7 Best Practices to Win the Bid for a Real Estate Investment

Growing your real estate investment portfolio as an individual landlord is not always easy. Today’s market is tight and investment buyers compete just as hotly for single and multifamily homes as home-buyers. This has led to an environment of bidding wars, sometimes even against commercial investors. How can you win the bid for the rental properties you want without taking major risks like waiving due diligence?

Let’s dive into some of the best practices for winning a residential investment bid in a high-demand, low-inventory market.  

1. Know Your Market

First and foremost, know your market. Be aware of the current housing shortage and the level of demand. Work with your realtor to discover just how frequently (and by how much) local homes and multi-family properties are selling above the listing price. Your realtor may be able to offer some insight into your existing competition, as well.

If you have your eye on a specific property or area, research those neighborhoods. Look for average home sale price and recent jumps in value. Ask your realtor to check in with their network on tips from other agents who have sold in those neighborhoods.

2. Be Ready to Move Fast

When there is competition over investment property – especially if a commercial investor is on the other side of a bidding war – you want to be ready to move fast. Delaying can cost you the property. However, if you make your bid with the position that you are already prepared to close after the necessary intermediate steps, sellers are more likely to consider your offer as serious.

3. Bid Above Listing Price

It’s a seller’s market both in commercial and residential real estate. This means bids should be pitched above the listing price. Not only is this a competitive move to make sure your bid is appealing through the gate, but it’s also a  mark of respect. Bidding above the listing price is a tip of the hat to the value of the property and the owner’s discretion in choosing a buyer. Bidding below the asking price in this market is unlikely to yield results.

4. Look for Both Single and Multi-Family Opportunities

Consider both single-family and multi-family homes. If you’ve had your heart set on single-family homes or a specific multi-family property, be ready to diversify. Single-family homes are still in extremely high demand for both family and investment buyers, while the market for multi-family homes (of various types and price points) will vary more widely from market to market.

Keep your options open and your budget at the ready. You might discover a beautiful (available) duplex for less than you would pay for two single-family homes, an apartment building that is only shabby on the outside, or a desperate single-family home seller who doesn’t have time to clean or stage and so missed by the move-in-ready market demand.

5. Know the Real Level of Competition

Be aware of brokers that may exaggerate how much competition there really is for your bid in order to inspire higher offers. If you start to get that ‘strung along’ feeling, do the research. Ask your realtor to check into how many other bidders there are so you know just how stable or unstable your bidding position really is.

If there are other buyers lined up, you will want to step lightly and quickly. If there is not a throng of competitive bids, you can negotiate with more breathing room.

6. Offer to Buy As-Is for A Fixer-Upper

If you’re having trouble winning bids for perfect move-in-ready properties, consider a fixer-upper instead.

Many landlord investors find their best property deals with an as-is purchase and renovations built into your acquisition budget. While you should not waive due diligence (inspections after bidding), you can win a bid by offering to buy as-is and take care of the renovations yourself.  If you choose to sell the property after renovations instead of renting, this is a fix-and-flip.

7. Consider Investing in Lower-Competition Communities

Don’t get stuck in your own neighborhood. Become a master of the markets by learning how to read which communities across the country are ripe for residential real estate investment. National landlords often track the best markets for rental investment. You may discover a little town in Iowa with a vacant apartment building and a rising need for housing just waiting to become your profits. Or you might find a neighborhood in Tennessee where the housing market is just starting to lift – with great potential, but the competition is not yet so steep as it is close to home.

Explore your options in other states and if you’ll need property management teams to run them.

Buying residential investment property in today’s market is a high-competition endeavor, but you can always strategize to improve your chances and find hidden gem properties. Once the purchase has been made, a property management software solution will help you to streamline your management. Explore LandlordStation as the solution to your property management platform needs for investments near and far. 

Rent Payment Trends: 5 Key Reasons Why You Need to Switch Online Rent Payments

Research shows that late rent payments is a number one concern for landlords and property managers. The more time you spend following up – calls, emails, texts… sometimes all of the above – is time that you can’t devote to the rest of your business. In the worst case scenarios, you lose even more time filing for an eviction just to get the tenant out.

There are a variety of ways to protect yourself from late or non payments. Screening is always your first line of defense, but a solid rent collection strategy will help encourage your tenants to pay rent on time. It will also boosts your capacity to compete and grow your rental business.

In this interest, we have made a brief rundown of the available options for collecting rent payments (including our #1 recommendation):

Rent Collection Methods

Every landlord and property manager will have slightly different business needs, so we have compiled a list of collection methods.

