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Having to replace a good tenant can be very expensive.
The final costs of replacing a tenant can easily exceed $4,000.
Accordingly, it’s very important that you try to hold onto your favorite tenants for as long as possible.
Offering competitive rental rates and keeping your property in good condition are obvious requirements in this effort, but consider these five suggestions for extra steps you can take to keep good tenants signed on.
Offer a Longer Lease Renewal
If you normally offer one year leases, try offering a two year lease (or even longer) the next time your favorite tenant is up for renewal.
While this is technically a market gamble for both of you, from your tenant’s perspective it will seem as if you’re offering them the opportunity to avoid rent increases for the next couple of years.
This will encourage their loyalty to you and the property.
The income stability of a tenant with a good payment history can often outweigh the potential downsides of missing the opportunity to increase the rent for a few years.
Give a Lease Renewal Gift
The small things matter, and that can be especially true when you’re trying to keep a good tenant.
The next time a tenant renews their lease, offer them a renewal gift. It doesn’t need to be much, and even a $50 gift card to a fantastic local restaurant can be enough to make a tenant appreciate you.
Pair this with a small gift for the holidays and you’ll generate even more goodwill.
Give Them Opportunities for Feedback
It’s important to make sure your favorite tenants feel that their concerns are being noted, and this requires more than simply waiting for them to call with a problem.
Be proactive about communicating, and actively reach out to them from time to time.
If you’re renting a multi-unit property, make sure to have a comment box in a common area, along with a placard that reminds tenants of your contact information.
It’s also a good idea to send them a letter two or three times a year letting them know that you’re available to discuss any concerns that they may have.
Offer an Apartment Update
Part of the appeal in finding a new apartment can be that vacant apartments have often been newly renovated, or at the very least given a new paint job and touch up.
To recapture this feeling for your favorite tenants, particularly if they’ve been renting for several years, offer them an apartment update for their next lease renewal.
This can be a simple repainting, but it’s also a good opportunity to accomplish two objectives from things you were planning to do anyway.
For example, instead of simply stating that you’re going to replace their stove (if you were already planning on doing so), tell them you’re doing it because they’re a good tenant and you appreciate them.
Offer a Cleaning Service
In the same vein, offer them a visit from a cleaning service when they renew their lease.
A good, deep cleaning can make a difference that is just as dramatic as an actual renovation.
Tenants will feel like they’ve genuinely stepped into a brand new apartment, but one with all the comforts of their familiar home.
This is the second post in our series exploring the impact of the eviction moratorium. You can check out the first post here.
On September 4, 2020, a temporary national eviction moratorium on evictions for nonpayment of rent was announced by the Centers for Disease Control and Prevention (CDC) and the Department of Health and Human Services (HHS). The order was introduced to help renters who were unable to pay their rent due to the impact of the pandemic. It was originally set to expire on December 31, 2020 but had been extended several times before being allowed to lapse on July 31st, 2021. On August 4, 2021, the CDC Director signed an order extending the moratorium once again. This federal order extended the protection of tenants in certain counties through to October 3, but has since been blocked by the Supreme Court.
In this post we are exploring what the moratorium has meant for individual Landlords.
Unpaid Rent = No Income
The biggest impact the moratorium has had on landlords is also the most obvious – landlords have been left with no income from rent payments yet, in many cases, they were still responsible for their own mortgage, taxes, and other bills.
According to a study by the Aspen Institute, around 15 million people are currently behind on their rental payments and, according to the National Equity Atlas, those households owe over $21 million to landlords.
While some landlords may have emergency funds in place to cover one, maybe two months of missed payments, very few individual landlords will have funds in place to cover multiple months of unpaid rent.
Unlike corporations, businesses, and agencies, individual landlords are likely to only own 1 or 2 rental properties. So, while tenants are required to pay accrued rent when the moratorium is lifted, it may be too late for individual landlords. Especially those who don’t have other properties generating rent and other means of income, if they are unable to make their own mortgage payments, they may lose their property through foreclosure.
Little To No Relief Reaching Landlords
There has been little to no relief reaching landlords so far. Despite Congress allocating $46 billion to assist, only a fraction of those funds have reached tenants, and even less has reached landlords, according to Treasury Department data.
There appears to be two main reasons for this:
- Confusion surrounding availability of relief.
- The process requires the cooperation of the tenant.
