Excalibur Home Management Blog

HUD's New Rule Regarding Landlords and Vicarious Liability

Mike Nelson - Monday, September 26, 2016


Vicarious liability refers to a situation where someone is held responsible for the actions or omissions of another person. In a workplace context, an employer can be liable for the acts or omissions of its employees, provided it can be shown that they took place in the course of their employment.  This week HUD passed a new rule that could hold landlords and property managers in violation of fair housing law if that landlord, or their representatives, (property managers, agents, vendors, inspectors, etc.) harass any tenants in such a way that the tenants feel unsafe or uncomfortable living at the property.  This new rule goes on to hold the landlord responsible for the actions and behavior of the landlord’s tenants.  If your tenants behave badly, and make other residents feel unsafe or uncomfortable, and the landlord does nothing to remedy the situation, HUD may find that landlord in violation of fair housing law.

More specifically the rule deals with these two circumstances:

Hostile Environment Harassment occurs when a person becomes the victim of “sufficiently severe or pervasive” conduct that takes away from their ability to use and enjoy the housing (e.g., hostile neighbors).

Quid Pro Quo Harassment occurs when a person (e.g., property management staff) makes an unwelcome request or demand, and it makes a resident’s compliance a condition related to their housing.

Landlords have always had some degree of vicarious liability regarding the actions and conduct of their employees, agents, and vendors.  This NEW liability is related to the landlord’s liability regarding the conduct of their tenants.  In the past disputes between tenants and their neighbors that were not clear violations of the lease were often resolved by the police.  Landlords do not have police powers.  Among the many other duties and obligations that fall to the landlord, apparently HUD expects the landlord to now play the role of “peacemaker”.  So landlords need to be prepared to deal with these tenant related disputes or be prepared to respond to a fair housing investigation.  Consider modifying your lease to address this and provide you with a way to terminate the lease if your tenant is involved in a dispute that can not otherwise be reasonably resolved.

Excalibur Homes is an Atlanta property management company. 

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Landlord Insurance: Consider Before Filing a Claim

Mike Nelson - Wednesday, August 10, 2016

Insurance – Consider Before Filing a Claim

A lot of things have changed over the years in the insurance business.  One of them is the impact of making a claim on your landlord insurance policy.  

There was a time when the owner’s could submit possible claims thinking, “if you are unsure whether something is covered or not, just turn in a claim and the insurance company will go out there and have a look”.   Unfortunately several years of underwriting losses have caused insurance companies to enforce much stronger underwriting guidelines and action than in the good ole days.  In fact, making 3 claims on the same policy will probably get you a non-renewal notice in the state of Georgia.  And it doesn’t really matter how small or large the claims were, or even if they resulted in a payout.  The insurance company will tell you that less than 1% of homeowners will make 3 claims in 3 years, and statistically that group is much more likely to continue to make claims in the future.  And that those homeowners are responsible for pushing up the rates for the ones who “never” make a claim.  Historically the average homeowner goes about 18 years in between claims.  Bottom Line - talk to your agent before making a claim.  They can help you determine if your policy covers the loss (it probably does) and if the damage is even likely to exceed your deductible.    It would be a shame to lose a large “claim free discount” for a small payout, AND have one claim on your record.   Your insurance agent may work for the insurance company but you are their customer.  Speak to your agent first before filing a claim on something that may be relatively small or not covered by the policy.

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Dealing with a Foreclosed Rental Property - Atlanta Property Management

Mike Nelson - Tuesday, March 29, 2016

Dealing with a Foreclosed Rental Property 

As a property manager, or a landlord, having a rental home foreclosed upon can be a real nightmare.  The Protecting Tenants at Foreclosure Act expired 12/31/14.  So we are back to the old rules.  If a foreclosure takes place today then the lease is no longer valid (the mortgage is a superior claim to the property than any lease).  Typically the mortgage company that “bought” the property at the foreclosure sale is going to evict any current resident, or offer a “cash for keys” deal, in order to make the property vacant so the lender can sell it to recover some or all of the debt.  If the current resident is a tenant, this tenant may be losing their HOME due to no fault of their own.

