Category Archives: Ready to Rent: Tips & Tricks

Diary of a Landlady

I never intended to become a landlady but my pending out of state move made it inevitable.  I was not about to sell my house as the market was continuing to improve.  My vision of a landlord was much like the school lunch lady, usually mid-50s and disgruntled for no readily apparent reason.  As someone in my late 20s I had a hard time seeing myself in this role though my self-image was the least of my worries.  My mind was swirling with questions about my new landlady responsibilities.  Would the tenant trash my beloved first home?  What would I be liable for?  Can I charge enough rent to cover my mortgage?  What tax implications are involved in having a rental property?  How do I manage everything thousands of miles away?

I knew there were professional property managers I could hire to handle things but I am a penny pincher and save every opportunity I can.  Being a generation Y’er, I turn to the internet to solve my problems.  Enter the World Wide Web and massive information overload.  I read articles seeing messy evictions, costly squatting, the wide range of ways a property can be destroyed from pests to pets to drugs to water damage and all the things I didn’t even know I didn’t know about renting your house.

I started looking into the wide range of leases, tenant screening methods, tax, state and fair housing laws.  I knew that I could save a little money each month on management fees and assume I am smart enough to make the right legal, accounting and other crucial decisions.  On the other hand, I could hire a professional who has a bank of resources, network of experts, years of experience and whose living is entirely based on managing rentals well.  I knew there were huge financial and legal risks I was exposing myself to by becoming a DIYer.  I also knew that vacancy rates are around 9% while professionally managed properties boast half the vacancy rate.  Vacancy is expensive (meaning a huge loss of rental income plus the cost of turnover) and this fact alone was almost enough to convince me.  I knew I could spend time trying to learn about all these subjects and struggle to manage my property from thousands of miles away, effectively letting my house control me.  Alternately I could buy myself some peace of mind and enjoy half the vacancy rates while I spent time adjusting to my new home, job situation, focusing on how to maximize my other assets.

I ended up finding a property manager with over 10 years of experience, who handles everything for me.  The tenant he placed is quite like me, fastidious and responsible.  My manager checks on the property regularly and I get a rent check every month that more than covers my mortgage, management fees and taxes.  So, no stress over advertising the property, picking the right tenant, setting rates, rental housing laws, late night emergency calls and no disgruntled landlady here.  I just get to sit back, collect money and build equity.  I guess being a landlady isn’t so bad after all.

| October 14, 2013 More

Short Sale, Buy and Bail, or Rent Your House and Buy Another?

Underwater mortgage

Photo credit: Joshhphoto, Flickr

Since the housing bubble burst, thousands of people have found themselves in the position of owing more on their current house than it would sell for in today’s market. A recent article from Time Magazine indicates that over 11.1 million homeowners are currently upside down in their mortgages, and that this number is growing at an alarming rate.  If you’re one of the unfortunate crowd who finds themselves in this situation, and you either need or want to move, you’re likely trying to figure out how to get out of your current house without losing any more of your hard-earned cash in the process. Here are three common strategies that many people in this position consider:

1) Doing a “short sale.”
A “short sale” occurs when a bank agrees to let a borrower sell their house for less than the outstanding mortgage, then forgives the rest of the debt. Banks may be willing to do this in scenarios where, by their calculations, they stand to lose more money by going through a foreclosure process than they would by doing a short sale. However, part of qualifying for a short sale involves submitting a “letter of hardship” that explains why you can’t continue to make your current mortgage payments or pay the difference between your home’s sales price and your outstanding mortgage balance in the event of a sale. Simply wanting to buy another house, or “needing” to move for reasons that are essentially a matter of personal choice/preference, generally won’t cut it.

2) Buying a new house before walking away from the first, a.k.a. “buying and bailing.”
The term “buying and bailing” describes homeowners who walk away from their current house with its upside down mortgage, but purchase a new house at a better price and lower interest rate before their credit tanks.   These homeowners typically tell lenders that they will rent out their old house (sometimes producing fake rental agreements), but never actually find a renter, and stop making mortgage payments on the old house as soon as their new house closes.   The problem with the “buy and bail” is that lying on your loan application (for example, about having a renter when you actually don’t) and producing false documents is mortgage fraud, which is a federal offense, which, according to a recent FBI warning, is punishable by “up to 30 years in federal prison or $1,000,000 fine, or both.”

