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The Landlord Mindset – Where Do You Fit?

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I’ve talked to many landlords over the years and we all have our individual reasons for becoming landlords. I’d like to think of these are due to our landlord mindset and that mindset may not always involve a straight path.

What's your landlord mindset?

Some people are using rental properties to create their own retirement income. Others are using it as a vehicle to escape their jobs by creating cash flow right now and others are using it to create long term wealth for not just themselves but their family as well.

All of these are great reasons, but they also require their own unique landlord mindset.

Here are a few of the mindsets I’ve run into along my journey of educating landlords.

Retirement Mindset

For those planning on using their rentals to subsidize their retirement it requires a longer term landlord mindset with plans to use the income and possibly the sale of the property to fund that retirement.

These landlords are primary focus isn’t the now, but the then which could be five ten, twenty years down the road or more!

Day Job Replacement Mindset

In this case your landlord mindset is focused on maximizing cash flow NOW!!

The faster you increase your cash flow, the sooner you can get out of your job. This was where we were at 15 years ago and our focus was acquiring as many properties as possible and getting huge amounts of cash flow coming in.

Long Term Wealth Mindset

This mindset seems to be the landlord mindset that many longer term landlords or Real Estate investors evolve into once they see their portfolio grow and better understand what they’ve created for themselves.

Sometimes it’s by accident, sometimes it’s all part of the master plan!

What’s Your Landlord Mindset?

Of course there are also dozens of other mindsets or combinations of plans that people end up in.

Very common is the accidental landlord who became stuck with a property and tried becoming a landlord (these often don’t end well for the landlord…). There’s also the I Attended a Seminar Landlord, some of whom succeed while others sit on the sidelines forever afraid of pulling the trigger and taking action.

Whatever your actual mindset is, it helps point you towards your eventual goal. Whether it’s the short term or the long term goal, it all starts with that mindset.

If you have a strong plan and a strong goal it becomes far easier to achieve, far easier to articulate to others and even reinforcing to yourself when you share it.

So today’s Friday thought is a question for you. What’s your landlord mindset?

Leave a comment below telling me what your goal is and why and for the brave maybe even share what you’ve learned along the way to help you!

How to Decide When to Sell an Investment Property

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Every seasoned investor has a story of something they sold 20 years ago for what seemed like a nice amount of money, only to see it be worth twice as much today. That’s just a fact of life. Still though, there are times when letting a property go makes sense. Here’s how to decide when to sell an investment property.

Let’s say you have a really nice single-family residence in a very expensive part of the country. It’s a $1 million home and you’re renting it for $5,000 month. You bought it a while back, so you’ve got some nice equity in it and it’s generating a positive cash flow.

What could be better — right?

Well, how about 10 $100,000 homes that could bring you a total of $14,000 monthly. Plus, you have the added advantage of diversification. If your tenant moves out of that $1 million dollar house, you’ll be dead in the water until you can replace them. If one of the ten moves, you still have nine other properties making money while you find someone to rent the tenth one.

In this case, it makes sense to sell.

There are times when selling makes sense from a tax perspective as well. Say for example when your depreciation benefit plays out. Following this strategy, you’ll hold a property only for the number of years you’re allowed to take a depreciation deduction against it. While it’s somewhat complicated to explain in its entirety here, the IRS allows you to apply depreciation of a property against its rental income to lower your tax liability for approximately 27.5 years. You can also get this from turnkey real estate investing. Learn all about it here.

At the end of this period, you might be better off selling and getting a new property so you can start the depreciation cycle again. The effectiveness of this strategy largely depends upon your tax bracket. You’ll also be liable for taxes on the depreciation amount when you sell the property, so you have to make sure the replacement property is capable of absorbing those costs while still providing a positive cash flow.

Finally, there are times when the decision is made for you. Divorce, unexpected medical expenses, an interruption in your primary revenue stream, these can all trigger a decision to liquidate one or more of the properties in your portfolio to satisfy unexpected debt. There is no controlling the timing in these instances, so it may or may not be the ideal time to sell—but it will be the right time to sell because your other choices aren’t capable of generating the cash you need to cover the situation.

With that said, you always want to avoid selling property in a panic. When the market drops for some reason, like it did back in 2008, people are tempted to cut what they perceive to be their losses and get out. However, investors who managed to hold on to their portfolios are watching them appreciate again. Like so many things in business, the best way to make the decision is to analyze the situation, look at the trends and base your decisions upon what will make the most sense in the long run.

Ultimately, that’s how to decide when to sell an investment property.

 

This article was provided by our friends at the OneRent team.

Onerent is a rental leasing and management service for the modern owner and renter, managing over 1,000 properties across the San Francisco Bay Area, and Greater Seattle. Onerent offers free real estate education and resources on the Build with Onerent Blog. Find answers to all your legal maintenance finance and leasing questions as well as real estate news that affecting the housing market.