Confusion Surrounding Availability of Relief
According to the Urban Institute, more than half of renters and 40% of landlords are unaware that aid is available to them, so are unlikely to be applying for relief. In addition, uncovering what is available isn’t straightforward. The same report from the Urban Institute states that, “Less than 6% of landlords and 11% of tenants indicated that they applied for federal emergency rental assistance.” This indicates that even when landlords and tenants are aware of these funds, there is still another stumbling block in the process.
Each state has its own system and process for distributing funds. Some states require the landlord to start the application process and the tenant to complete it. Others require the tenant to start it. The need for states to put new systems in place and the fact that they are also dealing with staff shortages due to the pandemic have caused significant distribution delays.
The process of claiming available funds does require tenant cooperation. Some landlords have reported that their tenants are refusing to complete the application forms.
For some tenants, online-only applications can pose a barrier, especially for those who are not tech-savvy, who are aging or who do not have easy access to the internet. Others are simply overwhelmed to the point of inaction.
Penalties For Landlords
Another way in which the moratorium has impacted landlords is in the penalties for failing to comply. A landlord who evicts their tenant despite having received the written notice of their status, can face up to a $100,000 fine and 1 year in jail. Combined with undergoing months without receiving rental income, the financial implications of the moratorium add up quickly for landlords.
What Happens Next?
The extended moratorium was to remain in effect until October 3rd, but on August 26th the US Supreme Court stated that the CDC did not have the power to impose the moratorium and as such, the extended moratorium was blocked.
What will happen now is uncertain and is likely to vary state by state. It is thought that there may be delays in many states as they work through the backlog of eviction cases.
One of the most consistent investments that can be made today is a rental property. Real estate can be somewhat volatile, but rentals are in need during the good times and the bad times. When managed appropriately, you can have a consistent level of income. To get started, you’ll need to get a great property that will be attractive to potential tenants. Find that and you’ll be able to secure that investment using these 6 buying tips.
1. Purchase directly from the owner whenever possible.
Buying a rental property for profit means finding the best deal possible. Go through your community and find the distressed homes that are in your area. Make contact with the owners and see if they’d be willing to do a short sale with you so that you can maximize your investing power.
2. Raising capital is sometimes better than a mortgage.
Rental properties are a business investment, even if you’re the only employee of your business. Sometimes you can get better terms by raising capital for your business investment instead of taking on debt. You’ll have to sacrifice a portion of your income in return, but you’ll be debt-free.
3. Watch out for dead neighborhoods.
Just because a rental property is an amazing deal doesn’t mean that it’s actually a good investment. If there are several distressed homes in the same area, then there’s a good chance that there won’t be much rental activity there. Everyone has moved away. If no one is there, you won’t get many tenant applications.
4. Look for areas where there is strong job growth.
Lots of jobs mean lots of potential tenants. You may need to look outside of your local community in order to find a great property, but it’s worth the effort. Many investors can charge higher amounts of rent in strong job growth markets and profit more in the long run.
5. Give yourself a rental profit.
If you do decide to take out a mortgage, make sure to calculate a certain percentage of profit from the rent that you charge. You’ll need enough to cover your mortgage and any property taxes or HOA fees that are due, of course, but a 5% upcharge for profits will help you make a little – even if you’re planning on using the rental one day to retire.
6. Don’t settle for the first property you see.
There are numerous investment opportunities that can be found today. There are numerous properties that are on the market still today, so if one investment doesn’t feel quite right, then it isn’t. Keep looking and you’ll be able to find the perfect property.
Before renting out your property, you should purchase a landlord insurance policy.
Unlike a homeowner’s insurance policy, a landlord insurance policy will protect you from common problems that occur when you rent property.
Types of Landlord Insurance Policies
While the terms used to describe insurance policies vary by company, most agencies offer three types of landlord policies.
The DP-1 policy is the least expensive policy and offers coverage for only named risks.
These risks can include:
- Fire and smoke.
- Hail, windstorms, and lightning.
- Damage caused by aircraft or other vehicles.
However, there is no guarantee that a DP-1 policy will cover damage from any of these problems.
Landlords must check their policy before signing to see what risks their policy lists.
A DP-2 policy offers coverage for more types of risks. Like DP-1 policies, covered risks will be explicitly named in the policy.
