Real Estate Journal
2. Time to Defend Optimism Two New Member Benefits 3. NREIA Legislative Update What Makes HUD Homes So Great
Doug Hartmann Sr.
By John Triplett
riminal background checks of tenants remain a crucial protection for landlords, who still have much to learn about how to run them and interpret their results fairly. Landlords are facing backlash from groups claiming the use of criminal background checks unfairly discriminates against prospective tenants. Reacting to a seven-page letter from the American Civil Liberties
Please tell us a little about who you are and what you did before getting into real estate investing:
Do you know that famous opening line “A long time ago… in a land far away?” After over 40 years in
Rental Housing Journal, LLC 4500 S. Lakeshore Drive Tempe, Arizona 85282
PRSRT STD US Postage P A I D Sound Publishing Inc 98204
...continued on page 14
17. The Customer is Afraid, Too
9. Bath Remodel Projects to Try This Fall 10. Property has Sustained a Loss; Now What?
18. Eviction Changes: Coming to a City Near You! 19. Change Your Filters 20. Outsmarting Jack Frost 22. Dear Landlord Hank
Vol. 3 Issue 4
Criminal Background Checks Remain Key Step for Landlords, Tenants
7. Seven Things to Know, Part Two: Leases
Circulated To Over 40,000 Real Estate Investors Nationwide
oug Hartmann, Sr., is the owner of Hartmann Rentals, a full-service property rental company located in Collinsville, Illinois. He is a member of the Metro East Real Estate Investors Association in suburban St. Louis, Missouri, and got started in real estate investing back in 1974. The goal of his operation is simple; manage property for maximum cash flow, balanced with growth in equity and treat investor’s property like it’s your own.
16. Top 10 Real Estate Rehab Projects for ROI
8. 4 R’s of SDIRA Investing
4. REIA Award 2018: Innovate and Illuminate! 5. Take a 'Vacation with an Education' on Cruise
6. Closing the Deal in a Frenzied Seller’s Market
Union, the City of Savannah, Georgia, suspended a program in February of 2018 that allowed landlords to refuse occupancy to potential renters with criminal backgrounds. In New York City, the owners of an apartment complex have been in court since 2014 for declining to rent to people with criminal records. The federal government joined the debate in 2016. Now landlords and tenants are waiting on the courts to decide whether new guidance issued by the Department of Housing and Urban
Development (HUD) goes too far— or far enough—to prevent unlawful discrimination.
Don’t Play with Fire Charles Tassell, COO of National REIA, has owned multifamily properties for years and has spent more than two decades of public service helping landlords and tenants get fair treatment. Tassell says running background checks can solve problems before they ...continued on page 5
The 2018 Economy: How Real? By Chris Kuehl, Ph.D.
t has been remarked – with a certain amount of accuracy – that the job of the economist is to find the dark cloud behind every silver lining. The 2018 economy has been strong by almost any measure one chooses to use and thus far there seem to be few issues to really worry about. The rate of unemployment has been below 4.0%, growth in the second quarter was 4.2% and the stock market seems to shrug off every crisis as it continues its expansion. The usual worries that take over at the end of recovery have yet to manifest as inflation remains low. What could possibly be wrong with any of this? Let’s take a slightly more skeptical and jaundiced look at all this. The rate of unemployment is indeed at one of the lowest points registered in years but there is more to the job market than this. To begin with the economist is not all that interested in job growth for its own sake. An economy can have nearly 100% employment and be struggling if the jobs are not very well paid. The economist is mostly interested in the worker as a consumer and to be a good consumer they need
to make good wages. Despite the very low rate of unemployment there has been very little annual gain in wages – much less than theory holds would be the case. The Phillips Curve has worked like a charm since the 1950s but doesn’t seem to be working at all now. It holds – logically enough – that when the rate of joblessness falls the wages will rise as companies will have to pay more to get the employees they need. Despite the fact there are more jobs than there are people looking for work these wage
Published In Conjunction With
hikes have been missing. The plain fact is that too few of those looking for work have any of the skills that are being sought and if they get hired at all they will not be paid as much as the skilled person might have been. The real issue for most business is the labor shortage and that has worsened as the unemployment rate has fallen. It has further been noted that the majority of the new jobs created this year are ...continued on page 7
Real Estate Journal
It’s Time to Defend Optimism By Rebecca McLean, Executive Director, National REIA
s I was preparing for my Industry Update for the 2018 Equity Trust Conference, I wrestled with helping the audience make sense of the data. Why do they need to know this seemingly insignificant information – and then it dawned on me. Why do I feel the need to know these things? Why am I such a data geek? It is then I realized that I need to be in control of my own destiny, at least as much as the circumstances will allow, and it is my belief that the disposition of most investors causes them to be driven to the same needs. I began as a journalism major and worked in both high school and college through all the positions on my school paper. As far away from mainstream journalism as a high school paper sounds, the idea that “if it bleeds it leads” begins to permeate the journalist’s thinking even as early as your high school paper. People are so inundated with information that you need something exciting to get their attention, and our brains are built to pay attention to fear far more quickly than good news. Writing on his blog in May of this year, Own America’s Greg Rand made a couple of statements with which I wholeheartedly agree. He warned that "we will be misled by credible sources over the next couple of years about the state of the housing market." Greg said (and I am paraphrasing) that in today’s environment, it feels that optimism is seen as a political statement and the media is reporting negativity in areas where there realistically is none. He emphasized that we should defend
optimism. I say “absolutely!” You need to understand the data so that you can be the judge for yourself about the market and where it is going. This may be one of the few times in my life that I can say I feel good about where we are. Basic supply and demand, not government intervention or blatant fraud (as it was in the 2005-2007 period) seems to be driving growth in the real estate market. I am a bit of a pessimist at heart. (I call myself a realist but my friends and co-workers firmly believe pessimism is a more accurate descriptor.) My “realism” causes me to feel that this run of prosperity cannot continue forever, yet there is nothing I can specifically point to that would crash the real estate market in the immediate future. Yes, if the rest of the economy crashes due to an overwhelming natural disaster, an unforeseen war, or something similarly horrific, we could certainly tumble
along with it, but nothing seems to be realistically looming on the horizon. Am I going to invest with caution? Always. But I am nowhere near battening down the hatches. That brings me to my current strategy and one which I covered in depth in the Industry presentation, rentals or rehab to rent. In a business environment where many real estate investors are questioning their strategies those who have chosen to diversify with rental property are seeing some major validation of their approach. Nearly every media outlet following real estate over the last year or so has published an article or stated in a broadcast that the current state of the economy is leading many in the US to rent instead of buy even if they have the means to purchase. These reports have included expert opinions that renting has gained popularity as people worry about job
security or location of their job, the cost of buying a house, or are finding it difficult to get a mortgage. Even those in a good financial position are choosing to rent. Many of our local associations report a tremendous rise in the interest in investing in rental property because of the market conditions. I get great pleasure in being able to continue telling our members, that for now, being a landlord is downright sexy! We are providing a great service to our communities and are able to profit while doing so; doing well while doing good. The only challenge of the moment is that Investors are no longer able to pick up foreclosures, short sales, or other undervalued properties and offer them as rentals. In markets across the country, rental vacancy rates have hit lows not seen in years. Rents are on the rise as well. If you chose to diversify as an investor by exploring rental property you seem to have made an excellent decision. It will be interesting to see if these trends continue. Keep on top of the real estate investment market by reading our quarterly articles from our economists and Director of Legislative Affairs here in the Real Estate Journal. You can also find daily updates at: www.RealEstateInvestingToday.com or subscribe to our weekly digest by emailing Lori@nationalreia.org. Rebecca McLean is the Executive Director of National Real Estate Investors Association. Greg Rand’s Own America’s blog (referenced herein) can be found at ownamericacom.wordpress.com.
New Benefits for National REIA Members
here is indeed strength in numbers and that old saying is best exemplified by the benefits available to members of National REIA. One of the hallmarks of these benefits is being able to save time, money or both! Investors know their time is a valuable asset. Being able to find that next deal and then see it through to completion is essential to any successful real estate investing business. That’s where Servicelink Auction and HammerZen come into play. One helps you find the deals and the other helps with keeping the books straight.
Real Estate Auctions the ServiceLink Auction Way Most real estate investors have probably tried an online auction site or have at least heard stories, both good & bad from other investors. Now, thanks to a new partnership with Servicelink Auction (powered by Hudson & Marshall), successfully buying properties online just got a lot less complicated. Their time-tested approach to real estate auctions, innovative technology, and exclusive 2
nationwide inventory provide you with the right tools to find your next property. By utilizing Servicelink’s online marketplace, National REIA members will receive access to VIP sales staff, contracting and closing teams. That also means receiving weekly asset lists and helpful communications from a regional sales manager assigned to National REIA. Utilizing their platform has three easy steps. First, you can browse their nationwide home auctions with exclusive inventory and find the property you've been looking for. Next, you make an offer through their seamless, transparent technology which allows you to securely submit offers and receive status updates in real-time. Finally, you close the deal with guidance from their staff taking you through the online home auction buying process from offer to close. Servicelink’s time-tested approach to real estate auctions, innovative technology, and exclusive nationwide inventory provide investors with the right tools to find that next property. National REIA members receive access to their VIP sales staff, contracting and closing teams when accessing their online marketplace.
To learn more visit www.ServicelinkAuction.com.
HammerZen Helps Members Save Time & Money with Bottom-Line Savings Very few people in real estate investing can say they enjoy manually entering all of their company’s purchase data into an Excel spreadsheet. The process is tedious and tiresome; the more you do it, the more likely it is that you might fall asleep at your computer and wake up with your keyboard imprinted on your face. That's where HammerZen steps in to save the day. They have recently partnered with National REIA to help members save time & money by keeping track of Home Depot purchases and efficiently importing purchase data right into QuickBooks. It can be used to create accurate ‘actual vs. estimates’ and become more competitive without even needing to hire a bookkeeper. How does it work? The HammerZen app automates the
data import process from Home Depot right into QuickBooks. Typically, you need to review your receipts and then type in each tiny detail, digit-bydigit. When you use HammerZen, you can automatically upload hundreds of statements in a matter of minutes! It's like stress-free accounting. HammerZen eliminates the potential for any errors, significantly increasing the accuracy of your data so that you can produce accurate reports and estimates. Approved by Intuit, HammerZen is one of the most valuable tools you can have at your disposal. HammerZen is also one of a select few Intuit Premier Resellers in the country, authorized by Intuit to sell, implement and support QuickBooks and its related products at the lowest possible price. Through an exclusive partnership, National REIA members get preferred low pricing, a dedicated, reliable support team, collaboration with industry experts and all the help you need. For more information visit www.HammerZen.com/NREIA. To see all the benefits available to members of National REIA, visit www.nationalreia.org/benefits Real Estate Journal · Fall 2018
Real Estate Journal
What Makes HUD Homes So Great?