By Mail

It’s possible to get rent from your tenants through money orders or mail-in checks, but this also means that payments are likely to delay. Worse still, checks may get lost along the way.

Collecting in Person

This method ensures you have a check in your hands on the designated day. However, it may leave you with more record-keeping and miles to travel, thus increasing your operational costs.

Drop-Off Location

If you have an office, tenants can drop off rent payments there. You can use a dedicated drop-off box placed strategically in your rental property. Disputes may arise if a payment goes missing and a particular drop-off location may not be convenient for all your tenants.

Collect Rent Online

This is our #1 recommendation. One-third of Americans have paid a bill late due to forgetfulness, and accepting online rent payments helps simplify and automate that process for both landlords and tenants. When you use an online rent payment system, you and your tenants can take advantage of tools such as automatic reminders and recurring payments to ensure that you receive your payment on time.

Reasons to Switch to Online Rent Payments

Have a look at the following reasons why you should consider switching to online rent payments.

1. Save Time

Collecting rent can be a lengthy process, especially if done by check or money order. You’ll have to:

  • Collect the payments or checks
  • Prepare deposit slips
  • Deposit money order or checks to the bank
  • Post receipts
  • Check follow-ups to ensure checks don’t bounce
  • Adjust your booking keeping

This can take a lot of time, but when you set up an online portal to collect rent payments, you can reduce the time spent on the manual processes associated with paper-based payments by up to 65%. Imagine what you can achieve with more than half of your day back and a hassle-free rent week!

2. Convenience

Paying rent online is fast, easy, and convenient for your tenants as opposed to having them drive to your office or make sure that they get the check in the mail on time. There are a variety of things that can delay a check, but with the ability to pay rent online, tenants can make payments promptly, regardless of location. That means more on-time payments and fewer followups to track down rent.

3. Security

Security is of the utmost importance when dealing rent payments.

Criminology Professor David Maimon from Georgia State University estimates that $11-30 million is being lost across the country due to drop box thefts. He also notes that the information your tenants share via checks and money orders contains sensitive data that—in the wrong hands—can make you and your tenants victims of identity theft.

On the other hand, online rent payments are end-to-end encrypted to mitigate the risk of identity theft and fraud. Your financial data is secure, and your tenant’s financial information is safe.

4. Boost Your Cash Flow

Timely collection of rent is, arguably, the most fundamental aspect of your business. Online rent payment increases the percentage of on-time rent payments, thus creating a domino effect of profitability and efficiency. 

AutoPay and automatic rent reminders streamline the reconciliation of account receivables. As such, you will likely receive full-balance, on-time payments every month, which ultimately boosts your cash flow.

The online ability for your tenants to split rent through an online portal will also allow them to conveniently submit their half of the payment on the day it is due rather than trying to coordinate with each other each month. Once set up, a system such as LandlordStation’s Tenant Portal can charge each tenant the amount owed and deliver it to your bank account in a timely manner.

5. Enhance Tenant Experience and Retention

Offering your tenants pay-on-go flexibility through an online rent payment option will boost your resident’s satisfaction and overall experience at your property. Envelopes, stamps, and checks may seem outdated (and possibly inconvenient) to your tenants, especially the more tech-savvy ones.

According to a study, millennials pay up to 61% of their bills online, while the older generation pays 42% of bills online. If you want to hold on to such tenants, the ability to pay rent online offers them yet another incentive.

When the tenants perceive that you have their convenience, ease, and best interest in mind, they feel connected to the property and to you as the landlord. Happy tenants are more likely to renew their leases, refer friends, and respect the community. 

How We Can Help

In the course of managing your rental property, it’s easy to get overwhelmed by all the nuances and lose focus on what’s important. At LandlordStation, we offer you a full range of products and services guaranteed to make tenant and property management easy and seamless.

Our online rent payment solution is a super brand designed with unparalleled expertise to ensure you receive rent payments quickly and securely. Stop chasing down rent payments and focus on what’s important—growing your business.

For more information on Online Rent Payments or inquiries on how we can help, feel free to Contact Us today, and we will be more than willing to assist.

How to Perform Tenant Screening and Respect Data Privacy

Investing in rental property also means investing in your tenants. Quality tenants keep your property clean, submit timely requests for any repairs, and leave less wear-and-tear on the house. They also pay on-time rent every month. But how do you know which applicants will become your best tenants? That is what the tenant screening process is for, and the laws associated.

Fair housing laws determine the questions you can ask. Local data privacy laws determine what you can do with an applicant’s personal information. Even their name and current address can be the seeds of identity theft, which is why data privacy has become such an important issue. So how does a responsible landlord handle tenant screening, wisely choosing the right tenants while protecting their data in the necessary ways?