Issues For the Landlord – when your payments are in arrears, and you know you are at risk for losing the property to foreclosure, you need to deal with this issue and your tenant.  If your loan is in arrears, and you re-rent the property to a new tenant without disclosing the problem, you run the risk of the tenant filing a fraud complaint against you – you knew of a likely foreclosure and didn’t disclose it which lead to the loss of the tenant’s home.  Whether you re-rent a property where the loan is in default, or fail to inform a current tenant of a pending foreclosure, the owner/landlord is at risk for a tenant suing for having lost their home due to the landlord’s actions by permitting the foreclosure.  A lawsuit where one of the parties lost their home, and potentially much more thru the eviction process, can be very ugly and very expensive. 

Issues for the Property Manager – The first challenge is finding out that the loan is in default.  We have seen several properties foreclosed upon between 2008 and today and it was a very rare circumstance where the owner informed us that their loan was in arrears and likely to be foreclosed.  Normally we find out from the tenant.  Often the lender will send a letter to the property address announcing that the loan is in default and scheduled for a foreclosure in the coming months.  That is when the tenant calls us in a panic about what to do since they are about to lose their home.  However, until the transfer of title thru the foreclosure (or deed in lieu), the lease is still in effect.  And, until the foreclosure or some other cancellation of the management agreement, the property manager is still obligated to enforce the lease.

Our technique – The first issue is to address this in the management agreement.  In the GAR Management Agreement, and in our agreement, there is a clause that authorizes the property manager to stop making disbursements to the owner once we have knowledge that the mortgage or HOA fees are in arrears until the owner can demonstrate the their payments are made current.  This is important because in several instances we were not notified of the foreclosure until after the foreclosure sale had taken place, sometimes 2 or 3 months back.  Now all of the rent paid by the tenant since the date of the foreclosure may need to be refunded to the tenant since the lease legally “died” when the foreclosure took place.  Since the property manager has no authority to represent the new owner, the property manager has no authority to collect rent for this new owner. 

Once you find out that the loan is in arrears, contact the tenant to explain the situation and considerations.  Many tenants will want to cancel the lease immediately and move out.  If the landlord has not agreed to that, then you need explain to the tenant the situation and their options:

1)      The lease is still in effect and enforceable.

2)      The rent the tenant pays to us will be held in escrow until the loan is brought current, the property is foreclosed, or the lease is terminated.

3)      IF the property is foreclosed, then any rent for the days since the foreclosure will be refunded to the tenant.  The security deposit would also be refunded to the tenant.  The tenant is also likely to be offered a “cash for keys” deal from the mortgage company if that is the new owner.  An investor/buyer may offer the tenant the opportunity to sign a new lease.  (NOTE – when disbursing trust funds after a foreclosure, such as the rent and security deposit, make sure to follow your State law.  In Georgia, we would send a letter to all parties announcing our intent, how we plan to disburse the funds, and give all parties 15 days to contest that disbursement if they disagree or want to make a claim against the funds.  We have yet to have a lender request that we send them the rent or deposit and we have always returned the un-earned rent and deposit to the tenant – so far.) 

4)      IF the tenant moves out before the foreclosure, then it will be treated as a “skip” and the tenant’s deposit will be applied toward their unpaid balance.  Their landlord reference would also indicate that they did not fulfill the lease.  So it is easy to make the case to the tenant that they are much better offer to proceed according to item three above.

5)      IF the owner informs us they were able to bring the loan current, then we get a copy of the owner’s most recent mortgage statement to verify that, then release the reserve on the property and disburse the funds due to the owner.

6)      If the lease expires prior to the foreclosure, and the tenant decides to move out, then it is processed as any other move out.

7)      If the lease expires prior to the foreclosure, and the tenant wants to remain in the property, then we convert the lease to a month to month agreement and add a stipulation disclosing the current situation with the loan and the potential foreclosure. 

We had one occasion where the owner’s loan was in default, but the lender did not foreclose for over a year – and then the owner was able to re-negotiate and get current on the loan.  In instances where the amount of the funds withheld from the tenant’s rental payments become substantial, the property manager should make a determination as to what is a reasonable amount to withhold and pay the rest to the client.  In the case just mentioned above, we held 3 months of rent as a reserve and disbursed any overages to the owner until the loan was brought current.