By Larry Goins
UD Homes can be a wonderful investment if you can play your cards right. Some people avoid these properties simply because they don’t understand what makes HUD homes so great. I’m going to give you a few clear reasons why I think these properties are a tremendous resource for investors. Let’s start at the beginning.
NREIA Legislative Update What does Fall foretell? peculating on the future is bad policy, speculating on the political future is downright dangerous. As investors we are often risk averse, but having some idea of what to expect can be very helpful…so we will peer a bit into this muddy crystal ball in hopes that the mudslinging of the current election season doesn’t dirty us all! The Senate, ever the deliberative body, has two great plans for early Fall: First, pass a Continuing Resolution – that’s how we fund the government now. It has been about 9 years since we last had a budget and it is doubtful the country will have one soon. The second, and maybe more contentious then billions in spending, is the appointment process for the next Supreme Court Justice (by the time you’re reading this, it may have already happened). The partisanship will be rife as both sides view the fight – not winning or losing, just the fight – as critical to their campaigns and ultimate victory on November 8th. Expect more than a few missteps. However, this appointment will set the tone of the Supreme Court for decades with decisions and precedents that will affect the entire nation. Speaking of elections, while only a dozen or so state legislatures are still in session, those could be some interesting houses for acrimony depending on the outcome in November. To date (early September) there has been no sign of the so-called Red Tsunami so often predicted by pundits. However, the House may be up for grabs, and at the very least the Speakership will be! Democrats in the Senate are on the defensive trying to hold seats in the states Trump won – look for significant Presidential and VP travel as Election Day nears…and an interesting Lame Duck session in the Senate afterwards.
Seller Finance While the Seller Finance Coalition (SFC) has moved its focus to the US Senate with an advocacy campaign requesting Senators to support the language of HR 1360, the real focus is in the House Finance Committee as HR 1360 is in mark-up for a hearing. If you have not sent your email advocacy to your congressman through National REIA’s Action Center (on NREIA’s website, under the legislative tab). There is a pre-drafted letter there for your convenience. HUD Real Estate Journal · Fall 2018
There are three critical issues in process of being reformed at HUD, aside from the Housing Choice Voucher program, they are: Disparate Impact, The Affirmatively Furthering Fair Housing Rule, and The Companion Animal aspects of Fair Housing. All three have been slated for review and recasting. The real key will be if the regulatory change is followed by a codification by the House and Senate, without that the rules are only as good as the current administration – and that isn’t good for predictability, business or society.
Tax Reform Yes, Tax Reform started. And everyone who was left out or disaffected by the last reform is hard at work … complaining about the current system. There may be more tax reform, but it is about as likely as a budget… and really needs to be drafted in conjunction. Rent Control The denial of the basic laws of supply and demand are fully in force with those who are gathering around the banner of “Housing as a Right.” Their mantra of affordable housing pairs nicely with demands for a higher minimum wage and free healthcare. However, the reality of the erosion of property rights and elimination of many entry level service jobs will have unintended consequences that will likely harm many of the unskilled, or limited skill sets, eliminating additional rungs of opportunity and stability on the ladder to success. How long before Inclusionary Zones are mandated not just for the low income, but no-income? San Francisco has already ceded control of several sections of the city to the homeless, offering instead a “poop map app” to advise locals and visitors of the areas to avoid. Remember: elections have consequences. November’s Elections: As a real estate investor, you have a rare opportunity to get involved in the political process. Where most people can support a candidate with a yard sign at their own house, please consider your portfolio as a blossom of candidate support. Make a donation and get involved. Sitting this out may result in your community eventually ceding your street – and your property rights away. Talk with your local REIA leaders about ways you can get involved and make your voice heard – along with thousands across the nation!
Finding them The list of HUD homes for sale is readily available to anyone, even without a real estate license. This makes your job of finding suitable properties to look into easier in the first place. There is also a limited amount available each month - so it’s usually manageable to stay on top of without being overwhelmed. The best part is that you don’t have to gather the information you need about each property in bits and pieces in order to make an intelligent offer. HUD has the list organized pretty well in advance for you to use. Of course, you’ll always need to do your own due diligence, but these numbers can be used as rough estimates to save time, and you can verify them later on. Bidding on them Another advantage of bidding on HUD properties is the bidding process is streamlined and simple. When the time comes, an agent will submit your offer online and you’ll get an answer back the next day if it is accepted, or if they have made you a counter offer. Typically, it’s either accepted or rejected, but if it is rejected they will not send any response at all. The offer simply expires and the property is still open to new bids for the current day. Since you are not dealing with homeowners and the emotional element that can comes with it, you bypass much of this to a degree any time you use an agent, but with HUD homes especially, you’re dealing with an organization that has its own policies and procedures. This means that it gets efficient and predictable after a while. Remember, it’s a numbers game. Each offer you make can be done in a relatively short amount of time, so if you are dedicated to making multiple offers each week, it’s just a matter of time until one is accepted. It might take 25, 50, or even 100 offers or more to get one accepted at the low prices I will show you how to buy at. If you expect that going in, you will not get disappointed after making several offers without getting a positive response. Competition Another advantage of working with HUD is that there is little competition. Most investors are chasing after people in foreclosure or trying to buy properties at auction. And when you submit your bid, HUD will only compare your offer to any other offers that happened to have been submitted that same day (if any) before making their decision. Typically, you don’t have multiple people making offers on the same day. Now, depending on the market you live in, there could be competition. If you are an investor and live in an area where there is competition, I suggest making offers in a different market where there is not as much competition. With HUD you can get big discounts. I’m not saying this because I heard it somewhere; I’m saying it because I do deals all the time and can show you examples. So, if you find a local real estate agent who tries to tell you that HUD will not accept offers under 80% or 90%, don’t bother listening. We have a strategy that allows us to capitalize on this by buying dirt-cheap houses that no one else wants. We then sell them for 3-6 times what we paid by selling them with seller financing. We have gotten returns from 119% to 788% on our investment by receiving monthly payments and getting paid more over time. This is a great concept that works extremely well in today’s market. I call this my Filthy Riches strategy. If you would like to learn more about this, please click here. I hope you have enjoyed this article about making money with HUD homes. This is just a small portion of the ways you can make money with HUD homes. Visit www.hudhomestore.com to search for a HUD home in your area. Larry Goins is an author, trainer and national speaker. He has written several books on real estate investing that are available wherever books are sold. Learn more about Larry by visiting www.LarryGoins.com.
Real Estate Journal
REIA Award 2018: Innovate and Illuminate!
hat was the name of the game at National REIA’s annual MidYear Leadership Conference which took place in Salt Lake City, Utah over the summer. To that end, and after many years of recognition, the Awards of Excellence program was retired and replaced with the all-new Recognizing Excellence in Innovation Award – aka the “R.E.I.A.” The Innovation Awards recognize those organizations and people who bring new ideas to life. Whether that idea is big or small, these ideas change the way we experience the REIA world. The award is given for a single idea – including program, education, event, etc.- launched or updated during the previous year (in this case 2017) and whose innovative approach has caused market disruption or an exciting increase in the value of membership. The criteria for awards are based on how a group’s idea was implemented and it had to have accomplished one of the following: •
Differentiate - Have differentiation from other ideas/activities/policies currently happening in the REIA community
Revitalize – It must have a fresh way of looking at an existing idea
Extend - If the idea is an extension to a current program, it must have been a substantial modification or adaptation
One winner is then chosen from all the entries as the overall R.E.I.A award winner along with three “Honors of Merit” in the following categories; Communications, Membership Systems, and Community Outreach. The 2018 Awards winners were determined by a selection committee composed of individuals from various non-affiliated fields which evaluated the information provided in the submission forms, as well as the included supporting materials. Available resources, in terms of size of market and possible reach of the program were a factor considered by the judges. The Award is shaped as a triangle or pyramid, or as we see it, the symbol for Delta, in chemistry it is the change agent. National REIA see winners of this award as change agents for the advancement of the industry. In 2018 the following groups received awards:
The R.E.I.A. Award: Arizona REIA
Arizona REIA developed and implemented outstanding system that personalizes the entire membership experience at their association. For their efforts they were awarded the first annual R.E.I.A. award at National REIA’s 2018 MidYear Leadership Conference.
Honors of Merit: Communications: RPOA of Kent County
For outstanding membership communications and for their highly acclaimed real estate investor podcast.
Membership Systems: Traction REIA
For implementing a scalable membership platform that combined seven systems into one that allows them to better facilitate onboarding of new members as well as meeting the needs of existing members while strengthening their relationship with Traction.
Community Outreach: Toledo REIA
For their philanthropic project “Donate-a-House” where abandoned houses are turned into a win-win for investors, vendors and the greater community. Proceeds of the home’s final sale go to a local food bank.
Real Estate Journal · Fall 2018
Real Estate Journal
Take a 'Vacation with an Education' on National REIA’s 22nd Annual Cruise
et’s face it, the majority of conferences take place at some convention center in some far-off place, which may or may not allow you to relax and have a good time. That’s where National REIA’s annual cruise is completely different. Even the name of the cruise says it all; “A Vacation with an Education”– and it is all that and much, much more! The ship will depart from Miami, Florida in mid-February embarking on an 8-day journey with stops in Puerto Rico, St. Thomas, the Dominican Republic and the Bahamas. Along the way will be a variety of educational programs & events geared specifically toward the real estate investor. This year’s cruise features two
special guests, Walter Wofford and Bob Zachmeier. Walter is a renown real estate investor who specializes in creating tax free net worth and cash flow through seller financing in the affordable housing area. These methods combine note creation, IRA and retirement account investing with trust entities. In addition to the daily seminars, Walter did several surprise “pop-up” sessions based on discussions that happened during the day. Bob Zachmeier discovered notes and realized that “mailbox money” was far superior to the “tenant and toilet” hassles of rental property. He created NoteCarry.com to structure notes, wraps, rentals, etc. with reports for buyers, sellers, and investors. His creative solutions have helped hundreds
of buyers across the country purchase homes without banks. But wait, there’s more! This is also a conference (the education part) so you won’t want to miss any of the many roundtable, panel discussions, networking, games and social activities – including cocktail parties. Topics include; Asset protection, Peer-to-Peer lending, Crowdfunding, Development, Senior Housing, Alternative Investments, Financing and Equity shares. In addition, National REIA will be providing industry & legislative updates as well as other nationallyrenowned speakers. Last year’s cruise ended on an exciting note with a real estate reverse raffle – that was not only captivating but very informative!