3) Renting the current house out, then buying another.
Renting your house and buying another may be easier than you think. While lenders have tightened their guidelines surrounding this practice due to the recent spike in “buy and bail” transactions they’ve seen, if you have a fair amount of equity in your home, this may be a viable solution. Here are typical lender guidelines for renting your current house, then buying another.

  • You must qualify for both mortgages, which makes sense, because you’ll be paying two mortgages.  A central issue is whether you’ll be able to count your rental income from the current house in your income to debt ratio (see above). If you have at least 30 percent equity (for conventional loans) or 25% equity (for FHA loans) in your current house, you can include rental income on your mortgage application.
  • You must produce a signed lease on the current house, typically for a one-year term.  The lender may require that the renter has already moved in.
  • Some lenders require applicants to show that they have cash reserves to pay for the mortgages for 6 to 12 months.

If you are fortunate enough to have a good savings account and 30% equity in your current home or enough income to support two mortgages, then renting out your current home and getting into a new house at a lower interest rate, might be a viable option – and it also could be a sound investment.

| September 11, 2012 More

Texting Tenants: Practical and Legal Considerations

Text messaging a tenant or prospective tenant is a convenient way to communicate.  It can be done quickly without having wait for someone to answer, leave a message or wait for a callback, and without having to engage in conversation.  It can be done without drafting, printing and delivering a letter.  In short, you can pass the ball with minimal hassle.

Receiving a text is also convenient. Phone calls interrupt activities, and checking voice mail requires dialing into a voice mail system and listening to the message.  A text message can also be saved, forwarded, and easily accessed if it contains useful information.

Clearly texting has some practical applications for property managers, landlords and tenants.  However, the key to texting with tenants is to know when sending a text, rather than making a phone call or sending a letter, could get you in trouble.

Establish guidelines for texting with tenants.

When you’re signing a lease, make sure to discuss your preferred communication methods, including texting, with your tenants, so that you’re all on the same page. When it comes to texting, put the following guidelines in place:

  1. Make sure the tenant is able and willing to receive text messages.  Some people don’t have cell phones, or if they do, they don’t use them often.  Others have no texting plan.  And some people simply don’t want to communicate by texting.  If a tenant doesn’t want to receive text messages from you, respect his or her wishes.
  2. Put it in writing.  The lease agreement, or some other document signed by the tenant, should contain a checkbox for the tenant to indicate he or she is willing to receive text messages, and a section for the tenant to write in his or her mobile number.
  3. Specify what you will be texting to the tenant.  Put in writing the information you will be texting to the tenant.   Text messages are informal.  Limit them to emergency repair situations when you can’t call each tenant or when you have reports of suspicious criminal activity in the area.  Also use text messages for simple reminders about upcoming due dates, meetings or scheduled repairs and maintenance for which you have already given written notice.  Limit yourself to these situations – don’t send a text soliciting for donations to your favorite worthy cause and don’t overload the tenant with too many texts.
  4. Specify what the tenant can text to you. Limit what information the tenant may text to you.  For example, texts requesting repairs or maintenance and consenting to allowing maintenance staff to enter the unit might be appropriate

Know when to avoid texting a tenant.

There are some situations where texting isn’t the right tool for communication. For example:

  1. Don’t text formal written notices to a tenant.  If you are giving a tenant a notice that is required by statute to be in writing (such as a notice that you need to enter the premises or terminate the lease), do not text it.  If a notice doesn’t meet the statutory requirements for proper form and delivery, the tenant can claim that notice was improper and that he or she need not comply.
  2. Don’t text information if you might need a paper trail. If you suspect that you may need to keep a record that a certain communication was delivered, make sure the communication is on paper and delivered appropriately.  Text messages are not legal documents.  They are easily (and sometimes accidentally) deleted.  Furthermore text messages can’t be printed out and easily presented to a judge, and they may not hold up in court.
  3. Don’t send text messages that convey anger or frustration. Always keep text messages professional and devoid of negative emotion.  If you have a difficult situation with a tenant, a phone call or an in-person conversation is probably better than a short text message.  As with email, when you send a text message the person on the receiving end doesn’t see your facial expressions or body language, which can give them an incomplete picture of the intent of the communication.  Remember that if you might need a paper trail, send the tenant a letter, or follow up the conversation with a letter.

Texting tenants can be an efficient way to communicate, saving property managers time and money.  If you know when and when not to use text, it can be a valuable tool.

Have you ever had a problem texting with a tenant?  We’d love to hear about the times texting has worked well and when it has made you nervous!

| August 19, 2012 More