Don’t treat the foreclosure of a rental home lightly.  The landlord/borrower is not the only one to suffer here.  If a tenant gets evicted from their personal home while they are current on their rental payments, consider what the damage claim may be.  Financial costs for the move.  The emotional pain and suffering from losing their home.  The additional hardship of not getting their kids into the same school.  And on and on.  Landlords and property managers should do everything possible to limit liability to the tenant from a foreclosure.

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Dealing with Bed Bugs in your Rental Home - Atlanta Property Management

Mike Nelson - Tuesday, March 22, 2016

Dealing with Bed Bugs in your Rental House

The Facts:
  •          Bed bugs are small but they can be seen without the aid of magnification.  Adults are about the size of an apple seed.  Juvenile bed bugs are very small and more difficult to see.  They are oval and reddish brown in color.
  •          Bed bugs feed on human blood and can live for up to a year without feeding.
  •          Bed bugs usually hide during the day then come out at night to feed. 
  •          Most bed bugs will be found within 8 feet of a sleeping area or resting place (inside the mattress, box springs, bed clothes, furniture cracks, under carpet or rugs, etc.)

Prevention (Instructions for the Tenant to cover at the move in appointment):
  •          Do not bring furniture, mattresses, sofas, etc. found on the street into the home.
  •          Do not place backpacks, suitcases, purses, on beds, sofas, or upholstered chairs, especially right after a trip away from home.
  •          When traveling, always check the bed and surrounding area for bed bugs before unpacking or laying on the bed or sofa.  Keep your suitcase off the             bed and make sure to inspect the suitcase carefully before re-packing to leave.
  •          If you discover bed bugs in any of your clothing or shoes, wrap them in plastic until you can launder them on the highest heat setting the materials can           take.  Shoes can be placed in the dryer for 30 minutes at a medium-high setting.

The Response:

Encourage residents to report bed bugs immediately.  Make sure your maintenance contractors know to report any indication of an infestation.  The longer an infestation is allowed to continue, the wider it will spread, which will make it more difficult and more expensive to eliminate.  While there are some pesticides sold at hardware stores that claim to kill bed bugs, they often do not work, at least not fully.  This is likely due to the amateur’s inability to identify and treat where the bed bugs are hiding.  Many times they are in hard to reach spots such as inside the mattress or behind wood work.  The most effective way to get rid of bed bugs is using a professional pest control operator.  They have better equipment to locate and treat the problem.  They can even access specially trained dogs to locate where the bed bugs are hiding.  We recommend that the landlord take control of the situation to make sure the infestation is dealt with effectively.  Then they can charge the tenant, if applicable, for the work performed.  If the landlord directs to handle the problem, then there is a higher probability that the work is not done correctly which could turn into a problem for the landlord when the next tenant moves in.

Liability (Who Pays):

In a single family rental we would normally charge the tenant for the cost of the treatment.  If the bed bugs were not present when we performed the move in inspection, then the tenant must have brought them into the property.  However, that is not always the case.  If a rental house had a previous bed bug infestation, then they may have re-appeared due to no fault of the new tenant.  Remember that bed bugs can remain dormant for up to a year without feeding.  Also, in a multi-family property it is much more difficult to prove who brought the bed bugs in.  The bed bugs could have come from a neighboring unit and that neighbor may not have reported the issue.  You would need to prove who brought in the bugs before assessing charges against the tenant.  In several states, such as Florida, their law specifically states that the owner of a multi-family building (not houses or duplexes) must pay to have bed bugs removed unless the landlord can prove which tenant is responsible for the infestation.  For single family landlords, consider adding a clause to your lease such as “Tenant shall be responsible for the immediate treatment of any bed bugs in the Premises by a licensed pest control operator and the immediate and permanent removal from the Premises of any mattresses, bedding, clothing and other similar items that may contain bed bugs or bed bug larvae.” 

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How to Deal with a Fire in Your Rental House - Atlanta Property Management

Mike Nelson - Tuesday, March 1, 2016

How to Deal with a Fire in Your Rental House

Fires happen in homes every day.  According to the National Fire Protection Agency there were 369,500 home fires in 2013 resulting in 2755 deaths and $6.8 Billion in damages.  Many of these were in rental homes. 