This season’s cruise takes place on Celebrity’s Equinox –a luxurious marvel of maritime engineering that’s packed with awesome amenities (the fun part). Through a special arrangement, National REIA has various options available starting at $1,175 per person (double occupancy). Are you unable to make this Winter’s cruise? Don’t worry....another one is just around the corner in early 2020. Watch for more information in the coming year from National REIA.
banning that felony specifically, and you want to have that reason written into your background check policy,” Tassell said. For example, Tassell’s experience allows him to ban prospective renters convicted of writing fraudulent checks. “I can tell you about one personally,” Tassell said. “It was a scam check writer. He would have cost us $2,500 if we hadn’t caught it and worked with the banks to go after the fraud.”
got to make,” Tassell said.
For more information or to sign up, please visit www.NationalREIACruise.com.
Background Checks Remain Key ...continued from page 1 occur. “Being a property owner who’s had a gun flashed at me from a tenant’s drugdealing boyfriend who moved into the unit, I want to know who I’m renting to,” Tassell said. “I want to know who they’re associating with beforehand to eliminate as many of those potential problems and crises as possible.” Laziness toward background checks amounts to gambling away your investment, Tassell says. “Do you want to open up an asset you own that is worth anywhere from $30,000 to $3 million to somebody you don’t know?” Tassell said. “They could be a proven arsonist, or a sexual predator, and you’re just going to let them into your building?”
Cast a Wide Net Not all criminal background checks are created equal. They range from local police reports to nationwide scans of multiple databases. Local police reports tend to exclude out-of-state crimes. Tassell says landlords who rely on tenants to obtain their own police report may not be seeing the full picture. “If you don’t have a professional that does a country-wide scan and screening, then you’re not getting information you need to make good judgments about who you are leasing to,” Tassell said. Innocent until Proven Guilty Important as they are, however, background checks are simply a screening tool, not a “guilty” verdict. Tassell said landlords should distinguish mere arrests from actual convictions, because “we have a longstanding tradition in this country, and it’s a very good tradition, that you are innocent until proven guilty.” Arrests are not judgments, so they do not (and should not) carry the weight of convictions, according to HUD guidance issued in 2016. Avoid ‘Disparate Impact’ Even landlords who do distinguish arrests from convictions can run afoul Real Estate Journal · Fall 2018
of HUD’s guidance. Landlords who automatically reject tenants who have criminal pasts risk making a “disparate impact.” Disparate impact is the theory that applying a rule equally to everyone can still be a discriminatory practice. For example, African-Americans and Hispanics are arrested and convicted in higher proportion than the general white population. Therefore, refusing to rent to people who have criminal backgrounds—or even just to felons— will affect more African-Americans and Hispanics than whites. Tassell says landlords can avoid disparate impact by screening for specific kinds of crimes. “HUD wants us to look at our policies and at specific felonies instead of just saying ‘no felonies’ across the board,” Tassell said.
Doing Time Landlords can still say “no” to felons, but they should be more lenient toward prospective renters whose criminal history is far behind them or less severe than that of other criminals. “HUD has asked property owners to determine different lengths of time for different felonies,” Tassell said. “That may mean that some felonies are not accepted.” Crimes with high recidivism rates (greater likelihood of being repeated) justify longer wait periods before entering a lease, Tassell says. “The reason sexual predators are regarded more at arm’s length is because the recidivism rates are typically much higher,” Tassell said. “Crimes of passion, such as assaults or even murder, typically have very low recidivism rates.” Fool Me Once…. Landlords are free to “weight” crimes more heavily than others to avoid getting repeatedly burned by criminal tenants, Tassell said. “You have to justify why you are
Neighborhood Watch? Whatever a landlord’s specific policies, criminal background checks at least help landlords defuse the concerns of good tenants. Generally, a prospective tenant’s criminal history is a private matter among the renter, property manager, and property owner. But sometimes local law enforcement may announce to the whole community when a convicted felon moves in. “If you’ve done your criminal background checks and you know it in advance, that’s fine, but if you didn’t know it, now you’ve got egg on your face,” Tassell said. Residents of multifamily housing may move out. Property owners should count the cost sooner than later. “Those are business decisions you’ve
Looming Policy Debate Some communities are pushing to ban criminal background checks from the initial tenant approval process. Tassell says such bans would create a two-stage application process misleading to tenants and landlords alike. “Typically, if you’ve gone through and found they have enough money, credit, and all that, then you would do a background check,” Tassell said. “You may have to tell somebody, ‘Yes, we think we’re moving you forward. Oh, by the way, no, we can’t.’” Some advocate banning criminal background checks from the entire screening process. That would be bad for business, Tassell says. “Rental property is a business, and there’s a risk management side to it,” Tassell said. “The criminal background check is an essential aspect of managing that risk.” John Triplett is a partner in Desert Path Marketing Group an Arizona-based digital content marketing agency of longtime journalists.
Real Estate Journal
Closing the Deal in a Frenzied Seller’s Market By Kathy Fettke
uyers take the back seat. Sellers have the advantage in most of the metros today. That means that sellers are at the wheel and driving the deal. How can you or your client compete and win in this kind of market? There are three things you can do to help steer that deal in your direction.
1. Find the deal before it’s listed You want to be the first one to make an offer, and that means finding the deal before anyone else even knows about it. Once the property is listed, the competition will immediately heat up and competitive offers will drive prices higher. So you need to find the properties “before” they go to market. I had a client who wanted to buy a beachfront condo in a very sought-after neighborhood. There were no listings, but I knew some people who lived there. I went to them and asked if they knew anybody who might want to sell. They gave me the contact information of two absentee owners who might be interested. One was not, but the other was a busy doctor who never used the place. I told doctor that I had a very interested buyer who would take the unit “as is” and could close in 30 days. The condo needed updating, so I deducted those costs from the offer. The owner accepted, and my client was absolutely thrilled! After she closed, several neighbors told her they would have bought it had they known it was for sale. 2. Overbid if you have to If the property is highly desirable, you need to consider an offer the seller can’t refuse, so be prepared to “up” the ante. Overbidding is typically done in the hottest markets, like California. It’s possible to win every deal with a high enough offer. Here’s one example. I had shown a client several homes in a neighborhood she liked but none of the homes fit her needs. After another unsuccessful day of house shopping, we suddenly saw a “for sale” sign go up on a home. It was in an absolutely perfect location where properties rarely go on the market. I knew it was a highly desirable property and would attract a lot of offers, so I quickly went to work. I pulled over and asked my client if she liked the location and the style of the house. It was love at first sight so I called the listing agent and booked an appointment so my client could tour the home. We had just witnessed the posting of the for sale sign but the agent told me she already had 7 offers! After doing some quick research, I determined that asking price was low, probably in anticipation of multiple offers. In order to get the home, we had to come in with the strongest offer. I my client if she’d be willing to go over asking price, and try to negotiate 6
it down later. She agreed, knowing the listing price was already lower than its intrinsic value. I also asked my client if she had access additional cash we could use to close on the deal which could be refinanced later. She called her financial planner and found out she could get a loan immediately against her stocks. We made an all-cash offer that was $150,000 higher than the asking price. Overbidding is the norm in California, so that’s not highly unusual. The seller accepted and we closed in 15 days, contingent on inspections and appraisal. Once in contract, we ordered every inspection possible. On day 10, when the contingencies were to be removed, we asked for a price reduction based on the work that needed to be done. The seller had the option to accept and close in 5 days, or put the property back on the market. Since our new offer price was still higher than their original asking price, they agreed to our reduced the price. My client was thrilled! After updating the home, she refinanced into a conventional loan, and the appraisal came in much higher than what she had paid. Now, every time I see her, she thanks me for finding her dream home and changing her life. And… she sends me many referrals. :-)
3. Look for distressed properties Finding a distressed property could also work in your favor. It’s great for getting some of that negotiating power back on the buyer’s side. Here’s a story about my own daughter’s purchase of her first home: It started during a weekend visit to her home when she told me she had perfect credit. She was renting at the time, so I asked her if she had spoken to a lender to find out if she could qualify for a mortgage. She was only 24 at the time, so she laughed and told me she was too young. I begged her to do it anyway. She did, and found out she could qualify for a $250,000 mortgage with just 3% down, and the payments would be less than
what she was paying in rent! We started looking at properties, just for “fun.” We found a four-plex near the local college. It was $400,000, but was within her loan limits because she could include the rental income from the other units. I thought it was a great deal because the rental income would have “also” covered the entire mortgage and expenses. She could have lived there for free, but she decided against the fourplex because she didn’t want to be a landlord managing students. Instead, she found a small threebedroom house across from a very popular park. The comps in the area were $350,000, but this property was listed for $250,000. After further inspection, we discovered that the former owners ran out of money during a renovation and the second bathroom was not finished. No conventional lender would have approved it. At that low price, I knew we had to come in with a very strong offer. This was a hot neighborhood! I told her that since she was already approved for financing, I would lend her the money for an all-cash offer. This is where Moms and Dads come into play. I told her she could improve the property, increase the value, and refinance. We spoke with her lender, and he said that as long as we recorded my loan as a lien on the property, he could do the refinance at any time after close. Even though she’s my daughter, I would have recorded the lien anyway to
protect my retirement! We estimated the cost of repairs, and subtracted it from the afterrepair value or ARV. It turned out the asking price was much lower than our ARV, so we made a full-price, all-cash offer, contingent on inspections and appraisal. The sellers accepted our offer over 10 others! After inspections, we asked for a price reduction to cover the needed repairs. The seller countered in between our contract price and adjusted price. We accepted. My daughter was thrilled! She enlisted the help of several friends to finish off the bathroom. Somehow, she got the work done for half the cost that she originally estimated. She refinanced shortly thereafter, and the loan was paid back, with 6% interest. One year later, she has $100,000 in equity and is paying the same as she had been paying in rent. This is a great method for investment property. I’ve helped thousands of people find rental properties that generate enough income to pay off the mortgage and provide a monthly cash flow. All of the buyers that I mentioned above could easily rent their homes and earn cash on top of the money they’d use to pay the mortgage. That gives them the flexibility to move if they need or want to. It also helps them build the kind of wealth that won’t disappear when the economy skids off the road. It’s the real estate formula to “real wealth” that will give you and your family peace of mind. Kathy Fettke is the Co-Founder and CoCEO of Real Wealth Network and an active real estate investor. She is passionate about researching and then sharing the most important information about real estate, market cycles and the economy. Author of the #1 best-seller, Retire Rich with Rentals, Kathy is a frequent guest expert on such media as CNN, CNBC, Fox News, NPR and CBS MarketWatch. Learn more at www.RealWealthNetwork.com.
Did you know? R e a l E s t a t e I n v e s t i n g To d a y i s the online news site for National REIA featuring daily updates with news and information that affects yo u r b ot to m - lin e . I t ’s u p d ate d d a i l y, n eve r b o r i n g a n d a l w ay s informative.