In addition to the risks covered in the typical DP-1 policy, a DP-2 policy may cover risks like:
- Electrical damage and frozen pipes.
- Building collapse.
- Damage caused by the weight of snow and ice.
- Falling objects.
- Flooding caused by a stream or river overflow.
DP-3 policies are often called “open peril policies.”
This type of policy covers most risks and is the most expensive.
A DP-3 policy will list any specific perils that are excluded from coverage.
If you are concerned that a DP-3 policy does not offer coverage for a specific peril, you can ask that a rider be added to your policy to provide additional coverage.
Actual Cash Value Versus Replacement Cost
When purchasing insurance, landlords should look for policies that offer replacement cost coverage versus actual cash value coverage.
For most DP-1 and some DP-2 policies, the insurance agency will only pay you what they believe your property was worth when the damage occurred.
For example, if hail damages your rental’s seven-year-old roof, the insurance company will pay for the worth of the existing roof.
Then you would be responsible for paying the additional cost to replace the roof with a brand new one, which will certainly be more expensive than the “value” of the 7-year-old roof.
Most DP-3 policies and some DP-2 policies offer replacement cost coverage.
If you have replacement cost coverage on your seven-year-old roof, the insurance company would issue a check that would cover all of the costs associated with replacing your roof with a new one.
Replacement cost coverage is somewhat more expensive, but the coverage it offers is extensive by comparison with most DP-1 or DP-2 policies.
Some policies have an all-risk provision that will protect the property from theft, vandalism, or malicious mischief.
Common examples of these risks include graffiti and intentionally broken windows.
Some DP-3 policies already have this coverage, while other insurance agencies will add an all-risk provision as a rider to your existing policy by request.
If your property is vacant for longer than 30 days, your landlord’s insurance policy may be invalid.
An unoccupied property creates a larger risk for the insurance company, so some agencies will cancel coverage if you make a claim and your property has been vacant.
Talk to your insurance agent the moment your property becomes vacant to discuss any changing landlord insurance requirements.
Also, look for policies that offer a 60-day window before the property is considered vacant.
Landlord Umbrella Policies
A personal umbrella liability policy will extend the liability coverage on all of your property.
These policies are usually a few hundred dollars per year for $500,000 to $1,000,000 of coverage.
However, if you own more than a couple of rentals, the personal umbrella policy may become invalid.
If you own four or more properties, you can purchase a commercial umbrella liability policy.
When you purchase this type of coverage, you provide a list of properties that you would like covered under the policy.
As you purchase or sell properties, contact your insurance agent so your coverage can be adjusted accordingly.
Purchasing landlord insurance is the best way to protect your real estate investment.
To make sure you get the coverage you need, stay in communication with your insurance company to notify them of any changes.
The amount that you’re charging for rent will either attract tenants to your listings or it will repel them.
If you set the rental price too low, then you won’t get the right value for your property.
Prospective tenants might even be suspicious.
Set the rental price too high and you won’t get any takers!
That’s why knowing how to price rental property in your specific market will help you have a successful and profitable experience.
What Is the Most Common Method of Rental Pricing?
Many rental property owners will price their rentals based on the sales comparison approach.
This approach will place a relative value on the property based on a common and easy to understand metric.
Square footage is most often used, but the number of bedrooms and bathrooms is sometimes used as a metric as well.
If other landlords are charging $1 per square foot in rent, then it’s easy to figure out what your 1,500 square foot single family home will get in rent.
It is important to remember, however, that this approach is just a base line number.
Homes that are run down or are in poor neighborhoods won’t usually command the average price.
Homes in higher priced neighborhoods bring other perks that can raise price rentals.
Capital Asset Pricing Is Also Effective
With capital asset pricing, you’re valuing the risks versus the rewards of your own finances instead of looking at what the market can sustain.
It’s based on the return on your investment that you need to meet certain budgetary landmarks.
If you want a 5% return on your investment, then you add 5% to the expected monthly costs you’re paying for a rental property, including taxes and maintenance, and that’s how much you charge.
A similar approach is called the Income Approach.
Instead of looking at the overall return that can be achieved, however, the rental property owner is looking at income benchmarks that can be achieved.
The one downfall of both of these methods, however, is if you have high costs that are associated with property ownership.
If your costs are higher than other property owners, then your rent will be higher and you’ll get fewer tenants.