What is the first step?  When you get a report of a fire in one of your rental houses, determine that the tenants are OK and the extent of the damage.  Take a video or a lot of photos of the condition.  Then protect the property.  That may meaning getting a tarp on the roof, reinforcing walls that have burned, or any other steps to prevent additional damage from being done.  Do not worry about whether you have made contact with your insurance agent yet, or not.  Your insurance company will appreciate your efforts to reduce the amount of the claim by preventing additional damage.  Dealing with a tenant that dies in the property is covered in another article.  For this article we will confine ourselves to dealing with the fire damage and liability.  If the damage is significant enough to make the house uninhabitable contact your insurance company immediately.  If the damage is not that significant, you may choose to handle the issue outside of your insurance.  Bear in mind that an owner or property with multiple claims may become uninsurable eventually.  The general rule of thumb is a client that makes 3 claims within 3 years is likely to be canceled regardless of the size of the claims.

How do you determine the cause of the fire?  If you file a claim with your insurance company, they will normally have an investigator, an expert, to determine the cause of the fire.  This person will often create a scope of work outlining the damages which need attention.  This list can be used with the contractor that will make the repairs.  Even if you don’t place an insurance claim, you may want to hire a fire investigator (3rd party investigator) to determine the cause of the fire.  With many fire departments, their investigation is limited to whether or not the criminal act of arson was committed.  Once the Fire Marshall has ruled out arson, their investigation is often finished.  So do not wait, or count on, the Fire Marshall’s report to determine the specific cause of the fire.   

What happens to the Lease?  Most leases will have a “Destruction of Premises” clause which says, in short, if the property is made uninhabitable due to fire, flood, etc., then the lease can be terminated immediately.  The obligation to pay rent terminates with the lease.  Whether or not the lease will continue can be negotiated between the parties.  If the tenants want to move back in, and the owner is willing to let the tenants stay, and the repairs to make the house can be done within a reasonable period of time, then the parties may agree to some temporary arrangement while the needed repairs are under way.  We have seen several fires over our 30+ years of experience and several thousand houses we have managed and each case has been handled a little differently based on the extent of the damage, the cause of the fire, and the attitude of the parties.  However, if either party wants to terminate and move on, then that is the likely outcome.  Local building codes will determine if the property is habitable and, in all likelihood, it is not legally “habitable” immediately after the fire.

Who is liable for the damage?  The result of the fire investigator’s report will determine this.  If the fire was started due to the tenant’s abuse or neglect, then the tenant is liable for the damages.  If the tenant has renter’s insurance, then their insurance company will cover the damages.  If the landlord files a claim under the landlord’s policy, then the landlord’s insurance company will usually work directly with the tenant’s insurance company.  If the tenant is responsible for the fire, but does not have insurance, then the landlord can charge the tenant for the amount of the landlord’s deductible in addition to any other obligations permitted in your lease.  For instance, in our lease form, if the tenant is responsible for the fire, the tenant’s obligation to pay rent continues until the lease expires or until the house is re-rented.  Normally the landlord would not have the right to charge the tenant for the full amount of the claim since they are getting their insurance to cover the loss.  The landlord’s insurance company may choose to pursue the tenant, but that is up to them, not the landlord.

Is there a silver lining here?  If your house is damaged or destroyed by fire, this may be an opportunity to update your house.  Once you and your insurance company have agreed on the amount of the claim, they are normally very reasonable regarding how you repair the property.  For instance, if your 1980s rental house had a separate living, formal dining room, separate den, and a small galley style kitchen, this may be an opportunity to update the property with a modified “open concept” floor plan.  Similar opportunities may exist to update the master suite if that suffered damage.  We recently had a house that was burned to the ground and we built it back to the same floor plan and dimensions.  However the new house was made of materials that are more durable and resistant to tenant damage which has reduced operating expenses for the property.

Let’s hope this never happens to one of your properties.  But if it does, now you know how to deal with it.    

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Housing Market updates from GAR - Atlanta Property Management

Mike Nelson - Monday, December 21, 2015

Georgia housing indicators for November are in:

 -   Pending Sales were up 23 percent to 7,861.

 -   Average Sales Price was up 7 percent to $218,840.

 -   Inventory levels shrank 7 percent to 41,891 units.

 -   Median Sales Price increased 7 percent to $175,050.

 -   Days on Market decreased 8 percent to 72 days.

 -   Months Supply of Inventory was down 23 percent to 4.6 months.