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Real Estate Journal
Seven Things to Know Before You Buy Rental Property, Part Two: Leases By Bradley S. Dornish, Esq. Editor’s note: Mr. Dornish resides in Pennsylvania and, as such, makes several references to Pennsylvania law. Please check with your local laws and ordinances as they differ state to state.
ome people think that any lease is a good lease, or that all leases are created equal. They couldn’t be more wrong, and it is a very expensive lesson to find out after you buy a rental property that the lease or leases on which you depend for the income to pay the mortgage and taxes are the wrong forms. So, how do you know if the leases your seller used are O.K.? First, you need to make sure you get copies of all the leases as soon as you have a signed agreement, at the very latest. The sooner you get the leases and look at them, the better. Make sure the numbers on the leases match the income represented by the seller, make sure the leases are all current, and have been extended for annual terms instead of month to month. Lenders don’t like to lend based on income from month to month leases. If the tenant leaves when you buy, you won’t have the cash flow to make the first mortgage payment. Next, review the utilities and other services and charges spelled out in the leases. If a lease says the tenant is paying a share of a common electric or water bill, go read the first article in this series on utilities (Real Estate Journal, Vol 3, Issue 3, Summer 2018). If the lease provides that the landlord provides a washer and dryer in the basement for all tenants, make sure you get the washer and dryer with the building, or if they are provided by a laundry service, get that lease, too. And don’t forget to make sure the gas and electricity for the washer and dryer are on house meters to the landlord, and included in the
expense information for the building. If the lease provides that the landlord cuts the grass and shovels the snow, make sure those activities are in your plans or those costs are in your budget. A landlord who lives down the street and cuts his own grass may not mention that he also spends an hour a week each Spring to Fall cutting grass at the rental, and it won’t show on his income and expense records. You will find out when the grass grows too high, and the municipality cites you. Even if the tenant is responsible under the lease, you are responsible to the public and the municipality. The same issue applies to snow falls. Under Pennsylvania’s “hills and ridges” case law, if someone slips and falls on your sidewalk and there were footprints frozen into the ice, or ridges from wind during freeze/thaw cycles, you can be liable for not clearing your walks or parking areas fast enough.
Local ordinances can require even faster shoveling. My wife will never let me forget the snowy weekend a few years back when our handyman was away, and the plowing service wanted over $2,000.00 to clear the walks, steps and driveways at all of our units. Instead, I started the day at 6am at Walmart buying all kinds of waterproof gloves, hats and scarves, stopped for a snow blower, 20 bags of salt, shovels and gas, built a ramp to get the snow blower in and out of my SUV. My wife, son and I spent from sunup to after sundown clearing and salting sidewalks, steps, and parking lots to avoid fines or injury to other people. I learned that day never to ask my wife to do that again, that as we age, back and extremity strains take much longer to heal, and that $2,000.00 to clear all of that snow wasn’t so ridiculous. The next consideration for the leases is whether ...continued on page 12
The 2018 Economy ...continued from page 1 in the service sector and the low wage and temporary sectors of the service arena at that. On the positive side there has been a jump in the quit rate as measured by the Job Opportunities and Labor Turnover survey (JOLT report). This percentage is now back to what it was prior to the recession and it means that people are confident enough in the job market to simply quit their current job and seek a new one. So, the jobs report is not all that is might be cracked up to be – surely the fact we grew so fast in the second quarter is a strong sign of progress. It is – sort of. The growth rate notched was 4.2% and that is indeed faster than anything the US has seen in several years (Q2 of 2014). The ten-year average for US growth has been 2.5% and that is the pace that many economists expect for the next few years. What happened to boost the second quarter numbers? The major input was related to the tariffs and threatened trade wars. Any exporter who anticipated having an issue with these barriers in the future tried to sell as much as they could while they were still able to. China threatened to impose tariffs on imported soybeans from the US and the response from the US soybean farmer was to sell as much as they could to China as fast as they Real Estate Journal · Fall 2018
would accept it. This boost will reverse by the time of the third quarter data and growth will likely be less. The other factor that may prove to be anomalous is the tax cut impact. This will affect the economy in the first six months of the year more than it will the last six months. The upshot is that growth in the second quarter would still have been good without these factors but not quite as good as 4.2%. The estimate is that without these factors there would have been growth of around 3.0% OK then, maybe the jobs data and the growth data is not quite what it appears
to be, surely the performance of the stock market is a sign of being on the right track economically. It is, sort of, but there are caveats. The explosion of the market is attributable to a variety of factors but the interest rates set by the Federal Reserve have played a huge and somewhat indirect role. The first and most obvious impact of a very low rate policy that has been in place for a long time is the impact it has on traditional means of saving. The rates are so low that banks can’t pay much of anything for those savings instruments that used to mean so much for their portfolio. There
is no way to make your money work for you other than to invest it in equities – even bonds are not as desirable as they have been. A great deal of money has migrated to the markets that would otherwise be stashed somewhere else and as the rates come back up a good bit of that money will flow out of the markets. The other impact of low rates is found in speculative activity. Money is so cheap that trillions have been borrowed by investors that put that cash into equities. They get an almost immediate return and pay the very cheap loan back – essentially gambling with someone else’s money. The rates will go up and that practice gets riskier. If the markets stumble the people that borrowed to invest may be unable to pay those loans back and the banks face another crisis of liquidity. The last piece of “Debbie downer” to offer is that inflation pressure is building albeit not as fast as many had anticipated. The commodities are rising in price due to actions like the steel tariffs but there have been hikes in the oil price as well. The wage driven inflation has not really manifested as yet but it has been creeping up slowly. Watch for much higher inflation by the start of 2019. 7
Real Estate Journal
The 4 R’s of SDIRA Investing By Jeffery S. Watson, Esq.
efore I began learning how to invest my self-directed retirement accounts, I noticed a common affliction that infected many real estate investors. I call it “squirrelitis.” Have you ever watched squirrels? They seem to quickly go from one thing to the next, appearing to focus on the chase rather than gathering and storing. We’ve probably all seen a squirrel in the middle of a highway that can’t make up its mind whether to go right, left or stay put. Regrettably, that squirrel usually has the decision made for it by the passing car. Squirrelitis, a condition not necessarily conducive to building wealth, is the tendency to want to try something new and different after having success doing a particular type of investment or strategy. My low opinion of squirrelitis is enhanced by my high opinion of the information contained in the profound fable The Tortoise and the Hare. Slow
and steady wins the race. I understand the human condition and what causes squirrelitis, but when it comes to investing, especially self-directed retirement account investing, the most successful investors I know, work with, and invest with use the “rinse-repeatreinvest-reload” method. It’s all about slow and steady. “Rinse and repeat” means keep doing the same kind of deal over and over. Structure those deals to get you the profit or rate of return which you desire. For me, this has to do with private lending out of my IRA-owned trust. Because of the relationships I have built and the type of loans I make, I can usually generate a very good, double-digit rate of return. “Reinvest” means take the interest or capital gain appreciation you earn on your investments and put it back into another deal as quickly as possible. A staggering statistic I’ve heard from my friends at large trust companies is that half the assets they have under management are in the form of idle
cash sitting in an account waiting for that account holder to find a good deal in which to deploy it. That money is not earning and growing. The fact that it has been put into a self-directed account reflects the individual’s understanding of the importance and power of being able to self-direct their retirement funds into alternative investments, but these individuals are either not yet comfortable with any of the investment opportunities they may have seen, or they are not yet comfortable with the investment deployment requirements. They may be lost or confused over the paperwork and procedures. The best method I have found for becoming more comfortable with self-directed investing and finding good quality deals is education and networking. Make it a point to attend events, forums or other training sessions offered by your account custodian, either online or in person. Attending in person also allows you to expand your circle of influence
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and build relationships with other likeminded individuals. Self-directed retirement account investing in alternative assets in the real estate genre is a team sport. Relationships are very important. The final R is “reload.” Each individual with a retirement account is allowed to make contributions to the account based upon their age and the nature of the account. As a general rule, $500 a month is a good contribution number that will get you at or maybe a little over the maximum amount you can put into your account. That consistent reloading of $500 a month into your account will give you additional capital to deploy into another deal. When account holders ask how they can do that $500 a month, I have a very frank conversation with them about the importance of balancing their current lifestyle wants against their future needs. Maybe they need to reduce the amount of money spent on automobiles or outside entertainment and restaurants. They need to get in the habit of having money systematically taken out of their paycheck or bank account every month and going straight into a retirement account. Virtually every custodian and administrator I work with offers that feature. As these contributions come into your account along with the revenue received from ongoing deals, money will quickly accumulate, putting you in a position to do another deal and continue putting that money to work for you. Many of the deals I do are small-dollar deals where I deploy a couple thousand dollars at a time. The “rinse-repeat-reinvest-reload” strategy harnesses all the factors which I articulate in my Roth Theorem about how focused intensity over time can produce a large amount of taxfree wealth. Applying these principles can enable an account holder to use a simple lending strategy to quickly grow a small IRA account into a sizeable account approaching six figures.
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Jeffery S. Watson is an attorney who has had an active trial and hearing practice for more than 25 years. As a contingent fee trial lawyer, he has a unique perspective on investing and wealth protection. He has tried over 20 civil jury trials and has handled thousands of contested hearings. Jeff has changed the law in Ohio 4 times via litigation. Read more of his viewpoints at WatsonInvested.com.
Real Estate Journal · Fall 2018
Real Estate Journal
Innovative and Efficient Bath Remodel Projects to Try This Fall joints that click into place to enable you to install the drain in seconds with no placement errors.
By Paul West, The Home Depot
s we approach the end of summer, it’s time to start preparing the home for fall entertaining and guests. For clients in need of a bathroom remodel, now is the perfect time to get the project underway. Bathroom remodels topped the list as the most common remodeling job at 81 percent in 2015, making it vital for remodelers to stay on top of the latest in bathroom trend and design. Below are the latest developments in bathroom remodel projects that will help you and your team cut down on installation time and update the style of your client’s bathroom.
Modern Faucets Faucet upgrades are one of the most cost-effective and eye-catching upgrades for consumers. They can be introduced as part of a full remodel or a simple, standalone upgrade. The Home Depot works directly with manufacturers to create every faucet on the store’s shelves, and 90 percent of our models are exclusive. This year, leading design trends include matte black faucets and faucets with built-in LED lights that activate when the water flows to help you see if the room is dark. For environmentally conscious clients, make sure to look for WaterSense-certified faucets, which are at least 20 percent more water efficient. Microban faucets from Moen, exclusive to The Home Depot, feature an antimicrobial film that help inhibit the growth of stain-and-odor bacteria, and reduces cleaning time. These new features are great for consumers, but pros will get more excited about innovations that make installation simpler and faster. Our bath merchants worked with Glacier Bay to create the Clickinstall drain assembly system specifically as a simple install solution for contractors. It features
Innovative Showers and Tubs With the recent developments in showers and tubs, you and your team have an opportunity to be even more creative and stylistic, creating a customized, unique look that will appeal to your customer’s eye. • Freestanding tubs are the hot item for master baths right now, and for showers, look for frameless sliding shower doors as an option. These doors mirror the latest popular trend of the interior barn door trend. • Play with patterns, textures, sizes and colors when tiling to present a look not normally expected in this space.