Feeding Off Your Success

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There are few shortcuts in life.the staircase to success

There are even fewer when it comes to succeeding in life, in business and in your landlord business.

You can however increase your chances of succeeding by feeding off your previous successes.

So what does that mean you might be asking?

For that I need to refer to an old question from back in my sales days. That question was, “When is the best time to sell something?” And the answer is, right after you’ve just sold something else!

The rationale behind it is you’re on the top of your game, you’ve just completed a sale, you’re feeling good, your confidence is high and all the factors that contribute to even more success are all lined up.

And This Works With Landlording How?

In a similar vein, if you’ve just put a new tenant in your vacant property or maybe you’ve just completed buying a stellar rental property you need to feed off that high, or maybe you’ve just completed your taxes on your properties, you need to reinforce that positive moment.

This could involve a celebratory dinner for filling the vacancy, maybe it’s an opportunity to tackle another issue, like a renovation project or lease negotiations with another tenant while you’re still in that “winning” mode.

The important part is not to just sit back.

We often forget these little successes that mount up to create our overall success.

If you relish your wins, continuously remind yourself you’re moving forward and make the effort to reinforce your successes, you’ll create a pattern that you’ll want to continue to repeat!

You Really Need A Written Lease For Your Rentals

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Why A Written Lease?

Written leaseIt’s astounding how many landlords I talk to that don’t have a written lease. They’ve either inherited tenants with a property and the previous owners never had a lease, or they simply haven’t bothered getting one as verbal is so much easier.

Now, guess when I usually end up talking to these landlords?

If you guessed when they are having problems with a tenant you win a prize.

Here’s why you need a written lease. It takes away the gray areas!!

Verbal agreements are open for interpretation. Written agreements (unless they are poorly worded) close up the gray areas and lay out the rules, the resolutions and the repercussions that accompany the agreement.

Payments, Pets and Pot

Late payments, pets that tenants “acquire” and marijuana smoking seem to be the three big issues that landlords talk to me about. Having specific clauses or sections within your lease that explain these can make a huge difference in how these issues play out versus a vague verbal agreement.

For rent payments you should have specifics about when rent is due, possibly methods it can be paid via (cash, e-transfer, post dated check) and any repercussions if rent is paid late. This could range from fines or penalties to warning notices all the way to evictions.

Different jurisdictions require different wordings for fines and penalties. Some areas don’t allow penalties, some have prescribed penalty amounts for late payments and others leave it wide open. The important part is YOU need to know what your local rules allow and then you need to make sure your written lease includes the correct wording allowing you to enforce and collect any penalties or fines!!

For pets, depending on your policies and local rules, you need to include specifics about what is or isn’t allowed. If you’re rental unit is part of a Home Owner’s Association or Condo Association there may be restrictions on size or type of pet that you have to carry over to your lease.

You may have personal restrictions for a suited property due to allergies of current or future tenants (once you become pet friendly it is an expensive proposition to remove pet dander and fur to return it to a state that a person with allergies can comfortably live in).

You may have had bad experiences in the past that you simply wish to avoid repeating. Whatever your personal situation with your rental, your lease needs to reflect this as well and have it explained thoroughly!

Again, rules and regulations vary widely. Some regions don’t allow landlords to dictate pet polices and others have strict definitions. You need to be familiar with local legislation or you need to have a lease designed specifically for your area.

Pot, or marijuana oh my.

This has become a huge topic of controversy with landlords on one side of the debate and pot enthusiasts on the other. and unfortunately since it is a moving target right now there is no one answer anywhere it seems.

My personal thoughts are if marijuana helps you with pain, sleeping or other health concerns then all the power to you. I do draw the line though if it affects me and my property by adding risk or costs to my life. If you own your own property go for it. If you are renting, you need to fit in the guidelines established by the landlord, or you need to find a landlord that will work with you.

These risks or costs I’m referring to involve potential insurance issues with tenants legally allowed to grow their own product, renovation costs to repaint or repair burns that seem to accompany smoking of any products.

If you’ve been following The Educated Landlord on FaceBook I’ve posted several articles about marijuana, insurance issues and legislation changes recently along with other landlord articles from other sites on a nearly daily basis. If you haven’t liked us on FaceBook yet and want to keep up visit us at https://www.facebook.com/TheEducatedLandlord/ 

Marijuana legislation will be a moving target so it’s important you keep up with the regional rules and changes to rules that come into play as the rules become more relaxed federally, statewide and provincially depending on where you live.

The important message to take away from this is you may have to add additional wording to reinforce non-smoking policies in your property. If it specifies cigarette smoking isn’t allowed it may require a simple rewording not allowing smoking of any kind in the rental property. And if it’s written and follows your local Residential Tenancy rules it can be enforceable.