As landlord pros, we have a few pointers.

The Fair Housing Act and Tenant Screening

The Fair Housing Act prohibits landlords from asking questions that may lead to discrimination. Unfortunately, this can include questions you might otherwise ask about family, background, and personal plans. You cannot ask questions or make decisions on housing regarding a tenant’s:

  • Race
  • Color
  • Religion
  • National origin
  • Sex
  • Disability
  • Familial status

You can ask about the number of household members, but not about spouses or children. You can ask about the number of vehicles, but not if one is a handicap van. It is even tricky to ask where your tenants are moving from, in case this reveals their national origin.

Data Privacy Laws for Landlords

Data privacy laws vary by state and can vary by city. California has the strictest personal data laws, but many other states include laws regarding how customer data (tenants, in your case) is handled and must be deleted on request. You will want to look up your state’s data privacy laws.

Best practices, however, suggest avoiding possessing any private data. If you can’t avoid, the second best option is to delete any private data you acquire as soon as its use is completed.

Do You Need Sensitive Information to Screen Tenants?

Yes. Part of tenant screening includes a credit, criminal, and eviction check. You will also want to verify each applicant’s employment and income. All of this requires very personal information, like an applicant’s social security number, current address, date of birth, and more. Knowing some of this information can even lead to a conflict of interest between fair housing and landlord decision-making.

Fortunately, you don’t need to personally have this kind of private information on your future tenants. Only your background check and credit check team do. LandlordStation allows landlords to run tenant screenings with just the tenant’s name and email address. The tenant can then – privately – enter sensitive information that goes straight to the credit bureau for the report – but is never seen or stored by the landlord. This is the best way to fulfill all your goals; getting a  detailed tenant screening report, respecting fair housing laws, and protecting tenant data privacy.

How Should Sensitive Tenant Data be Kept?

If you find yourself in possession of private tenant data, perhaps in the form of applications, keep this data under lock and key or delete it to protect the tenant’s data security.

If you store tenant data, keep papers in a locked filing cabinet. Keep digital files in encrypted storage or a data vault with a brand that you trust. In most states with data security laws, you are required to make a reasonable business-class effort to protect your customer/tenant’s data.

What to Do If You Have a Data Breach

What happens if a server or service where you are storing tenant data is breached by a hacking incident or exposed by accident? You will need to follow the data protection laws of your region but, most likely, your requirements include alerting tenants that their risk of identity theft has risen and possibly providing an identity protection monitoring subscription-like Norton LifeLock or Experian IdentityWorks.

LandlordStation Protects Tenants and Landlords from Data Privacy Concerns

Being a landlord is standing halfway between a host and a business owner. On one hand, you need to carefully screen tenants to find reliable and responsible people. On the other hand, you need to handle and hold as little sensitive information about your tenants as possible, especially during the critical decision-making process. LandlordStation offers the perfect solution that creates the shortest, most secure path between the tenant’s information and the credit check reports you need to make a strong decision.

To begin tenant screening with LandlordStation or to explore more of our handy landlord resources, contact us today.

Your Guide to Investing in Student Housing

Expanding your rental home portfolio requires consideration and strategy beyond just finding a home that is rentable and affordable. Each property is an investment and some locations offer a unique business model that you can benefit from. Affordable housing near any college or university, for example, will immediately become a candidate for student housing, a potentially profitable but more volatile form of property rental.

Student housing is livelier, faster-paced, and more accident-prone than typical investments, but also potentially very rewarding. Let’s dig deeper to find out if student housing is a smart investment for your landlording style.

What It Means to Rent Housing to Students

Students in college and university – and their friends already in the job market – are young. They are often renting a home without parents for the very first time, maybe with a little practice from the dorms. They don’t know how to fix things, many students have not yet learned how to clean, and late rent payments with a fantastic (often real) excuse about exams and all-nighters are par for the course. But if you have a thick skin and a sense of humor, student renters also provide never-ending demand. If the university continues to operate, you will have new students every year and may even develop a waiting list for properties near campus.

Pros and Cons of Student Housing Investment

Pros of Renting to Students

  • Endless demand and wait-listing
  • Chain referrals from good student tenants
  • Reliable rent when paid by parents
  • Low cost-cost amenities chosen for durability
  • Small and unusual properties included
  • Never-ending entertainment value

Let’s take a look at the pros of managing student housing. The biggest benefit is that demand is endless. It’s so endless there are wait-lists for near-campus housing and when students change plans mid-year, another roommate is ready to hot-swap and take over the lease. Students tell their friends about great places and you may even get a chain of good, studious tenants who refer each other to your property each year.