 -   New Listings increased 4 percent to 9,568.

Excalibur Homes is an Atlanta property management company. See why landlords choose us. Click here to find out more about our leasing and management services.

Dealing With a Mold Problem in Your Rental House - Atlanta Property Management

Mike Nelson - Monday, December 21, 2015

Dealing With a Mold Problem in Your Rental House

Mold spores are all around us.  They are a fact of life.  A small portion of the human population is allergic to some mold spore varieties.  Unfortunately, those with mold allergies are typically allergic to the type of mold you might find growing in your rental property.  While only a small portion of the population has allergies related to mold, it seems that a disproportionate share of these people are tenants!  When your tenant finds mold in the property, they often think “money”.

Preventing Mold – Best practices include preventing any water from entering the property outside of the plumbing system.  All roof leaks and plumbing leaks should be repaired immediately.  After the leak is fixed, make sure to REMOVE any drywall and carpet padding that got wet and then thoroughly dry any other components that also got wet, such as the wood studs, carpeting, etc. then treat those areas with a fungicide.  A common mistake many landlords make is to prime over water stained drywall without realizing that often the mold is growing on the backside of the drywall – out of sight.  And it can continue to grow, out of sight, until it becomes a serious problem.

Mold Remediation – is the phrase most often used.  There are many contractors that can remove mold from within your property.  First, you need to confirm there is a mold problem.  They have equipment that will let them measure the amount of mold spores within and air sample and compare that to the amount of mold spores in an air sample from outside the property.  They also have sensors that can identify where the excess moisture is.  After confirming the presence of mold, the contractor can kill it and remove any effected drywall, etc. as needed.  Doing this work urgently will reduce the chance you have a dispute with your tenant.

What Not To Do –  Often the tenant requests the landlord to have the mold tested to determine the specific type.  DO NOT DO THIS.  First, you have no obligation to test it.  You just have to get rid of it.  Second, the “expert” that is qualified to determine what type of mold you have is called an Environmental Hygienist.  They are pretty expensive.  And the results of their test become free “evidence” available to your tenant through the Discovery process when they decide to sue you for all the suffering they endured due to the mold problem.

Reduced Liability vs. a few more dollars in Rent – Generally speaking, a landlord is not liable for injury to a tenant on the property UNLESS the tenant reported the problem to the landlord and the landlord does nothing to correct the problem.  There have been several lawsuits filed by tenants against landlords related to harm that came to the tenant due to mold in the property.  In lawsuits where the tenant won a substantial judgment against a landlord, the circumstances often involve a tenant notifying the landlord of the mold problem, but the landlord does not make the repair and refuses to let the tenant out of the lease.  So any harm caused to the tenant can be traced back to the landlord’s actions and decisions.

Our Technique -  In order to reduce our liability regarding mold claims, we deal with these issues urgently and thoroughly.  However, from time to time, we have a tenant tell us that a) there is mold in the property AND b) the mold is making them sick!  Most residential leases have a “Destruction of Premises” clause that permits the lease to be terminated immediately with no penalty due from either party if the property becomes uninhabitable due to fire.   The lease form we use also includes mold, flooding, storm, and other Acts of God that render the property uninhabitable.  Once the tenant tells us the mold is making them sick, we notify them that the Destruction of Premises clause is now in effect and they need to move from the property ASAP.  In so doing, the tenant would have a very weak claim against the landlord because as soon as the tenant claimed there was mold and it was making them sick, they were released from the lease so they could move to a safe place.  In some cases the tenants actually moved out.  While the landlord had to suffer some vacancy and expenses related to getting a new tenant, this is far less expensive than having to fight a lawsuit.  In many cases, when we notified the tenant that they would have to move, they respond with “we don’t want to move, we just want compensation”.  That is not an option.  Several of these tenants wanted to stay in the property after all but the only way we permit that is if they sign a Hold Harmless agreement stating they won’t hold the landlord liable for any issues regarding mold in the property.  We already gave them a chance to move out.  If they choose to stay, which many have, then it needs to be at their own risk.  This technique has minimized the mold lawsuits we have had to defend and the few that were filed were easily dealt with because of our technique to minimize landlord liability.

