insured, however, and honestly that's probably not a huge concern. I have never had a situation where it's come up with a client except for one case where a tenant drove a car into a building and one of us was minorly injured on site. But that wasn't a PM's gross negligence kind of situation. 

I would say that the liability disclaimer seems way too broad. We have a liability clause where we state that the PM specifically assumes no liability for issues not disclosed to us, anything the previous management company might have screwed up, laws violated or permits not obtained during construction we were not a part of, or tenant defaults (as in we won't pay to make up for a tenant not paying rent). 

But not being responsible for any damage to property or personal belongings seems wild to me. I'm not sure that would hold up in court honestly. Yes insurance would likely pay for accidental damage for some reason, but the idea that I could just punch a hole in the wall and not be liable is crazy. In fact, our agreement has a section in it that forbids us from making any alterations to the building without the owner's written permission, and I'd recommend that if it isn't in the agreement already.

As far as red flags:

OWNER'S RIGHT TO AUDIT. That is an absolute must. It might be called something different but absolutely make sure you have the right to audit the books relating to your properties at any time. It's reasonable that if there are costs associated with that you would pay part or all of those, but if there is no right to audit you should walk away, full stop.

REIMBURSABLE EXPENSES. These should only be for things like certified mail and if the PM has to travel for a court case for some reason. Make sure there's nothing crazy in there, like covering any professional conferences or anything not related to the management of your property. This might be standard and unchanged since the PM company signed a big client where they actually do a lot of traveling for or something, so make sure to check that. This doesn't count operating expenses for keeping the building running, which should just come out of a specific budget set aside for that.

BUILDING COMPLIANCE AND CODES/ORDINANCES. Make sure that the PM is required to notify you promptly of anything not up to code or any interactions with an inspector where the inspector says something needs to be fixed. Should be within x hours (24 for example) and in writing (email OK). As the owner you are responsible for keeping your building up to code but what happens a lot of time with PMs is they don't say something promptly enough or they don't communicate that the repairs they're requesting are specifically for code issues, so just have something in place to clean up any misunderstanding. 

REPORTS. Make sure it is written in the agreement that the PM must send you certain reports every month by a certain date (we have it as the 15th and try to keep it at that date for simplicity but it can be the 10th or another date that works). Those should include at least a rent roll, occupancy/delinquency, a P&L, and a report on cash balances and reserves. This is another major red flag if absent; if this isn't there, the company is hiding information from its clients and that is absolutely not a good sign. So if there's no requirement for the company to provide you with operational reports on a monthly basis, walk away. And you can ask if they'd have a problem sending you reports when you ask for them. I used to have one owner who asked for reports more often than most people shower, but as long as you're not asking for new reports when nothing has changed, a PM should never have a problem sending those to you.

EVICTION COSTS. This is less a red flag and more a leverage point, but see if you can't get the PM company to give you a flat cost per eviction. It's not always possible, but the idea is that they should be efficient enough that there shouldn't be surprises with evictions. In some markets in some states where working people are just struggling to get by, it might not always be a flat cost, but see if you can get the company to eat a flat fee. If you can't, see if you can get a report specifically on what it's costing to evict tenants. That they should have no problem putting together, even if it's a custom thing.

WORKER'S COMPENSATION. Make sure your LLC/business/self depending on what your lawyer says is insured as an alternate under the management company's worker's compensation just in case. I can't promise it works that way in California though. As to being on each other's insurance, that seems like an industry standard but within reason. It's hard to say more without the text.

There are likely other things, but those are what I as a non-attorney layperson and PM can recommend. Definitely though do not allow a PM to get away with not being liable for their own damage to the property in such broad terms. A PM is supposed to be an expert in the buildings they manage, and while things happen, paying for their on-the-job training is not the best thing for your portfolio.

All depends on the lease. If it's a building, there should be a clause about unsanitary conditions and especially if other tenants in adjoining units complain, charge a cleaning fee and send a service in. I support charging a specific cleaning fee and adding that to future leases because just increasing the rent provides no incentive for the tenants themselves to keep the space clean. If they can save money by keeping it clean and not get hit with a fee, then they have an incentive to behave as better tenants.

People in a building, from my experience, chose that buildings because they want certain rental amenities and sometimes have higher expectations. They're also often not familiar with the local area (people tend to find listings for large buildings first and if they're new to the area they're usually more comfortable with large buildings). They are usually more concerned about security and are slightly less likely to have kids. 

Tenants in small multifamilies are often longer time locals of an area and are choosing to live in a specific section of a city, for the schools or for a shorter commute or something. They might have worse credit depending on the owner of the small multifamily and the screening processes in place (larger buildings almost always have better screening). Because multifamilies often have proper back yards and are in neighborhoods built for families, I've at least found that multifamily tenants are more likely to have kids and often that means that they're more likely to know a couple things about home improvement and either have special maintenance requests or want to fix unit issues themselves. 

But these are just my personal experiences. It's worth getting some demographic data on each kind of tenant if you're looking for a full picture, or just visit a couple larger buildings and compare the people you talk to there to people living in multifamilies that you've met or managed.

Yes, buy them. Other local landlords are going to know where to get the best deals most likely. Sometimes, vendors that regularly attend your local REIA will have some solid deals just for landlords.

Regardless of the market it's pretty much a screening thing. Better screening is the easiest way to avoid the problem in the first place, and the problem isn't just eviction. It's unit turns after and often tenants who leave on bad terms take it out on the unit, etc. 

I have always been a believer in getting as much money as possible from the tenant before evicting them to minimize the costs associated with turning a unit because where I work, in an older city with a ton of small multifamilies, those costs can add up even in the best of times. If you're worried about the tenant damaging the unit, you can work out a deal with a landlord/tenant judge where they can pay what they can and leave immediately. In a lot of places, evictions are quick enough it shouldn't be an issue but I do tend to live by the motto "never underestimate how much damage a pissed off tenant can cause in just a few hours."

In those cases where a tenant suffered a minor setback and is back on track, if they are scheduled for a hearing before they're evicted they will often pay before that or when they see the notice on the door, but only if you file relatively soon.

It really is good screening and filing quickly and consistently that minimize nasty non-payment issues in just about any kind of market. 

It depends on management style I guess. If a tenant is being rude just to me, I don't care that much. I don't know what's going on in their lives, and usually if someone is punching up at a landlord or their representative it's because of something in their lives that they're really stressed out about. And as long as they're current and not breaking rules in the lease, they can say rude things to me.

But blasting loud music etc sounds past that. If they're doing anything another tenant would complain about I send them a written warning and the minute another tenant complains is when I'll double check to see if I can file eviction for that specific thing and give the tenant three days to knock it off. 

In general, if I personally don't like something, it's less of a cause for concern than if a good tenant doesn't like it. Always stick your neck out for the good tenants and replace the bad ones as soon as you can.