Expect students to be inexperienced at rent payment, but often with parental backup. Some parents will even sign the lease. You can choose between durable, low-cost housing for most students or luxury student housing for parents who insist on sponsoring the best for their collegiates. You can also choose properties that would be less appealing as family homes, like small and strangely designed houses, as students are not picky and often like strange spaces.

As an added bonus, students make entertaining and interesting tenants, so if you don’t mind the antics, you will rarely find student housing to be boring.

Cons of Renting to Students

  • Inexperienced renters
  • Untimely rent payments
  • Increased rate of damage and repairs
  • Increased cleaning requirement during turnover
  • Demand for short-term (semester) rentals
  • Roommate hot-swapping

All the pros aside, student housing is challenging to run. You will need energy – or an energetic team – to keep up with minor repairs like dents in the drywall and loose faucet handles. Expect excessive calls for repairs (and drain clearing) or eerie silence with inexperienced young renters who don’t know when to call for maintenance. You may get lucky with a run of reliable young students or unlucky with a pack of partiers. 

Student housing is most adaptive with 6-month leases and even if you enforce a 1-year lease policy, expect hot-swapping of roommates because students are tied to the semester-based schedule.

Special Legal Considerations for Student Housing

Your city or state may have specific regulations when it comes to renting to students or to residents below 18 or 21 years old. Because students do not yet have their full rights  (ex: to drink, book hotel rooms, or rent cars), and some freshmen are still 17 and legally minors, you will want to write your lease carefully and proceed with caution. In most locations, there are no special rules for renting to students and young adults, but the penalties for renting a hazardous unit may be increased if perceived as taking advantage of inexperienced tenants.

With this in mind, use safety and transparency as your rules of thumb. Write a clear lease and make a habit of going over it with new student tenants regarding both their responsibilities and what they can ask of you – like timely repairs. You will also want to pay special attention to safety and repairs during turnover. If the unit is never empty, be sure to schedule annual or biannual inspection-repair visits.

Choosing the Right Property for Student Housing

What kind of houses can you choose for rental student housing? This is an important consideration. The good news is selection is one of the perks for student housing investment. There are exactly three requirements for student housing:

  1. Near to campus (or the bus route)
  2. Safe and livable
  3. Durability

Location and Livability

Students will live just about anywhere, but it must be close to campus, on the bus route, and decently livable. Performing your legal duties as a landlord will more than fulfill most students’ demand for property quality, but location is key. The closer your properties are to a college campus, the more students will want to live there.

Any House, Any Size, Any Style

Students will stay in small houses, homes with strangely shaped rooms, lofts, attics, basements, and homes with no yard. The usual family-friendly considerations need not apply and most students are especially spry if there is a knee-wracking staircase or even a ladder to the loft. Students expect to live closely packed together, to share multi-bedroom homes as roommates, and to take over buildings by moving in with friends.

Interesting apartments are, in fact, one of the rights-of-passage for young adults renting their first homes. Many want to come away with a few strange tales about the attic apartments and strange campus houses they lived in during their wild college years. Older boarding-house-style homes, which are hard to rent room-by-room to any other demographic, are considered excellent student housing. Apartment buildings and townhouse rows can quickly become overrun with student tenants as roommates and neighbors.

Student Housing Durability

The final deciding factor for student housing investment property is durability. Can the house take an endless stream of energetic, inexperienced tenants who may party, exercise, and do unpredictable school projects on premise? The good news is that if you’re ready for light renovation, most homes have the “bones” to be durable student housing, and just need a fresh coat of gloss (read: washable) paint and new laminate board flooring. Throw in a few heavy couches and bed frames, and you’re student-ready.

Create a Custom Student Lease Agreement

Students are not your typical renters, and leases can be written with any terms that are most convenient to the two parties. Write your lease in a way that helps students become better renters by outlining the rules, using plain language, and providing a few training wheels and safety bumpers in the policies to help them learn without creating conflict or debt.

  • Make it a visual syllabus – easy to read
  • Outline house rules
    • Quiet hours
    • Drain care
    • Trash day
  • Flexible rent payment dates and penalties – training wheels
  • Included utilities or links to utility providers
  • Room for roommates
    • Wait-lists and referrals
    • Hot-swapping leaseholders
    • Guests and long-term guest policies
  • Copies available on request and online

How to Screen Student Tenants

Screening student applicants can be challenging because they do not already have a rental or credit history. Most have just taken their first big financial step in life – by taking out student loans. How do you screen a student tenant with no financial history to show their suitability? It is possible to ask more holistic questions while respecting the fair housing laws about certain personal details.