• Add a subway pattern or incorporate a trendy color with Cashmere Blue from the Merola collection.
• Reinforcing the walls to support grab bars
• Smart Tile for backsplashes is also popular for property managers looking to save on remodeling time; the heat resistant peel-andstick tiles can be installed in just minutes. • For older clients looking at accessible, American Disabilities Act (ADA)-compliant options, Aquatic offers an excellent lineup. The brand’s accessible shower liners feature innovative preleveled bases, making installation significantly easier. The Home Depot is the only national retailer to offer the Aquatic line.
Aging in Place Speaking of accessibility, expect aging in place and universal design elements to play an increasing role in the remodeling world. The number of people 65 and older in the United States is expected to increase to 55 million by 2020, and 87 percent of them want to stay in their current home and community as they age, according to AARP. The essential universal design elements to feature in bathrooms
create a design statement while also enhancing the storage availability in the bathroom. Dark wood and stone look countertops remain popular design choices. Modular vanities allow clients to select from a variety of matching options that fit well into any space and can help simplify the decision-making process.
• Widening the doorway, making it accessible by wheelchair
• Installing a zero-threshold shower with a fold-down seat • Putting in a comfort-height toilet and installing a sink with space for a person to sit. To create a more natural and seamless look, incorporate Delta’s “Hidden in Plain Sight” line of products, which turn standard bathroom hardware like toilet paper holders and towel racks into reinforced assist bars.
High-Quality Hardware and Fixtures Take a project even further by upgrading fixtures like toilets and vanities to help reduce water usage and increase storage space – making the bathroom more stylish and functional. • Just like faucets, look for WaterSense certified options, which ensure top performance and maximum water efficiency. Glacier Bay’s SuperClean toilet options features an antimicrobial glaze that helps keep the bowl cleaner over time and a QuickConnect system that makes installation fast, similar to the faucet system. • Vanities offer an opportunity to
• Help customers get ahead of the busy fall season – incorporate these latest innovations to help improve the installation process and offer your clients excellent long term value for their new bathrooms. Paul West is the Divisional Merchandising Manager responsible for all bath categories such as faucets, bath accessories, vanities and bath fixtures; a position he has held for the last 4 ½ years. Paul has been with The Home Depot for 36 years. Since joining the company as a sales associate in 1981, Paul has held several positions of increasing responsibility, including Store Manager, District Manager, Merchant, Global Product Merchant, Divisional Merchandising Manager Plumbing, and Vice President of Merchandising Services. Paul has relocated numerous times throughout the country in support of the company’s growth and has been in Atlanta for the past 14 years. Prior to Home Depot, Paul served in the United States Air Force.
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Real Estate Journal
Worst-Case Scenario Has Happened — Your Property Has Sustained a Loss By Susan Gropp
he first thing that crosses your mind is “am I covered for this?” That’s a great question, because if you have selected the wrong insurance, the answer could be NO. There are a lot of possibilities why you have no coverage; the most common being you attached your investment property to your Homeowner’s Policy and the property is vacant because you are rehabilitating, your homeowner’s policy may deny the claim because the property has been vacant for more than 30 or 60 days. Arcana highly recommends you acquire a separate policy, be it from us or another insurance Company. Let’s assume you have made the wise
decision regarding your insurance and have acquired a separate policy; hopefully with Arcana. Now you are ready to file a claim. Arcana provides two options from which to choose how best to file a claim. You may email a fillable PDF form to our Claims Department or you may go to our website and file the claim electronically. Your claim is received and set up in our claim system. You will receive a letter acknowledging receipt of your claim which will provide you with your claim number and deductible information. A local adjuster from our independent adjusting company is assigned the claim. They have three working days to contact the designated contact person you have provided.
If your property has sustained damage that leaves the interior of the property exposed to the elements, you may make temporary repairs to prevent further damages. You may take some photos of the damages prior to the temporary repairs and provide those photos to the adjuster upon inspection. Be sure to present any invoices for temporary repairs to the adjuster at the time of inspection. If you have sustained water damage to the interior of the property, you may also begin the process of mitigating the water damage prior to the inspection by the adjuster to prevent further damage. Be sure to document the damages prior to these repairs as well with photos and provide them to the adjuster. If there is fire damage to
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the property, you will not want to begin any clean up until you are advised to do so. You should only secure the property from further entry. The adjuster will come out and inspect the damages to the property and verify the facts of loss with you or your representative. You may have your own contractor or representative at the inspection if you desire. The adjuster will complete an estimate of the damages. This estimate will be submitted to the adjuster’s supervisor for review. If the estimate appears in order, the supervisor will submit the estimate to Arcana’s Claims Department for a second review. Once the estimate has passed Arcana’s review, it will be forwarded to the insured. The insured may then review the estimate for accuracy and an agreed scope of damages. Once an agreed scope is reached, the initial payment will be requested from our accounting department. Take notice of two specific line items in the summary of your estimate. One is Recoverable Depreciation and the other is Non-recoverable Depreciation. Recoverable Depreciation is just what it says. It is the Depreciation you are entitled to recover once the repairs have been completed. To claim the Recoverable, we require the insured to submit the final repair invoice for review. Once the review is completed, a check request for the recoverable is requested from our accounting department. Nonrecoverable Depreciation is depreciation that the insured may not claim. It is utilized on items which are paid on an actual cash basis as opposed to replacement cost. There are a couple of other items related to filing a claim you should know about. If you are filing a claim for theft or vandalism, you will need to provide a police report of the incident before a claim payment can be issued. In the case of a fire claim, you will need to provide a copy of the fire report prior to any claim payments being issued. Most importantly; know what claims are covered in your Policy. Arcana is recognized nationally as one of the leaders in providing professional claim services. Please feel free to call with any questions you may have regarding your Arcana Policy. Arcana offers members of National REIA multiple insurance products specifically designed for Investors and their tenants. Features include no underwriting or inspections, 24/7 desktop & smartphone certificate delivery system, outstanding claims management service, and a very knowledgeable & courteous staff to handle your insurance needs. For more information, please visit www.nreia. arcanainsurancehub.com. Susan Gropp is Executive Vice President and a partner at Arcana Insurance Services, LP. She is over the underwriting and claims divisions.
Real Estate Journal · Fall 2018
Real Estate Journal
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Real Estate Journal · Fall 2018
Real Estate Journal
Seven Things... Rental Propert ...continued from page 7 they fit the property and the use. A warehouse lease fits a warehouse, an office lease fits an office, and a retail lease fits a retail space. Confessions of judgment fit and are pretty standard in commercial leases of all types, but are illegal in Pennsylvania residential leases. For that matter, Pennsylvania residential leases must meet the requirements of the Plain Language Consumer Contract Act. If the lease doesn’t say it is a PA Plain Language Lease, it most likely isn’t. I would not recommend using a Pennsylvania Plain Language Lease anywhere outside of Pennsylvania, and I would strongly advise you never to use a lease other than a PA Plain Language Lease to rent residential property here. If you buy a property with a bad lease, you become responsible for that bad lease the day you close. If you have to evict a residential tenant on a non Plain Language Lease, you can be liable for fines, the tenant’s attorneys’ fees, and any costs the tenant incurs because he or she misunderstood the non –compliant lease. I recommend giving the seller a copy of the law, and a copy of your good lease, and getting
the seller to have the tenants sign compliant leases before you close on the property. An ounce of prevention is worth a pound of cure. Beyond the Plain Language issue, there are even more requirements for Section 8 Leases. Section 8 rental vouchers aren’t a bad way to rent some properties. In some places, they may be the predominant rentals, or just about the only way to keep your units full. But landlords and even property managers make a lot of mistakes with Section 8 leases. First, you have to understand that the Federal Housing Assistance Payments (HAP) Contract which you sign with the local housing authority will control the terms of your lease for section 8 housing. Next, you must use a special Pennsylvania Plain Language Lease form for section 8 housing. This is because there are certain clauses, like a waiver of notice of default, which you want in every non section 8 residential lease, but which are prohibited in section 8 leases. Other such provisions prohibited in section 8 leases include distraint, exculpatory clauses, waiver of legal proceedings, jury trial or appeal, and clauses imposing attorneys fees except
by a court after a tenant loses an action on the lease. You also have to understand that the HAP Contract specifies the TOTAL amount of rent the landlord can charge for the property, and divides that amount between the housing authority and the tenant, subject to changing the division but not the total at any time during the term of the lease. Simply put, this means that if you want $650 per month for your unit, and the Housing Authority determines that fair market rent is only $550 per month, you can either accept the $550, however that number is divided between the tenant and the housing authority, as PAYMENT IN FULL FOR THE UNIT, or you can refuse and rent to someone who is not on a section 8 rent subsidy for more money. You cannot under any circumstances sign two leases for the unit, one at $550 and one at $650, show only the $550 lease to the housing authority, and collect the $650 from the tenant. If you read the HAP contract, it says in several places that the owner can’t get and the tenant can’t pay more than the amount specified by the HAP contract at any
time during the lease term. Fraud in connection with the HAP Contract is violation of federal laws, subject to federal criminal prosecution. Federal prisons are supposed to be much nicer than state prisons, but I’d rather not reside at either. Real estate agents who participate in double leases risk loss of their real estate licenses, as well as breach of contract actions against them by the owners they represent badly, and of course the same criminal prosecution as an owner committing the violation. This doesn’t mean you have to use the lease form provided by the Housing Authority with your HAP contract, if they provide one. Some of those forms don’t have any teeth whatsoever, and HUD doesn’t require a spineless lease, just the absence of prohibited provisions. I include both a regular Plain Language Lease and a Plain Language Lease for use with HAP Contracts in my lease packages, and that HAP complementing lease has been accepted by several housing authorities. It is the one I use for my own section 8 rentals. I simply tear up the lease form the housing authority provides with my section 8 acceptance and renewal packages, and have the tenant sign three copies of my HAP lease form instead. Then, I provide a signed original of my HAP lease form back to the housing authority with the signed HAP contract and other forms. If you do the same thing, you won’t collect more than permitted for your section 8 units, but won’t run the risk of federal prison, either. Don’t forget that rent from the housing authority won’t automatically come to you as the new owner, either. You should send proof of title transfer to the housing authority right away, and sign acceptance of the Hap Contract. Otherwise, the old owner or the management company will continue to get the rent subsidy payments until you do. You should also check the lease forms the seller uses to see if their provisions on loss of discount, due dates, attorneys’ fees, waiver of notice, pets and repairs match your normal leases or not. You may have to live with some differences until the existing leases expire, but you should know the differences before you close and be prepared if they come up. Once you cover all of the above bases, you should be O.K. until the leases on your new property expire. As each one does, make sure you substitute a renewal lease on the form you always use on your rentals. That way, within a year you will know all your leases are the same, except the tenants, unit, section 8 differences and rent. Using the same lease forms for everyone is like using master keys. It makes landlording so much simpler! That is all I have room for on leases, and covers the highlights. Watch for Thing Number Three in this series coming soon! Bradley S. Dornish is a licensed attorney, title insurance agent and real estate instructor in Pennsylvania. He can be reached at firstname.lastname@example.org.