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Tenants and Bankruptcy Code: Knowing the Facts - Atlanta Property Management

Mike Nelson - Monday, December 21, 2015

Many landlords that own rental houses are not millionaire investors.  When a tenant files for bankruptcy, that tenant is now dragging the landlord into financial distress.

It is estimated that there are around 14 million rental houses in the US.  While there has been a recent circumstance where large hedge fund investors have started buying single family homes as rental investments, experts such as Ivy Zelman have data that shows those large investors own less than 5% of all these houses across the country.  Most of these landlords own only the one rental house.  For many of them, it was their personal residence before they had to move and convert it to a rental rather than losing money on the sale or, worse, losing the house to foreclosure.  Many of these "mom & pop" landlords are being abused by tenants that can't pay the rent and use bankruptcy protection to extend their time in the property, rent free, for months.  This places a huge financial burden on the home owner who now has to borrow money from somewhere to make their mortgage payment or they have to stop making the mortgage payment altogether.

Prior to the 2005 amendment to the current bankruptcy law, a common scenario was that a landlord would begin the eviction process for non-payment of rent.  After the local judge ruled in favor of the landlord one of the adults would file for bankruptcy protection effectively halting the eviction process.  This required the landlord to pay an attorney to file a motion in bankruptcy court to have the Stay lifted so that the landlord could proceed with the eviction.  This would give the tenant an additional 1 - 3 months in the property without paying any rent.  Once the landlord's attorney got the Stay lifted the other adult, or spouse, would also file for bankruptcy requiring the landlord to go through the process of lifting the Stay all over again.

The bankruptcy code was amended in 2005 and one of the many purposes of the changes was to keep tenants in residential leases from using the bankruptcy code to prolong the eviction process and gain the tenant several more months within their home for free.  Unfortunately these changes did almost nothing to stop the abuses.  The 2005 amendment to the bankruptcy code in §362(b)(22) states that the automatic stay does not apply to the continuation of an eviction action by a landlord involving residential property in which the debtor resides under a lease and with respect to which the landlord has obtained, before the bankruptcy, a judgment for possession of the property. Accordingly, if the landlord obtains a judgment for possession of the property before the debtor files bankruptcy, the automatic stay will not apply. In these cases, the landlord does not need to file a motion to obtain relief from the automatic stay. Instead, the automatic stay does not apply to the landlord, and the landlord is free to continue pursuing its eviction rights under state law.

Unfortunately this "loophole" only applies a small percentage of the time - when the tenant has appeared in court and the local judge has given the landlord a judgment and possession of the property.  The vast majority of the time the tenant does not appear in local Magistrates Court or they file for bankruptcy prior to the court hearing instead of after the local judge has ruled.

Under the current bankruptcy code, lifting of the Stay regarding a residential lease is automatic.  The bankruptcy court will always let the landlord proceed with regaining possession of the property since a residential lease is a usufruct (right to enjoy without owning) and not an asset.  The primary purpose of the bankruptcy is to deal with the debts of the debtor.  However, under current law, when the tenant files for bankruptcy the owner is delayed for several weeks or months in regaining possession.  From a practical standpoint, regaining possession is the primary concern of the landlord.  If the current tenant can't pay the rent, the landlord needs to regain possession in order to re-rent the property to someone that can pay the rent.  Otherwise that tenant is now dragging the mom & pop landlord into financial distress also.

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Tips for a Successful Tenant Move In - Property Management Blog

Mike Nelson - Sunday, November 22, 2015

Avoid Problems Now so they Don’t Need to be Solved Later

One of the challenges that all landlord and property managers have to face is the “nobody told me that” excuse that almost all tenants seem to embrace.  The Georgia Association of Realtors (GAR) form lease is 12 pages long.  You would think that a tenant would read a 12 page legal document before signing it, but they often don’t.  While the agreement may be legally binding, your tenant doesn’t know what the “agreement” is.  Before you judge them too harshly, you are probably just like them in that respect.  Consider, when you fly out of town and rent a car at your destination, the rental car company presents you with a one page contact and says you need to initial and sign here to get the keys.  Do you stop and read that one page agreement before initialing and signing, or do you just initial and sign where they indicate so you can get the keys you want and get going?  Your tenant is not any different.  They initial and sign where indicated in order to get the keys.  Not having read the lease, they don’t know what is required of them

SOLUTION – at the move in appointment TELL THEM what is in the agreement and what is expected of them:

·         Confirm when the rent is due, when the late fee is assessed, and the amount of the late fee.  This is a good time to emphasize the benefits of signing up for paying the rent by auto-debit and explaining that the late fee is applied based on when you RECEIVE the rent, not when they put it in the mail.   Any delays caused by mailing delays are the tenant's responsibility, not yours.