The Cost Approach Might Be the Most Effective
In the cost approach, the valuation of the rental property is based on what it is actually worth.
The land values are combined with the property improvements and then the best use scenario is then considered to set the price of rent.
If your property is in the country away from everyone else and there’s a lot of land to use for farming, then there may be more value than a 1 bedroom apartment under this scenario and so more rent can be charged.
As long as you keep rental prices within a competitive range, you’ll be able to fill your properties with good tenants that will pay their rent on time.
This will give you the income that you need and help you maximize your profitability.
On September 4, 2020 a temporary national eviction moratorium on evictions for nonpayment of rent was announced by the Centers for Disease Control and Prevention (CDC) and the Department of Health and Human Services (HHS). The order was introduced to help renters who were unable to pay their rent due to the impact of the pandemic. It was originally set to expire on December 31, 2020 and had been extended several times before finally being allowed to lapse on July 31st, 2021.
On August 4, 2021 the CDC Director signed an order extending the moratorium once again. This order extends the protection of tenants in certain counties, through to October 3.
In this series of posts, we will be exploring different aspects of the eviction moratorium and how it impacts landlords.
Qualifying For the Moratorium*
The moratorium does not apply to all tenants. According to the National Low Income Housing Coalition, in order to qualify, the tenant must give written notice to their landlord that they:
- Have “used best efforts to obtain all available government assistance for rent or housing;”
- Expect to earn no more than $99,000 annually in 2021 (or no more than $198,000 jointly), or were not required to report income in 2020 to the IRS, or received an Economic Impact Payment in 2020 or 2021;
- Are unable to pay rent in full or make full housing payments due to loss of household income, loss of compensable hours of work or wages, lay-offs, or extraordinary out-of-pocket medical costs;
- Are making their best efforts to make timely partial payments as close to the full rental/housing payment as possible;
- Would likely become homeless, need to live in a shelter, or need to move in with another person (aka live doubled-up) because they have no other housing options;
- Understand they will still need to pay rent at the end of the moratorium (June 30, 2021); and
- Understand that any false/misleading statements may result in criminal and civil actions.
Who Does the New Order Apply To?
The CDC stated that the new order signed in August, applies only to, “counties with heightened levels of community transmission in order to respond to recent, unexpected developments in the trajectory of the COVID-19 pandemic, including the rise of the Delta variant. It is intended to target specific areas of the country where cases are rapidly increasing, which likely would be exacerbated by mass evictions.”
If a county that currently does not have a heightened level of community transmission sees an increase in the number of cases, the order will then apply to them, even if it does not at present. Likewise, if the order currently applies to a county and cases reduce, the order may no longer apply to them. Which counties the order applies to depends on the CDC’s definition of “heightened levels of community transmission”.
In order to know whether or not the order applies to the county in which you live, or in which your property is located, you should refer to the CDC’s Covid County Map.
Can Tenants Still be Evicted?
In their overview of the national eviction moratorium, the National Low Income Housing Coalition listed the following reasons for which a landlord is still able to evict a tenant:
- Conducting criminal activity on the property;
- Threatening the health or safety of other residents;
- Damaging or posing an immediate and significant risk of damage to the property;
- Violating applicable building codes, health ordinances, or other regulations related to health and safety; and
- Violating any contractual obligation other than the timely payment of rent, late fees, penalties, or interest.
Paying Accrued Rent
Tenants are still required to pay accrued rent, meaning many tenants are racking up large sums of unpaid rent that will need to be paid to their landlords eventually.
According to a study by the Aspen Institute, around 15 million people are currently behind on their rental payments and, according to the National Equity Atlas, those households owe over $21 million to landlords.
It is thought that the new order will allow time for the $46 billion allocated by Congress to assist with the payment of accrued rent to be distributed to those in need.
Next in the series: Eviction Moratorium: What This Means for Individual Landlords
* These bullet points and the information contained there are from the original terms of the moratorium
Becoming a landlord can be an exciting and lucrative decision, yet beginning the process can be overwhelming for some. While regular monthly income and being your own boss are perks of the job, there are a few things you should keep in mind when renting a property for the first time. The landlord must take vigilant steps to ensure the property is well taken care of, the renters are comfortable and satisfied with their home, and any laws regarding landlord-renter relations are upheld. When you first start out, all of this may make your head spin, but you’ll soon find being a landlord is a very rewarding job.