Ask Student-Housing Questions

  • Do you have roommates ready to move in with you?
  • Do you require roommate match-making?
    • see – your waitlist and other applicants
  • When does your school term begin?
  • Will you be staying through the summer?
  • Do you see yourself in this home for your duration at this school?
  • Do you have pets, or do you plan to get a pet?
  • What are your personal quiet hours for sleep or studying?
  • What is your field of study or chosen degree?

Have Parents Co-Sign the Lease

One of the cleanest solutions is to have a parent co-sign the lease and take responsibility for timely rental payments. From there, you can do the usual tenant screening checks on the parent to confirm sufficient income, a reliable credit score, and a good rental history.

Managing The Revolving Door of Student Housing

Student housing is a profitable and extremely active way to invest in rental homes. students change their housing situations every semester and every summer break. You may have students who stay put for all four years of school and students who only stay for a few months before hot-swapping their lease with another resident.

Fortunately, you don’t have to manage your lively student housing investments solo. With online tools like LandlordStation to streamline your property management and help students keep up with online bill-pay, helpful documents, and maintenance requests, you can simplify the effort of managing student housing.

To discover online property management through LandlordStation, contact us today!

Tenant Bankruptcy: How to Protect Your Rental

Tenant bankruptcy is one of the more frightening things that can happen to a landlord. You may find yourself unsure if your tenant can or will pay their rent any longer, and ambiguities in the law can make it difficult to know if you can (or should) evict your them.

We’re here to help you tackle those questions. This article will cover:

  • How to proactively protect your rental
  • Types of bankruptcies tenants are most likely to file
  • Recouping lost rent
  • Lease options after the bankruptcy is filed

Be aware that laws may change quickly, and that there may be state or local-level laws that affect how landlords can handle bankruptcies. Always check with the most recent version of the law, and you may want to hire a lawyer if you have questions.

Avoiding Problems Down the Line

Let’s start with the best-case scenario: avoiding problematic tenants.

Tenant Screening is your first line of defense to protect your rental property. The score on the credit report will give you an at-a-glance description of the client’s credit, but don’t stop there. Look at the entire credit report to give you a broader understanding of your potential tenant’s credit history.

Armed with that information, you’ll be able to answer applicable questions like:

  • Does the potential tenant have a history of late payments?
  • If so, how long has the tenant’s credit been suffering?
  • Are the late payments due to a one-time emergency or are they a trend?

Multiple bills that have gone to collections in the credit report can be a red flag.

A tenant screening will help you form an educated opinion about the tenant’s ability to pay rent and avoid bankruptcy. If you’re unsure about anything in the report, you can ask them for clarity.

No matter how diligent you are in your screening process, you cannot predict every scenario. Even the best tenant may lose a job or be overwhelmed by expensive emergencies. Some will get back on track quickly, while others find themselves too far behind to catch up. Let’s take a look at the kinds of bankruptcies you may encounter from your tenants.

Kinds of Tenant Bankruptcies

There are several kinds of bankruptcy, each with its own considerations.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is sometimes called a “straight bankruptcy.” It’s most commonly filed by individuals, but it can be filed by a business as well.

When an individual or a business successfully files for Chapter 7 bankruptcy, the court appoints a trustee. This individual handles the liquidation of the entity’s assets so that all creditors can be paid back as much as possible.

Chapter 11 Bankruptcy

A Chapter 11 Bankruptcy will not liquidate assets. The entity will retain complete and independent control of their finances, but they must pay back their debts in full (plus some extra). They are given some extra time to do this.

If they fail to pay their debts, the Chapter 11 bankruptcy may be converted to a Chapter 7 bankruptcy. If that happens, the court will assign a trustee and order the liquidation of assets and the payment of creditors.

Other Types of Bankruptcies

You may also see some other types of bankruptcies.

Chapter 12 deals with small-business fishermen and farmers and Chapter 13 is a rehabilitation program that focuses on regular wage-earners.

But these are more unusual, and most landlords will encounter Chapters 7 and 11.

Recouping Lost Rent

If you get that dreaded call that lets you know that your tenant has filed bankruptcy, your first thought will likely be how to recover any lost rent. To answer that question, first we need to understand how claims are filed.

Pre-Petition and Post-Petition Claims

The process of filing for bankruptcy is called “petition”.

Pre-petition claims are financial burdens that are put on a tenant before they file for bankruptcy. Post-petition claims are financial burdens placed afterward.

Rent is considered a claim, but when that rent was due will depend on what kind of claim.

There’s a chance your tenant will remain in your property after filing for bankruptcy. Any rent due during that time is a special type of post-petition claim called an administrative claim. Administrative claims are high-priority claims that tenants must prioritize paying off.