·         Remind them of the end date of the lease and the amount of notice required if they don’t want to renew.  We require a 60 day notice, sent by certified mail, and many tenants are used to a 30 day notice provision from some former apartment lease.

·         Emphasize that no pets are allowed unless a specific pet addendum has been agreed to and signed.  And inform them that they are not allowed to add pets without your permission just because there is a pet addendum in place.

·         Make sure they understand that they are not allowed to smoke inside the premises (assuming your lease prohibits that – which I recommend).  They have to smoke outside.

·         Remind the tenant that they have to get the utilities turned on in their name.  Once you approved their application you should have notified them which utility companies they needed to contact to establish service.  Now, at the move in appointment, you are confirming they did that.  Once you leave, order the utilities to be disconnected in the landlord’s name.  If the tenant has still not established service in their name, the cold and the dark will remind them to do it.  Otherwise you may find yourself dealing with utility bills in the landlord’s name and fighting with the tenant to get reimbursed.

·         If your lease has an early termination provision, explain how that works to the tenant.

·         Hopefully your lease has a “holdover rate” for the rent charged when the tenant does not move out as expected.  The amount should be much more than the tenant would pay to stay in a motel.  Some day this tenant will give notice to vacate.  If you find a new tenant that is ready to move in shortly after this tenant is scheduled to be out, you don’t want your new move in canceled because the departing tenant’s new move in is delayed and now they do not move out when scheduled.  Review this with them now.

·         Make sure they understand that only the people listed on the lease are allowed to live there.  Otherwise you may find that one of the unauthorized roommates is a registered sex offender.

·         Review who is responsible for the lawn maintenance and what, exactly, is expected.  If this is the first time your tenant has lived in a single family house, they may think all they need to do is cut the grass from time to time.  You need to explain to them how pine straw and mulch deteriorate over time and that they are expected to replace that mulch as part of maintaining the property.  Point out the height of the shrubs, and document with photos from your move in inspection, and explain how they are to keep the shrubs at that level.  Explain that weed control is their responsibility and how it should be done.  Show them any other lawn maintenance issues which may be relevant to this property such as how to use and maintain the irrigation system.

·         Tell them about how pest control is handled.  In the GAR lease the landlord is responsible for termites and rodents.  All other insects are the responsibility of landlord or tenant as checked.  With single family houses the tenant is usually responsible.  Make sure they know that – and make sure they know “insects” includes spiders, ants, roaches, etc.

·         If your lease provides for additional penalties for (these are in the lease we use)

o   Landlord filing for or halting an eviction process

o   Tenant denying landlord or landlord’s agents access to the property

o   Unauthorized pets found at the property

o   Unauthorized smoking inside the premises

o   Disconnecting utilities prior to the move out inspection

Make sure you review these penalties with the tenant.

·         If your lease calls for an automatic renewal at the end of the initial term, or if the lease converts to month to month, make sure to explain the details.

·         Review with the tenant what you expect for them to do in “maintaining” the property.  Do you expect them to change HVAC filters?  Change light bulbs including fluorescent bulbs?  Clear toilet clogs?  If the property has a septic tank, make sure to emphasize that only human waste and toilet paper go down the toilet or drains.  If the tenant puts anything else down the drain that clogs the septic tank, or ruins the septic field, the tenant could be charged several thousand dollars for the needed repairs.  This is a good time to remind the tenant that any ABUSE or NEGLECT on their part that costs the landlord money will be charged back to the tenant.

Covering all of these points in advance will reduce the chance of a misunderstanding later and increase the probability that you have fewer problems to address during the lease.  Many apartment complexes spoil tenants with on site maintenance staff that handle almost every issue the tenant may have.  You don’t have a maintenance guy living in the attic ready to pop downstairs every time something goes wrong and then jump back up to the attic until the next problem shows up.  Make sure your tenant understands that in advance. 

CONCLUSION: A thorough briefing at the move in appointment will mean reduced expenses and a better cash flow for the landlord.