Where To Find A Written Lease

Depending on where you live there can be multiple different places or resources you can find to acquire a proper written lease for your rental property.

One of the first resources I recommend to landlords are local landlord or rental property associations. Many organizations, either as part of their membership or for a reasonable cost, can provide appropriate rental forms that are usually well used, well tested and that stand up to the local rules.

They often have additional forms you can use as well such as move in/move out checklists, applications and more that can be handy.

Another resource is your lawyer. If you already have a lawyer who you use and who has a good understanding of the rental laws for your area they can create (or acquire from other lawyers they know) a good dependable and legally binding rental agreement.

The caveats here are not all lawyers are created equal and not all properties are the same. By this I mean that some lawyers rarely deal in rental laws and they may be poorly suited to create a quality lease for you. Residential Tenancy Acts often have subtleties and loopholes in them that someone experienced with the specifics can tailor to work best for you and your property.

This can also vary with the property. Most specifically when it comes to condo boards and rules within leases as often condo or home owner association rules take precedence over Residential Tenancy rules. A proper lease must take both sets of rules into consideration and may need to be very specialized for you and for a specific property.

This can involve additional costs, but the long term protection it provides you are well worth that cost especially when you factor it over multiple years which should be your goal with a rental property anyway.

Another option, which I don’t really endorse, is off the shelf rental packages you can pick up in stationary stores. While far better than verbal agreements they are often very generic and if you’re new to rental properties they often end up lacking in several key areas (like smoking, pets and pot as mentioned earlier).

You can typically take these leases and use them as a starting point, but you may want to take it to your lawyer to get it tuned up so it works best for you rather than the generic masses. And if you’re doing this, why didn’t you just start with a a lawyer?

The final resource I’ll mention are the online legal document resources. These would would be through a company such as LegalNature who provide a wide range of legal documents that include not just leases, but everything from Wills to incorporation documents to bankruptcy forms..

To be entirely transparent I will receive a referral fee if you use one of the links in this article to register with them or to purchase a Residential Lease Agreement or other landlord document. If you’re vehemently opposed to me doing that, but still want documents you can simply Google them to go directly there.

I’ve talked to several of the guys over there and they have a very thorough and in-depth system in place that allows you to create a custom lease (or other various Real Estate forms) that you can save for future use (with their ongoing membership program) or download and use (with their one time purchase program).

Their leases are US based only currently and are customized depending on the state with the most current information regarding Residential Tenancy Laws for the particular state and region you’re creating the document for. They are also quite long as they cover so many details!!!

In my conversations with Ben and Trevor of LegalNature, their default Residential Lease Agreement will run between 14-18 pages which isn’t an issue you should regard as overwhelming, but rather as details that will protect you as much as possible!

Some landlords believe simpler leases are better, yet given the choice having a detailed lease covering almost every situation will benefit you much more over the long run.

Rules and laws regarding landlord, tenants and rental properties often change or evolve over time. If you’ve been using the same lease for more than a few years it may well be worth  research to determine if any information in your older lease is outdated, un-enforceable or simply in need of updating.

Your Requirements For A Written Lease

You need a written leaseBig picture, it doesn’t matter where you get your lease from, you simply need to make sure it protects you and your rights as a landlord and property owner, that it includes any particular wording or phrasing required under local rules to make it legal and that you understand it.

You need to understand it as you will likely need to explain it to future tenants as part of the lease signing process.

You can expedite part of this by emailing the lease in advance to your prospective tenants, once you’ve narrowed it down to one set of tenants, so they can review it and have any questions prepared in advance. However you’ll still want to go through any and all important sections in person with them during the signing though, just to reinforce their understanding and to ensure there is no miscommunication.

What may be abundantly clear to you (No pets, Landlords permission required for renovations and many other items that seemed clear to you), may not come across clearly unless you point it out during that lease review!!

As I mentioned right near the start of this article, you want to remove the gray areas, you want to avoid gaps in understanding and you want to have the most control possible with your documents so make sure you get a written lease that works for you.

If you’re still using an old lease or worse yet a verbal lease take note of the information in this resource so you can get that remedied and put some control back in your life as a landlord. I know I continually harp on this, but only because it’s important. You need to treat your landlording like a business, so make a smart business decision and get a solid written lease in your pocket!

Quick Advice on Becoming A Landlord

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Become A Successful Landlord By Looking Ahead

advice on becoming a landlordI constantly run into people looking for advice on becoming a landlord and the challenge is they want to be successful at it immediately.

But they can’t, because being a successful landlord requires a long term vision and a long term strategy where you’re planning today for tomorrow. And tomorrow is years down the road!

The majority of the time that property you bought last year really won’t start making money for you for five to seven years, so you need patience.