Alternatively, if money was due before the tenant filed for bankruptcy, that is a type of pre-petition claim called an unsecured claim. Unsecured claims are typically low priority for tenants to pay off, in comparison with other claims.

Now comes the big question:

Can I Still Collect Back Rent?

The court will institute what’s called an automatic stay when the tenant files bankruptcy. This means that most creditors cannot pursue any collection actions against the entity without the permission of the court. However, as the entity’s landlord, you are not subject to this restriction. You may still collect back rent as you normally would.

Remember that because back rent is an unsecured claim, it’s considered a low-priority payment and you may never get all of it back.

Terminating the Lease

Tenant Bankruptcy isn’t easy on anyone. If the tenant can’t pay you, they accumulate more debt and you lose income. Terminating the lease may be an option.

When the Landlord Terminates the Lease

There needs to be a breach of the lease to file a notice to quit or start the eviction process. Often this will come in the form of late or nonpayment.

There are some landlords or property managers that will add a clause to their lease stating that filing for bankruptcy breaches that lease. Keep in mind that many jurisdictions do not permit you to terminate a lease because a tenant has filed bankruptcy, and you may not put additional requirements on a tenant (such as increased rent or fees, or requiring payment in cash rather than a check) due to their bankruptcy.

Terminating the lease on your end may be tricky because of this, but there’s a chance that your tenant will want out as well.

When the Tenant Assumes (or Terminates) the Lease

Chapter 7 bankruptcy, in particular, lets the tenant decide whether they wish to assume or terminate the lease. This means that they can reconsider the financial obligation of the lease in light of their current situation.

If they decide that it’s too heavy of a burden in their current state, they may choose to terminate the lease within 60 days without a breach of contract. If they cannot decide during that period of time, they may file a request for an additional 60 days to decide, so long as they give an explanation of their circumstances and the court accepts this.

In response to this request, you are within your rights to explain to the court the stresses that this puts on you as the landlord or property manager. If the tenant chooses to terminate the lease, they agree to pay all outstanding rent within a reasonable time (which may vary by the locality, but is often within 60 days).

If the tenant requires additional time to pay, they’re going to have to make a motion for that with the court.

Re-Leasing

If your tenant gives notice of termination, you cannot stop them from terminating the lease. In this scenario, you should start showing the property immediately. You may have already lost money during this period, and the last thing you want is to have your property sitting empty.

Because of how the re-leasing process works and how long it can take to get a new tenant into the property, most landlords try to block any motions from the tenant to extend the 60-day period of assumption or termination of the lease.

Three months is a very long period of time to not know if you’re going to need to start screening new tenants.

Conclusion

When your tenant files for bankruptcy, it can initiate a period of uncertainty for you, and possibly even create conflict between you and your tenant.

There’s no doubt that it’s going to be difficult, but if you educate yourself about the bankruptcy process and what it means for you, you’ll be able to save yourself and your business potential financial losses—and a lot of headaches. Again, you’ll want to familiarize yourself with local and federal laws. Reach out to your legal counsel if you need clarity at any step along the way.

What Landlords Should Know About Subleasing

It is your right and responsibility as the landlord to know about everything that happens to your rental property, especially when a new tenant moves into the building. Ideally, you get to decide who rents your property. However, your tenants can assume this authority through subleasing. This can be good or bad for you and your rental business, depending on how you handle it. 

How Subleasing Works 

Subleasing essentially transfers a lease from the original tenant to another tenant. Clients usually sublease when they have to leave temporarily and are looking to offset the rent until they come back. Many tenants also sublease when moving away permanently before their lease expires with the same goal of saving money. 

Assuming that you don’t have a say in the sublease, the tenant will handle everything with the subtenant and make arrangements for important things such as maintenance and paying rent. However, it is advisable to control the subleasing process and hold both parties responsible for fulfilling the contract’s terms and conditions. 

The Pros & Cons of Subleasing 

Subleasing has good and bad implications for all parties involved, especially you, considering your stake in the property. Here is an overview of the advantages and disadvantages to you. 

Pros 

Here is an overview of the pros of subleasing, assuming that you are in control of the process: 

  • Qualified Tenants 

The landlord’s biggest concern about subleasing is that the tenant will give the property to a problematic subtenant. However, you can ensure that the subtenant meets your standards by taking part in the vetting process. 

Ideally, the subtenant should undergo the same screening process as other tenants. It is also advisable to delegate the tenant screening process to a screening agency to ensure that you don’t miss any red flags about the subtenant. 