Real Estate Journal · Fall 2018
Real Estate Journal
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Real Estate Journal Âˇ Fall 2018
Real Estate Journal
Member Spotlight Doug Hartman ...continued from page 1 How long have you been investing in real estate?
Forty-four years. I got started in 1974
Tell us about your first deal:
We converted an old house to three one-bedroom units. It was listed at $21,000, but we offered $17,000 & they accepted. Of course, my wife said, “if they took that, I wonder if we overpaid?” We rented each apartment for about $250. After paying utilities, taxes, insurance, & mortgage, we had a cash flow of about $150 per month with the landlord (me) paying all utilities! But, we didn’t know about this thing called “maintenance.” Surprise, the furnace just went out! However, we made it all work, by cleaning & doing our own repairs and we learned a hard lesson.
Doug and his wife & partner for 48 years, Paula
investing it’s just a little distant. I was fresh out of college with a degree in printing & photography and I joined the big aircraft firm McDonell Douglas making movies for the military industrial complex. It was an exciting time with the Mercury & Apollo programs and the new F-15 fighter jet. Then, myself, along with two other “Mac” employees planned, financed, & built indoor tennis & racquetball courts. That success enabled me to invest with “20% down” until I ran out of down payment. Then I started working on buying with “no money down.”
Where is your current market and what is your focus or area of expertise?
My current market is here locally, looking for one more big multifamily. Vacancy rates are the lowest I have ever seen. My theory is that all of the millennials that doubled up and were living in their parents’ basement, have found good jobs & going out on their own.
How did you get started?
In 1973 we had a new baby girl. My idea was to buy a rental house and in 17 or18 years I would have enough to pay for her college. We started off by converting an old house into three units. My original goal was to eventually own 10 houses (providing a nice additional income) but I soon discovered that I enjoyed landlording as well as buying & selling real estate.
Describe a typical work week for you as a real estate investor:
I am in the office by 8:30 am, answering emails, and checking & updating the “Rent Ready list.” Then it’s making and sorting through the tough calls – you know, the “I’m going to be late with the rent,” or “why isn’t my screen fixed yet” and even “that felony wasn’t that BAD!” On the weekends I do slow down and just handle a few emails and take emergency maintenance calls.
A 20-unit building with great ROI in Collinsville that Hartmann purchased from one of his mentors
How do you fund your investments?
When we started out, we had cash from another business and put 20% down with a local savings & loan. After about 10 houses, we ran out of cash. Then we went “big time” with a 40-unit building. The owner took back the 20% down and we financed the 80% at the same Savings & Loan. It took some convincing, but once the S&L saw they were in first position and the seller was taking the risk, they suddenly didn’t care where the down payment came from. Today we use the equity out of “free & clear” units for the 20%. Banking has changed a lot, but good flexible financing is still found at a locally owned bank. I will say this, too, a good relationship with your banker is the key - and NEVER EVER BEING LATE!
Do you have a real estate license?
Yes. However, in today’s world it isn’t that important because of the internet. But in 1978 that was the only way to look at the market. I thought those real estate agents were
getting all the good deals. In fact, they rarely bought and only wanted a commission. Over the years I was honored to have been named Realtor of the Year in 1987 and again 2002 so they must have thought I was doing good things for the industry.
What projects are you currently working on?
I am now 71 and I’m only looking for one more “big one.” Maybe a 12 to 40-unit property in the area, but there are not many like that and even fewer that are for sale. We shall see.
How much time do you put into your real estate education?
Stated simply - lots! I love going to Realtor meetings, real estate investors meetings, and anything to do with real estate. I probably attend one or two events each month as well as a couple out of town each year. I am always looking for the newest wrinkle, many I won’t use! But maybe, just maybe there will be something to add to my mental tool box. You’re never too old to learn something new!
Has coaching or mentoring played a part in your success?
Yes, four men played a great deal in helping me. They were my dad, an elder landlord/builder, a hardware store owner and a Savings & Loan President. All four of these men freely shared their ideas that greatly helped me along the way. They were great mentors.
What are your current and future goals?
My only goal is to ensure that my family is happy with the path we have taken in the world of Real Estate.
What has been your top struggle in this business?
I would have to say online reviews. ...continued on page 15
This is one of 12 three to four-unit buildings that Hartmann turned around into a successful community
Real Estate Journal · Fall 2018
Real Estate Journal
Member Spotlight Doug Hartman ...continued from page 14 It seems like the only people that write them are former tenants who either left owing rent or trashed the place & didn’t get their deposit back. There are always two sides to every story, except online of course.
What do you like most about what you do?
I get a lot of satisfaction from offering good quality housing, at a fair price. That begins with the purchase, a plan of action and then seeing it come together. I also believe that you treat an investor’s property like it’s your own.
Do you have a tip or advice that you would pass along to other investors?
Funny story: Before the last bank bust there was a Resolution Trust Corporation for S&L/bank busts. Set up by the federal government, this unorganized system called me, to ask what the payment was for? Finally, they explained they wanted to know “how much is interest & how much is principle”. They had no paperwork! For a moment, I thought “ALL PRINCIPLE” but no, I did the right thing and sent them an actual amortization!
This is very important and one that is a hot topic in the real estate investing industry; You should always run a criminal background & credit check AND NEVER give out the keys without a deposit. You can thank me later.
How important is joining a local REIA to a new investor?
Your local REIA is always a great place to find new information & ideas on how to be more successful. The networking, interaction and new friends you’ll meet will help you learn and understand what it takes to be a successful real estate investor. The life lessons are invaluable – especially for new investors.
What is your favorite selfhelp or business book?
An oldy but a goody, Mark Haroldson’s how to become a millionaire with real estate.
Do you have any interesting hobbies or something unique that you like to do? A young couple had to quickly move out of state and didn’t want to wait for a “market sale”. I explained in 60-90 days they would get more, but they just wanted to be done with it.
We love to travel. In fact, the whole family are water babies. We like to run away during the Christmas season & go scuba diving. Since 1987 my wife, our children, and now their spouses and our grandchildren are all certified open-water divers. When not traveling, it’s soccer, watching the grandkids or the European pros when they come to the area.
Does your business have a website?
Yes, you can visit www. HartmannRentals.com to learn more about our business as well as seeing property photos, descriptions, & prices. We keep it regularly updated.
Social media accounts?
We’re on Facebook as Hartmann Rentals. We probably don’t utilize it like we should, but we’re working on it and keep it updated.
This is a 6-plex in Collinsville IL that was bought on the courthouse steps out of foreclosure in an all-cash deal that he refinanced. In essence it became a "no money down" deal.
Real Estate Journal · Fall 2018
Real Estate Journal
Top 10 Real Estate Rehab Projects for ROI By Kent Kinzer
emodeling Magazine recently released a report revealing the average returns received for various real estate renovation projects, listing national as well as regional results. Here are the top 10 rehab projects that averaged the highest return on investment in their report (also see infographic below).
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Roth IRA, 401(k), Simplified Employee Plan (SEP), and Savings Incentive Match Plan for Employees (SIMPLE), as well as Health Savings Account (HSA) and Coverdell Education Savings Account (CESA). In a self-directed investment, money from an IRA or other account is used to invest in an asset, and all profits and expenses flow through the retirement account. Tax advantages include taxfree or tax-deferred growth within the account. Only certain custodians offer selfdirected accounts because the required reporting and recordkeeping is unique. Equity Trust Company is one such custodian. Through its predecessor company, Equity Trust began offering self-directed accounts in 1983.
Exclusive self-directed IRA offer for NREIA members Equity Trust Company is a national sponsor for the National Real Estate Investor Association (NREIA) and is offering NREIA members and its affiliated chapter members the
opportunity to experience the concept of self-directed investing with a free self-directed IRA for one year.* In addition to a free account, NREIA members receive: • GOLD Level Service membership (priority processing and exclusive access to an experienced client service team) for one year • Digital download of #1 ranked book on Amazon - Self-Directed IRAs: Building Retirement Wealth Through Alternative Investing • More wealth-building education Visit www.trustetc.com/nationalreia or call 844-732-9404 to learn more.
About Equity Trust Equity Trust is a financial services company that enables individual investors to diversify investment portfolios through alternative asset classes, including real estate, tax liens, private equity and precious metals. Our tax-advantaged, selfdirected investment accounts appeal to entrepreneurial investors who want to
take control of their wealth. We offer clients a robust account management system, online investor community and wealth-building education, which enable them to grow their knowledge and complete transactions with ease. * Free Self-Directed IRA refers to an Equity Trust Company self-directed IRA with no annual maintenance fee for 12 months. Equity Trust is a passive custodian and does not provide tax, legal or investment advice. Any information communicated by Equity Trust is for educational purposes only, and should not be construed as tax, legal or investment advice. Whenever making an investment decision, please consult with your tax attorney or financial professional. Kent Kinzer is the National Business Development Manager at Equity Trust Company.
Real Estate Journal · Fall 2018
Real Estate Journal
The Customer is Afraid, Too By Alex Goldfayn
ear costs us salespeople a lot of money.
Fear is the reason we don’t pick up the phone to call our customer proactively, when there is nothing urgent or terrible happening. Fear is the reason we gravitate to email instead of the telephone. Fear is the reason we don’t tell our customers and prospects what else they can buy from us. Because right now, as you read this, your customers are buying things from the competition that they could buy from you. In fact, they’d probably like to buy if it from you. That’s why they’ve been with you for so many years (or decades). And of course, you would like to sell this to them. But none of that is possible, because they don’t know. Because you don’t tell them regularly and consistently what else they can buy from you. Because of fear. Fear is also the reason we don’t ask for the business with every customer we talk to. Fear is why we don’t ask consistently for referrals. Or testimonials. What are we afraid of exactly? Rejection, mostly.