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How and Why to Quantify the Quality of Different Rental Houses

Mike Nelson - Tuesday, November 3, 2015

How to "quantify" the quality of different rental houses

Just like the stock market, there are different quality investment properties.  This is true with apartments, office buildings, industrial warehouses, and it is true with rental houses.  Many brokers and investors will qualify a property as an A, B, or C quality property.  I use that same technique when I evaluate rental houses.  However, this qualification is subjective.  So I want to quantify here how I determine the quality of a rental house.

Zelman & Associates published a very insightful article once about where people live during their life cycles.  They observed that, generally speaking, younger single adults tend to live in multi-family or attached housing.  As people get married and have children they are much more likely to live in single family detached residences.  Later, as these adults become “empty nesters” they are more likely to move back to attached housing (Condos, Townhomes, or apartments).  In a less scientific way I have made the same observation for years.  Most of the tenants that live in the rental houses we own and/or manage are families with children.

A conscientious parent is going to want their child to attend the best schools available.  Houses near good schools tend to be in higher demand and that higher demand is reflected in the price, higher rents or sales prices.  There is a website, www.greatschools.com, which rates each elementary, middle, and high school across the country.  One of their metrics includes an overall ranking for the school of 1 – 10.  OUR TECHNIQUE: in order for us to consider a rental house as an “A” property, it has to meet 2 criteria.  First, the www.greatschools.com ranking for that local high school needs to be 8, 9, or 10.  Second, the market rent for the house needs to be at least $100 per month higher than the average rent for a similar house in that County/Area.  For instance, if a typical 3 BR house in Gwinnett County rents for $1100 per month, then the subject house would have to rent for $1200 per month or more, AND be located in a public high school with a Great Schools ranking of 8, 9, or 10 for us to qualify it as an “A” quality property.  A “B” quality property would rent for about the average for a similar house and the Great Schools ranking would be a 6 or higher.  Any houses with a Great Schools ranking of less than 6 would be considered “C” quality properties by us.

There is also an age component to consider when evaluating quality.  A house that is less than 15 years old will cost less per year to maintain than houses that are 15 – 25 years old.  Generally speaking, houses under 15 years old do not need new roofs, new HVAC systems, appliances, etc.  Between years 15 and 25, just about all of the major systems of the house will be due for replacement which will drive up the amount the owner spends on maintenance and repair.  For houses over 20 years old the investor/buyer needs information on the age of each system in order to evaluate the effective age of the house to better estimate the amount to budget for maintenance and repair.

why "quantify" the quality of different rental houses

Why is quantifying the quality and effective age of a rental house so important?  These factors will significantly impact cash flow.  Higher quality properties will generate more income in that the owner will have less income lost due to vacancy (higher demand from tenants to live in that area) and reduced losses from delinquency (higher quality tenants are more likely to pay as agreed). 

Higher quality rental houses also cost less to maintain.  We have observed for many years that C quality properties cost more per year to maintain than do B quality properties which cost more to maintain than A quality properties.  We run averages each January to look at the maintenance expenses for the previous calendar year so we can more accurately budget how much to expect for maintenance and repair expenses during the coming year.  We break down these averages by rental rate and property age to better understand the costs for A, B, and C quality properties.

Some investors purchased a lot of C quality properties during the recent recession and budgeted losses for vacancy and delinquency based on some industry averages (for all rental houses), then were disappointed when the portfolio was not performing as projected.  Their actual losses due to vacancy and delinquency were much higher than budgeted.  Correspondingly, the maintenance and repair costs were also higher than they had budgeted.

I don’t believe there is a perfect way to budget for 1 single family property for 1 year.  With an apartment complex, averages will work across the multiple units.  Correspondingly, our averages work across a portfolio of houses over an extended period of time.  As a “buy and hold” investor, that works for me.  I can estimate my Internal Rate of Return on houses I buy with much higher rate of accuracy using these averages based on the correct quality classification for the house.

I have found my “sweet spot” is with B- and B properties.  That seems to be where I find the best compromise between yield and risk.  Your “sweet spot” may be different depending on your tolerance for risk and your expectation for yield.  If you are interested in buying rental houses in Atlanta, and aren’t sure what kind of property would be best for you, let’s talk.

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