  • Steady Rental Income 

In most cases, the tenant would have to cancel the lease agreement if they had to move, and subleasing wasn’t an option. This would leave the unit empty, resulting in lost income until another tenant comes along. You would also incur expensive tenant turnover costs when looking for another tenant. 

However, agreeing to sublease will ensure continuity in the rental income from that unit. It will also save you hundreds or thousands of dollars in tenant turnover costs. 

  • Positive Long-Term Relationships 

Some tenants sublease with the intention of coming back. Good tenants are difficult to find, and subleasing to a qualified subtenant for several months would be a small price to pay (if it is a price at all) to retain a good tenant

Cons 

As explained earlier, every landlord’s biggest concern about subleasing is that the subtenant will be problematic. Unfortunately, the tenant handling the subleasing process may not know how to screen subtenants according to your standards. A problematic tenant poses other threats, including property damage and lease violations. This is why it is important to either restrict subleasing in totality or get involved in the process. 

What to Do about an Unauthorized Sublease 

It is always advisable to cover everything in the rental contract, including whether or not tenants can sublease their units. You also have the right to cancel a tenant’s lease if they sublease their unit without your authorization. Ultimately, it is advisable to consult your lawyer and act within the law when handling such a case to avoid violating the tenants’ rights. 

Conclusion 

You never have to worry about subleasing if the subtenant meets your standards and passes the tenant screening test. LandlordStation can help you conduct thorough checks on your tenants and subtenants. Get in touch today to learn more about our tenant screening solutions. 

The New Landlord Primer

You’re all smiles as you plan to dip your toes into the lucrative real estate industry. Or maybe you’ve already built a property ready to usher in your first tenants.

Either way, as a first-time landlord, the things to do can quickly overwhelm you.

Don’t worry- we are here to hold your hands as you take those baby steps. Here are some of the things to tick off your checklist:

1. Take Cover- Obtain a Landlord Insurance

Before opening your property’s doors to tenants, ensure you’ve purchased landlord insurance. You don’t want to suffer from common issues when renters occupy your property.

You can choose from three types of landlord insurance policies:

DP-1 policy

It’s the least expensive and covers only stated risks. These perils can include:

  • Riots
  • Fire and smoke
  • Windstorms, hail, and lightning
  • Vehicle-caused damages
  • Explosions

But you’re not guaranteed compensation for damages from any of those issues.

DP-2 policy

A DP-2 protects you from more types of risks. The policy explicitly names covered risks, just like DP-1 policies. 

Apart from covering what a typical DP-1 does, DP-2 policy may also include:

  • Frozen pipe and electrical damage
  • Falling objects
  • Damage resulting from ice and snow weight
  • Flooding 
  • Building collapse

DP-3 policy

This policy is an open peril cover that lists any specific risk not included in the above coverages.

2. Compile a Thorough Lease

The lease agreement is a binding contract that stipulates what you and the renters can and cannot do. The document also explains the steps to take if any party breaks the agreement.

Remember to cover all bases when writing a lease. Sure, a two-page document may cut it for some time. But what if something that wasn’t covered adequately in the document crops up? 

Ensure you’ve included and described these items to safeguard your interest while adhering to legal obligations:

  • Length of lease and provisions for automatic renewal
  • Name and status of every person that will be residing on your property
  • The period allowed for tenant’s “guests” to occupy the property 
  • Rent, when its due, and penalties for late payments
  • General deposits and security deposits plus circumstances that will cause you to hold the deposit
  • The party responsible for utility bills
  • Rules regarding pests
  • Property maintenance
  • Insurance

The exact clauses, terms, and language may vary with states, so do your homework perfectly.

3. Befriend the Laws

You want to remain on the safe side of the law. After all, who wants to contend with lawsuits that can tarnish their images and waste resources?

The trick is to know and adhere to all fair-housing acts. This law protects tenants against discriminatory practices in housing based on seven factors:

  • Sex
  • Color
  • Disability
  • National origin
  • Familial status
  • Race
  • Religion

The Department of Housing and Urban Development (HUD) is responsible for enforcing this act. 

Here’s a well-kept secret: A person from HUD can pose as a renter on your property to see if you follow their act. Don’t let them trap you.

Also, if a renter feels like you’ve discriminated against them, they can file a claim with HUD. The department will then conduct investigations to get to the bottom of the matter. 

To avoid such accusations and comply with the fair housing act, assume every potential tenant works for HUD or is attempting to accuse you of breaking the laws. 

  • Treat every tenant with dignity and respect
  • Screen tenants consistently and employ a uniform qualifying standard- request the same documents, fees, and details
  • Check your federal, state and local fair housing laws to ensure you aren’t missing any mark. Be sure to stay abreast with all laws by researching in the right places for updates

4. Screen Tenants and Their “Guests”

Although we mentioned this point above, it needs its own section. Yes, it’s that important. 