Real Estate Journal · Fall 2018
What if they say no to this additional product? (I might die immediately.) What if they reject me? (I might lose my home.) The parenthetical apocalypses are absurd, of course. But these fears happen in our minds too quickly, and so automatically, that we do not even know that we are experiencing them! They happen too quickly and automatically to think through. So we go through our days, avoiding those proactive communications listed above, which, if implemented, would make our customers happy. If we implemented the communications above, we would help our customers more, which is really all they want. We would have control over our sales, creating predictable, plannable revenue growth. And, most importantly, we would take home more money for ourselves and our families. But we don’t. Because we tend to not communicate proactively with our customers and prospects. Because of fear. But here’s the thing: Our customers and prospects are also afraid. In fact, they are just as afraid as we
are. Their fears are equally intense and important to them. But our customers and prospects are afraid of different things: They are afraid that their suppliers will let them down, and make them look bad to their customers. Because it has happened before. In fact, it happens all the time. They are afraid that you will hurt them with their customers, and they will be yelled at by their customer, or worse, lose their customer. And while our greatest fear is rejection, their greatest fear is being fired. Because of you, the supplier. So, just as we do everything we can to avoid rejection (not call customers proactively, not ask for the business, not tell customers about what else they can buy, etc.), our customers also do everything possible to avoid their greatest fears: When there are problems or urgencies with our work or product, they call us to express their displeasure. They make sure to let us know when they are unhappy, or when their customers are unhappy, so that we can fix the problem. But unless there is a problem or urgency, they don’t call us. They will rarely, or never, call us, for example, to tell us what a wonderful job we’ve done.
That’s because they are dealing with the problems with their other suppliers. Don’t forget, they deal with many suppliers like us. And because they are driven by fear, like us, they go through their day to mitigate, minimize, and eliminate this fear. And so, always remember that the customer is afraid too. It’s not different that understanding that the person you are considering asking on a date is also afraid. That thought tends to help teenagers get over their fears! The customer is afraid too. So make the communications, even though you feel the fear. Make the calls. Ask for the business. Tell them what else they can buy. Help them. They deserve it. And they will thank you with their money. Alex Goldfayn is the author of the new Wall Street Journal bestseller, Selling Boldly. Learn more about his revenue growth consulting and speaking work at www.Goldfayn.com.
Real Estate Journal
Eviction Changes: Coming to a City Near You! By Charles Tassell
victions are an awful side of the rental housing business that causes pain for both tenants who need a place to live and landlords who have to run a business. What everybody in the rental world needs to know is, there's a book that came out called Evicted: Poverty and Profit in the American City by Matthew Desmond. It is based on stories and studies that were done in Milwaukee, Wisconsin. Desmond is a sociologist who went and met with individuals and followed them over a couple of years. His main point is one that is contrary to common experience: that evictions after the 2008 economic crash were less a consequence than a cause of poverty. Now groups around the country are using the book as a rallying point to erode property rights. Studies are being performed in various cities, drawing local headlines about the eviction issue, while ignoring key aspects of the issue: the first and foremost is one that Desmond ignored repeatedly in his review: if the residents would have paid their rent rather than spending limited financial resources on drugs and alcohol, they would not have been evicted. With limited affordable housing (a term redefined in every market to fit the local cause) available due to over regulation in the new housing and multi-family markets, such that it costs too much to build work-force niche housing, there is upward pressure on rents and housing costs. Simply put, when the basic economic laws of Supply & Demand are altered by governmental regulation, the people will pay the price, and often it is the poorest or those with the fewest options who are most harmed by the unintended consequences. A few ideas that are suggested and regurgitated by local “studies” are the following:
• Just Cause Eviction: the idea that a property owner who once offers an apartment or house for lease has given over their rights to the primacy of ownership, in that they cannot take it back short of a very limited and specific set of circumstances. Unintended Consequence: If residents are more difficult to move out, property owners will raise their standards such that those on the margins will have fewer options, and less housing choice. 18
• Right-to-Counsel: Everyone has a right to legal counsel for criminal issues. This effort suggests that every person up for eviction has the right to an attorney. Let’s call this the Full-AttorneyEmployment Act, because that’s what it is really about. Resident education and rent assistance through counselors could stabilize far more families than tying up the courts, families and property owners in court for months at a time would ever resolve. Unintended Consequence: someone has to pay the legal fees, look for the costs of evictions to increase or other fees to be put in place – thereby increasing the overall cost of housing in the area. The cost of housing is usually one of the things advocates will claim is exactly the problem…out of the other side of their mouth. • Pay-to-Stay: This idea eliminates the contractual language of the lease and requires property owners to accept partial payments for rent. How long and how much is always up for debate – but as long as the resident is paying they should be allowed to stay. Unintended Consequence: Whatever limits are imposed, will be the new extent of payment delay. Basically the local government will take over the rules of collection even beyond the Fair Debt Collection Act! All rental property turns into a daily, weekly, byweekly pay as you go program. Rental contracts should be as sacrosanct as mortgages, local governments should not interfere in the private contractual agreements. • Ownership / Management Disclosure: The most frequent comment I hear from local government officials is, “We don’t know who owns this property.” What they mean is, they are too lazy to push through the legal barriers established for Limited Liability Companies or even ask the resident where they send the rent check, and to whom. If the rent is being paid – you can find the property owner! The protections of LLCs are in place for good reason – beyond standard legal liability protections, if I have to evict the female resident for abetting drug use, I really don’t want the drug-dealing boyfriend showing up at my house, threatening or harming my family. And
the fact is, the community and municipality want me to evict in that situation! Having made that point, municipalities do have good reasons for needing to contact property owners or their representative, whether for emergency and safety requirements or simplification of notifications about ongoing issues at or near the property. Working out a compromise with the municipality that is not costly or full of bureaucratic red tape can benefit both sides and lead to a stronger and safer community over all. • Rental Assistance: Evictions would all but dry up if the rent was paid. Yes, there are those who allow drug use or violate noise and community standards, but the majority of evictions are because the rent wasn’t paid. In situations of difficulty, whether job transition (loss), medical issues, or often times as not, a vehicle problem, families on the margins do not have the resources to weather the storms of life. When living paycheck to paycheck a mother of two may need help on occasion. There are programs in place to help in these situations with counselors and financial and mobility resources. These organizations are often a good option as a charitable organization for rental associations to support! Contrary to the perception that this is just throwing money at the problem, it actually addresses the critical pressure point of families at a breaking point, thereby stabilizing the household and minimizing school-hopping for kids. In summary, there are solutions to help stabilize communities. Most property owners who rent in lowincome communities (especially small owners already adapted to necessary flexibility of working with individuals and families living paycheck to paycheck) don’t need the increased cost and expense of more government red tape to drive them out of the market. The unintended consequence of that happening is even more dire for those needing housing! Be ready for this discussion to come to a community near you!
Real Estate Journal · Fall 2018
Real Estate Journal
Change Your Filters By Jane Garvey
ne might think I am talking about HVAC systems. Well, changing your filters in your HVAC system will improve your results. This is also the case in many other aspects of our business and personal lives. Let’s look at the filters we set when we are screening for deals. I see people set filters for price – let’s say $150,000 - $175,000. Any automated search program will return only the properties listed in that price range. You will miss the property that was listed at $149,900. Yet, many people still list properties using this sort of pricing because they sound cheaper. I have advocated rounding off your price for this very reason, but most still go with the “sounds cheaper” methods. If you are using an automated search, change your filters to catch these properties. You may find deals that others are missing. Likewise, setting filters to catch only properties in a specific school district may result in your missing deals where there was no school district listed, or someone got it wrong. The same goes for subdivision, condo complex, etc. Data entry about property details is frequently flawed. When you get too
specific in your filtering criteria, you can miss a lot of properties that actually are what you are looking for. I had a home for rent that I decided to list with an agent. When I searched for it, I couldn’t find it until I broadened my search to look at all properties for rent. Then I found that the house was listed as an apartment for rent. The erroneous
Multiple Listing Service data was fed automatically to the typical programs that tenants used to search for a rental. No wonder we were getting no traction with the advertising. As an aside, you should always check to make sure things are showing up if you search for them like your customer would. In the old days, we would always
check our ads in the newspaper to make sure that they had the correct phone number and price. These days many of the places we advertise properties have us enter the data ourselves. Keep in mind, just because you typed in the data yourself, it doesn’t mean you got it right. Garbage in, garbage out! Errors in listings can cost time, money, and frustration. You can use this thinking to your advantage. Mistakes in how a property is classified/listed can allow you to be the only one communicating with the owner, looking at the listing, and making an offer. If you aren’t getting the results you want, it could be because you are blocking them with the settings you have chosen. So just like in the HVAC case, for better results change your filters from time to time. Jane Garvey is President of the Chicago Creative Investors Association.
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Learn more at www.NationalREIA.org Real Estate Journal · Fall 2018
Real Estate Journal
Outsmarting Jack Frost Are Your Rental
from additional damage and making the unit safe for your tenant. Then have them complete the full repair during regular business hours. If your property is protected and your tenant is taken care of, then there is no reason to waste any more money on inflated afterhours labor rates.
Properties Ready for Winter? By Christian Bryant
ven though the current legislative climate for landlords in many areas is very distracting, don’t let it keep you from protecting your property and preparing for winter. If they take the proper steps before winter comes, many landlords will avoid damage, unnecessary after-hours repair expenses, and lawsuits. These expenses can soar up into the tens of thousands of dollars. Next to improvements that will increase rent, and properly managing your tenant, investing in repair and maintenance avoidance will have the largest impact to your long-term bottom line. If you manage your own properties, you really can’t afford to skip these steps. And if you have a professional manager, you need to verify that their weatherization policies and procedures mimic these guidelines. To be as prepared as possible, there are three areas to focus on: the property, the tenants, and your business procedures. When it comes to preparing your rental property, there are the obvious things like having the gutters cleared, roofs cleaned, and providing vent and hose bib insulation covers. If you really want to invest in damage prevention due to winter weather, there are many precautions you can take: • If you live in an area that has prolonged periods of freezing temperatures or your water pipes are exposed to the elements, you may consider having electric warmers installed on your water lines. Standard systems are controlled by a switch, but I recommend upgrading to a temperature activated automatic switch.