I’m sure many of the readers are a bit confused right now by the five to seven year comment so let me explain what I mean.

During the first several years you own a property, even with good cashflow, you’re really treading water. The problem is if  you needed to liquidate your property in those first five years, in most markets you’ll simply break even.

Even if the property has gone up a few percent in value after paying Realtor fees, legal fees, and penalties or additional costs associated with the mortgage you often only end up with a little bit of money left over. We’re talking less than $10,000 in normal markets.

Over five years that works out to only a couple grand a year and I’m sure the time and energy you put in over five years was worth more than $2,000 a year.

Long Term Success

Fortunately somewhere around that five year mark the pendulum starts to swing over to your favor. You’ve reached a break even point and now any appreciation starts working in your favor and doesn’t simply go to Realtors and fees.

Also your mortgage is moving to a point where less of the payment is going to interest and more of it is going to your principal.

Suddenly, or not so suddenly if you’re not planning long term, in that seven to ten year range many different factors start working towards your benefit.

Rents have started drifting higher over time, values may move up and down but over the long haul tend to migrate upwards and you’re making an even bigger dent in that mortgage.

Now your friends start telling you how lucky you were to invest in Real Estate and you’ve become an overnight success…

They seem to forget the years where you were breaking even and putting in your time to educate yourself, to get the right tenants in place and to make sure your property was well maintained.

You just smile and nod and go yep, lucky.

My Advice On Becoming A Landlord

So what’s my advice on becoming a landlord, or more importantly a successful landlord?

How about, don’t be in a hurry, just buckle in for the long term and continue to educate yourself along the way.

What are your thoughts? Do you agree, or disagree? Leave a comment, share with other landlords and let’s hear what people think.

 

Accidental Landlords Can Become Expert Landlords

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Important Lessons For Accidental Landlords

Accidental Landlords can become Expert LandlordsThe last couple of weeks have put me in direct contact with a couple of accidental landlords and it’s been both good, and bad. Which is actually good!

You see, many of these landlords have ended up with properties they never intended to manage. That they never intended to be landlords of and that they really had no skills for!

But they did a couple of very important things.

First they took action.

They put their heads down, they jumped in without full regards to how deep the water was and they started moving forward. Which is where some of the bad appears.

Obviously if you’re brand new you make mistakes, but if you don’t take action to make the mistakes you never learn to correct them.

In a perfect world we would never make mistakes but unfortunately we don’t live in that world so mistakes often teach us valuable lessons that turn us into experts.

We learn by doing and we improve by learning from the mistakes we make along the way,
think about that for a minute!

Second they looked for resources to help them.

Like this site (he smiles broadly as he types that!).

We often hear talk about self made millionaires or overnight successes, yet the reality is none of them were self made and very few were overnight.

They became who they were due to the experiences they had and the people around them. Their parents their friends, their spouses, (if you’re a landlord hopefully me) and more.

The more resources, the more help and the more support you get along the way the sooner those accidental landlords can move forward to become expert landlords!

If you’re hoping to improve as a landlord, as a person or in just about anything, surround yourself with others already doing it, others who can support you and others who believe in you.

Now quick discussion, if you’re a landlord who has ever made a mistake, leave a comment below and share that mistake. If you learned a lesson from that mistake could you share that as well to help support more of those accidental landlords and to help them avoid making the same mistake!

Be a Fair Landlord, But a Firm Landlord

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It’s important to be a fair landlord with your tenants, but many times this opens the door for a tenant to take advantage of a landlord who is too nice, so you also need to know when to be a firm landlord at times!

A firm landlord know when to draw a lineI was reminded of this last night as I was on a consulting call with a very nice landlord who was being too nice!

Now I’m not saying it’s a bad thing to be nice, you just need to know that there are people who will take advantage of this niceness, so you need to know when and where to draw the line in the sand and be a firm landlord. And trust me, it’s not restricted to just landlording, there are people who will simply try to take advantage of you anywhere!!

If you find yourself often on the short end of dealing with tenants because you are a nice person, here’s a quick tip to turn you into a firm landlord without confrontation.

Don’t let the tenants know you’re the owner!

Yep, only let them know you are the property manager (which is true, you just manage it for yourself).

Now if the tenants try to take advantage of a situation you can simply reply, “Oh, I’m sorry I can’t make that decision, I’ll have to check with the owner”.

This gives you time to make a better decision rather than being pressured into a bad decision on the spot.

And yes, you can use this even if they know you are the owner, just change it to something like “I’m not sure if that will work, let me look into it and get back to you. Again buying you time to make a smart decision rather than a situation where you are taken advantage of.

What are your thoughts, are you a fair landlord? Or a firm landlord? Do tenants take advantage of you being to nice? Leave me a comment below as I’d like to hear your thoughts and whether you think this could help you!