Your renter might be a nice person who lets family and friends couch-surf while they look for their places. Or, due to a whirlwind of romance, their significant other might overstay at your property. Whatever the situation, complications may arise in the long run.

On the surface, unscreened guests staying beyond the reasonable time frame might not be the biggest deal. But here are some of the dangers they pose:

  • Unknown Background: Screening helps uncover every occupant’s criminal and credit background. You want to ensure no one turns your property into a launch-pad of criminal activities. 
  • No security investment in the property: Unscreened guests don’t have a monetary investment that incentivizes them to maintain and clean the property. 
  • No consequence for disruptive activities: The unscreened occupants also aren’t the ones who stand to lose their space when they argue, play loud music, or ignore complaints from neighbors.

Let’s face it- it’s difficult to stop tenants from hosting unscreened occupants. Your best bet is to limit how long these guests can stay. Remember to include this policy in your lease to make enforcement a breeze. 

5. Property Management Vs. Self-Management

Choosing between hiring a property manager and self-managing isn’t as easy as it sounds. A novice in the industry may view their property as a simple equation of rental revenue – (costs + mortgages) = profit.

But that’s just a basic mantra. It’s also recommendable to account for landlord duties, time, and energy. The duties include:

  • Maintenance
  • Addressing vacancies
  • Dealing with tenant relations
  • Rent collections
  • Lease enforcement
  • Other duties – Think taxes, tenant turnover, evictions, insurance, rental law enforcement, inspections, and adjusting the rent. 

Managing all these duties can be a stressful 24/7 job. But with a platform like LandlordStation, your task becomes painless. Our one-stop solution will cover everything from tenant screening to document management and online rent payments to renters insurance.

Hiring property managers come with perks of benefits. These professionals make it their duty to understand the rental industry’s fair housing laws and best practices. 

Property managers also enjoy powerful links in the industry, thanks to professional groups and associations. So staying abreast with changes in rental laws is painless.

However, these professionals typically charge 7-10% of monthly rental income to handle all the above duties and issues. For instance, the monthly fee may be $100 for a property whose rental income is $10,000. Plus, getting a trustworthy manager can be challenging.

6. Require Renters Insurance

We see you asking, “But I have my property insurance.” That’s great. 

However, a smart landlord requires all tenants to have their own insurance policy. These policies protect you against extra liabilities.

While your homeowner insurance covers the actual structure and dwelling, the renters’ insurance protects the tenants and their property from losses.

For instance, your landlord insurance policy will cover building damages caused by a burst pipe, fire, or electrical issue. But what if the fire, water leak, or power surge destroy your tenant’s personal belongings? That’s where the renters’ insurance policy comes in.

Most renters’ insurance policies also include additional living costs incurred from insured misfortunes. Consider a situation where you need more time fixing that pipe, repairing drywall, and replacing the flooring. Such a situation can force the tenant to look for a temporal place, for example, in a hotel. Fortunately, their renters’ insurance policy may pay for extra expenses above their normal living costs.  

7. Get Loan To Purchase Your Property

Looking to finance your dream but don’t have ready cash? A loan may come through for you.

But while loans for rental property share some similarities with mortgages for residences, there exist significant differences. Be sure to do your homework and research the rental loan requirements, including:

  • Credit scores: Ensure your credit score is attractive. Sure, Fannie Mae can give up to 10 loans. But the more the loans, the more the potential risks, leading to increased credit score requirements.
  • Cash reserves: Lenders want to ensure they can get back their money and interest even if the first six or so months don’t see tenants on your property.
  • Higher down-payment and income: You may have to put down at least 20%. Also, most investment loans tend to have more stringent limits on loan to value (70-80% LTV). And your W-2s or tax returns must show stable income. 
  • Find the right lender: Be sure the lender has experience handling loans for investors and landlords. You don’t want unnecessary delays or loss of your desired property. 
  • Rent loss insurance: If an unfortunate event leads to damaged property and loss of rental income, this policy will protect you. It’s usually included in your property insurance coverage.

You’ll choose between two types of loans depending on the number of units in your property:

  1. Residential loan: It’s suitable for properties with four units or less. This loan is more or less like the traditional mortgages but comes with more stringent requirements. 
  2. Commercial loans: It’s designed for properties with five units or more. While the requirements are more stringent than residential mortgages, you can use them to finance any business (not just residential property). 

Wrap Up

Being a landlord can be a rewarding investment. And with the right strategies plus tools of work, your property management duties will be painless and you’ll be on your way!