• After the first heavy rain, you can have the attic inspected for possible roof leaks that were created during the summer months. A quick roof patch before drywall is damaged or mold has a chance to grow is much more affordable. • Have all your trees inspected and pruned as necessary. Any trees or limbs at risk of coming down should be dealt with before the ground loosens due to rain, and the winter winds start. • Make sure that the earth outside your crawl space vents is below the bottom of the vent and the grade slopes away from the structure. A simple build-up of debris and dirt outside a vent can lead to the flooding of your crawlspace, along with expensive mold problems. • For a higher tech preventative measure, you can install moisture meters under your sinks, by the water heater, behind the fridge, 20
under the dishwasher, and behind the clothes washer. The low-cost versions will set off an alarm that someone must be home to hear. This also relies on your tenants knowing how to turn the water off to the line that is leaking. The higher cost option is connected to a water line shut-off valve so that if the meter detects excess moisture from a leak, it will automatically stop the flow of water to that line. • Verify that all smoke detectors are in good working order. Christmas trees, decorations, and lights all increase the risk of fires in the home. • This brings us to your tenants. Are you expecting enough from your tenants when it comes to protecting your rental in winter? Ideally, you will have your tenant’s weatherization responsibilities spelled out in the lease, or a weatherization addendum. It would also be a good idea to send out a weatherization reminder a few weeks before you anticipate freezing weather. At IRC Real Estate & Property Management, we use this opportunity to send our tenants a winter newsletter. We include all their weatherization responsibilities, in addition to some holiday tips, recipes, local holiday events, etc. This has the added benefit of improving the tenants’ relationship with us. There are several things you can require of your tenants during the winter months. Obviously, not all of these responsibilities would be expected of tenants in multi-unit properties, but they are what we expect of our tenants in most of our 1-4-unit rentals. Tenants should: • Cover all foundation vents. Given that they are inexpensive, I would recommend buying and delivering these to your tenants. Every winter you should verify that the tenant has enough covers. Maybe even give them 1-2 extras, just in case. • Disconnect all outside hoses, hose splitters, and water features. Then, of course, make sure tenants have enough hose bib insulators to cover all outside faucets. • Disconnect washing machine hoses
• To avoid expensive after-hours HVAC labor rates, we purchased some large electric space heaters for residential use. If heat goes out in the winter, then you are required to have it repaired or provide another heat source ASAP. The cost of you or a handyman delivering some space heaters in the middle of the night is much less than paying a HVAC contractors’ after-hours labor rates. This will make the tenants feel taken care of since you provided heat quickly, and you’ll get to save money by having the HVAC repairs completed during normal business hours. If your rental unit has a wood fireplace or stove, you can also maintain a stockpile of wood to deliver instead of space heaters.
and place them in the drain line so that both faucets can be left on at a slow trickle. • Keep all water inside the unit running at a slow trickle. • Keep temperature above 62 degrees at all times, even when away from home. • Familiarize themselves with water shut-off valves. • Notify you if they will be gone in the winter for more than a couple days. If needed, get their permission or serve a notice of entry to inspect the unit during their absence. • Lastly, make sure your tenants know who to call in the event of winter damage. The last area you should focus on is making sure that YOU are prepared to handle any problems that can arise with rental properties in the winter. No matter how much you prepare your property and tenants, there is always a chance you will have an emergency to handle. If you haven’t planned ahead, then best-case scenario is that you spend a few hundred unnecessary dollars on emergency repair labor in the middle of the night. Worst-case scenario is that you can’t fulfill your responsibilities as a landlord and expose yourself to a lawsuit by the tenants. If you complete these tasks before winter hits, you should be prepared to handle any emergency repair that comes your way quickly, at the lowest possible cost: • Find two general contractors you trust and that have 24-hour emergency repair services available. You will want someone that can patch roofs and is an all-around “jack of all trades.” • Find two licensed plumbers you trust and that have 24-hour emergency repair services available. • Find two drain clearing companies you trust and that have 24-hour emergency repair services available. • If you don’t invest in space heaters, find two HVAC contractors you trust and that have 24-hour emergency repair services available. • Instruct all your emergency repair contractors to limit their after-hours labor to protecting the property
• Lastly, make sure your tenants know how to get a hold of someone to report an emergency repair outside of your normal business hours. Within our company we contract with a call center company that has our after-hours contractors contact information. You could also incentivize one of your contractors to be available 24-hours and coordinate emergency repairs. Or you can simply give your tenants your cell phone number to call and be sure to have the volume turned up too high before you go to sleep. Winter can be a very scary time of year for a landlord, especially landlords with low-profit margins. If you are willing to put in some work and maybe even a little financial investment, you can avoid most winter emergencies. For those inevitable emergencies, you will be prepared to handle anything that is thrown at you with confidence. Don’t wait until 2:00 a.m. on Christmas morning when a tenant wakes you up with an emergency to find an after-hours contractor. If you get this done before winter and have your 24-hour repair phone numbers easily accessible, you will be back to sleeping soundly after making one phone call. No stress or worrying, just sweet, relaxing dreams, because you can rest assured that your tenants are being taken care of and your rental property is being protected. Good luck this winter, but don’t wait any longer to get prepared! Christian Bryant is President of IRC Enterprises (specializing in Property Management, Evictions, & Residential/Commercial Sales for Investors) and is President of Northwest REIA in Portland, Oregon. For more information visit www.IRCEnterprises.com.
Real Estate Journal · Fall 2018
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Spring 2018 Real Estate Journal · Fall 2018
Real Estate Journal
ear Landlord Hank is written by veteran landlord and property manager Hank Rossi to answer questions from other landlords & property managers from around the country about their rentals. Landlord Hank’s columns can be found online at Real Estate Investing Today and the website for the American Rental Property Owners & Landlord Association (ARPOLA). You can also submit a question to Landlord Hank through both sites.
witnesses, etc) and an attorney to help you go forward. Sincerely, Hank Rossi
Dear Landlord Hank: Are there ever situations when you are doing a rehab on a tight budget that you could find used carpet anywhere? Any experience finding used carpet for a rental unit? Mary
Dear Landlord Dean, Trees are thirsty and if water is scarce the roots will try to penetrate a water source. The older style clay drain pipes were a little easier for a tree root to penetrate than the new PVC style pipes but those have been breached also. The root grows in and expands destroying the pipe. Your plumber can send a camera down to determine the blockage. It may not be a root. If it is a root, plumbers can use a “snake” with a cutting tool on the end to destroy the root and open up the pipe again. This is a delaying tactic but it sometimes lasts for three or four years before it needs to be done again. That fix could be $300 to $400 each time rather than plumber coming in, digging up pipe and replacing for several thousand. You can also use a “root killer” chemical treatment in your pipe, another delaying tactic. I’ve never tried that method as it’s not fast and when a drain doesn’t work that’s a real problem. I don’t know a way to prevent roots from trying to penetrate other than removing any trees anywhere close to the course of your drain line. If you just had problem repaired with new drain pipe you should be OK for a long time, as far as roots are concerned. Sincerely, Hank Rossi
Dear Landlady Mary: I’m a big believer in rehabbing with used materials. I buy new only when I can’t find good used materials that still look great and function properly. Good used quality carpet can save a ton of money. I’ve found carpet before that was put into a home for a sale. The new owners wanted a different flooring and removed and sold all the new carpeting that had been put in. So your carpet installer cuts it to fit and, viola, you have wonderful carpeting at a great price. Depending on the size of your space, you may be able to find a remnant that fits, from a carpet store or installer. I look on Craigslist or Facebook Marketplace and call dealers in my area. If you do buy used carpeting make sure you unroll it so you can see all of it. The first time I bought used carpeting I took the rolls to the job site and unrolled for installation and was dismayed to find glue on top of the carpeting in some areas. Those areas had to be cut out and patched at more expense to me. So look over well what you are buying. Sincerely, Hank Rossi
Dear Landlord Hank: With the current water restriction in Los Angeles how do I motivate my tenants to conserve water when I’m paying the bill?” Landlady Lynn Dear Landlady Lynn: You can’t use economics to have tenants conserve since your wallet will be the one suffering from high water usage. I’m assuming you have one water meter that handles every unit at your property? What I’ve done at my properties where I have only one water meter for 22
Dear Landlord Hank, Had sewer backing up in one of my rentals. Just had to pay $1,800 to have tree roots removed and sewer line dug up to fix. Had no idea this could be a problem – how do you fix, prevent? Dean
many units is to determine the highest bill, divide by the number of units and all NEW tenants are now going to be paying for the water. You can’t change your current rental agreement but you could talk to tenants and make sure they are aware of the water crisis, also make sure you have no leaks anywhere. You could also install conserving shower heads and toilets. Make sure all new tenants, per your lease, know they are paying for water based upon consumption if you think the rate is likely to increase. Sincerely, Hank Rossi Dear Landlord Hank: Do you give other landlords reference information when they call you about a previous tenant? I am afraid of getting in trouble and reluctant to respond to a voice mail that was left from another landlord. The tenant in question is not one I would rent to again. What should I do? Jerry Deal Landlord Jerry: I respect my tenants’ right to privacy so I require a written authorization from the tenant to release any information. Normally, when a person applies for a rental, the application has verbiage at the bottom saying that the person filling out the application gives authorization for verification/investigation of references, credit and criminal history, etc. I tell whoever is calling to fax or scan the authorization for release of information signed by applicant to me, along with a written list of information they want. Small landlords may not have a tenant verification questionnaire Some Ma and Pa places don’t have a
tenant verification questionnaire. So I’m willing to answer questions on the phone, in that case, with tenant authorization and release. I’m always honest answering questions from other landlords. I don’t want to get stuck with a bad tenant and you don’t want to pass one on either, just to get rid of your bad apple. It’s good this problematic tenant is leaving though. Sincerely, Hank Rossi Dear Landlord Hank: Service dog ruined the large grassy back yard. Looks like crap now. Do you try to maintain the yard or not? Summer time renters don’t water, and grass turns to dirt and in winter the dog turns it into mud. It was a main rental feature but, now? Landlord Bob Dear Landlord Bob: I want my properties to look good all the time so I normally pay for landscape maintenance. Service animals are a very touchy subject and I would proceed in this area with the help of an attorney that specializes in Landlord-tenant law. You can give warnings (official and written notices) or evict tenant for property damage, excessive noise or if service animal threatens the safety of anyone. If the service dog of your tenant has ruined your back yard, that is not something you have to put up with. Your property is damaged and you have rights too. Just make sure you have plenty of evidence (photographs of before and after, maybe some of dog in action,
About Landlord Hank: “I started in real estate as a child watching my father take care of our family rentals- maintenance, tenant relations, etc. in small town Ohio. As I grew, I was occasionally Dad’s assistant. In the mid-90s I decided to get into the rental business on my own, as a sideline. In 2001, I retired from my profession and only managed my own investments, for the next 10 years. Six years ago, my sister, working as a rental agent/property manager in Sarasota, Florida convinced me to try the Florida lifestyle. I gave it a try and never looked back. A few years ago, we started our own real estate brokerage. We focus on property management and leasing. I continue to manage my real estate portfolio here in Florida and Atlanta. Visit Hank’s website: https://rentsrq.com
Real Estate Journal · Fall 2018
Real Estate Journal
Real Estate Journal Â· Fall 2018
Real Estate Journal
Real Estate Journal Â· Fall 2018