Assessing the Property
Whether you already own a property or you are looking for a property to buy and then rent out, several factors play roles in assessing your property’s value like location, size, and interior. A property in a good neighborhood demands more rent for its good location. Moreover, if there are recent renovations such as a new master bathroom or back patio, for example, your property will fetch a higher price. Be fair in your pricing but also make sure you still profit in the end.
Your Property, Your Rules
Once you have decided on the price of your property, you must set forth guidelines about what you are willing to allow. This could range from allowing pets, prohibiting smoking or allowing the renter to make minor changes, like painting a room. The leasing contract should be explicit about anything you do not feel comfortable with inside your property. Making your stipulations known to the tenant beforehand will help you avoid any problems in the future. If the tenant and the landlord both know what they are in for in the beginning, the relationship will be much smoother.
Finding a Tenant and Reviewing a Tenant Application
Vacancies will only cost you money, and getting tenants into your property and keeping them there is key when seeking long-term success as a landlord. First, have a tenant fill out an application form and cross check all the tenant’s information to make sure there are no discrepancies. Next, you will need to verify the information which can easily and quickly be done with online tenant screening. This process varies from state to state, with some states requiring you go back five years. But tenant screening will raise any red flags about the tenant’s past such credit history, renting history and criminal records. Request references from former landlords or employers in the application to paint an even clearer picture of the prospective tenant.
Maintaining the Property
Once a tenant has been found, it is the responsibility of the landlord to quickly fix any problems that may arise. Whether it’s a leaky pipe or a broken appliance, responding quickly to a tenant’s problems will ensure a positive tenant/landlord relationship. Some choose to hire property management companies to take care of small matters like these; however, if you hire a third party, it eat into your monthly profits. Being helpful when needed will go a long way with your tenants so try to be around when you are needed, but otherwise give the renter their space as if it were their own home. Happy renters are likely to re-sign a lease, keeping your monthly profits steady and consistent.
You’ve asked, begged, and pleaded for your tenants to pay their rent, get rid of the unauthorized pet, or stop disturbing the neighbors at midnight with uncontrolled parties.
Being nice isn’t getting you the results that you need, so it’s time to look into your legal options.
Eviction is a fairly straightforward process as far as court cases go, but when you’re a new landlord, you don’t necessarily want to go it alone.
When to Hire an Attorney for an Eviction
Evictions are generally open-and-shut cases, as many tenants won’t respond to the complaint, so you get a decision by default.
However, even though it’s a fairly simple process compared to the rest of the legal system, there are specific rules that you have to follow perfectly to avoid giving your tenants any way to claim that you didn’t follow the proper procedure.
Nolo recommends that you get an attorney if you have never gone through the eviction process before.
This way, you have an expert to help guide you through the process and help you become familiar with each step.
Legal representation is also a good idea if your tenants are also retaining a lawyer.
You don’t want to go up against a lawyer in court, especially if this is your first eviction.
There are certain eviction situations that are a bit more complicated than a standard non-payment eviction.
Evicting tenants who are going through a bankruptcy process or attempting to evict tenants in an area that is rent-controlled, like New York City, requires additional assistance.
If you’ve never hired an attorney or would like to switch attorneys, talk with other property managers and landlords to see which law offices they go to for help.
Online review sites for professional services are also helpful resources for finding an attorney who works for your eviction needs.
Retain lawyers who specialize in eviction and real estate law, so they are up to date on the latest rules and regulations.
Can the Tenants Get a Lawyer
Tenants are free to retain legal counsel in the event of an eviction, although in most cases, you aren’t even going to see your tenants in court.
Eviction for non-payment is easily provable, and there are few circumstances where the court will consider stopping an eviction in this situation.
How Much Does an Eviction Procedure Cost
The exact price of an eviction depends on the city you file in.
For example, an eviction costs around $110 in Hamilton County, Ohio.
Generally, you’re paying for a process server to deliver the eviction notice to the tenants, the filing fees for the eviction complaint, any lawyer’s fees if you retain legal counsel, and a fee for a Writ of Execution if the tenants refuse to leave after the eviction and a sheriff has to get involved.
While this may sound like a large investment, you can add your legal fees associated with the eviction to the judgment against the tenants.
It may be difficult to collect on this judgment, but if they refuse to pay, you can levy bank accounts and and garnish their wages until the judgment is satisfied.