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What A Rooming House Landlord Need To Know Before They Start

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Being A Rooming House Landlord Can Be A Tough Job

Being a Rooming House landlordMost of the time a rooming house landlord makes it tough on themselves because they are missing some important information when they start, or they simply don’t change with the times and either of these can make their job tougher and definitely less worthwhile.

I just finished reading another article chronicling how many rooming house landlords are getting out of the business. They’re seeing less money being made, tougher regulations being put in place and less support from local governments.

The prevailing problem (or at least the problem I picked up on) was that almost all of these landlords catered to the bottom tier tenants.

Tenants that survived off of social assistance, government subsidies and basically had no other options but to live in low cost rooming house properties.

If that’s your target market, I can almost guarantee you  a) won’t last b) will become burnt out very quickly and c) will quickly get disillusioned with the business model of own rooming houses.

What A Rooming House Landlord Needs To Know To Thrive

When I started I bought into the low end rooming house market strategy with my first rooming property. I hated it…

I kicked my first drug user within a few weeks and lost a TV he pawned as well.

Shortly after that I realized low end properties were not what I wanted to do and low end tenants with tons of problems were not who I wanted to rent to. Sounds discriminatory doesn’t it. And if I screened only on that aspect it would be, so I don’t.

Instead I just raised the bar of entry.

Here’s the take away.

If you target low end tenants who can pay low end rent for your low end property you will end being a former rooming house landlord relatively quickly.

Yes I understand there is a need for spaces like that, but the challenges, the headaches and the disillusion that can accompany it aren’t worth it for a small time landlord.

Perhaps that needs some clarification.

If you plan on operating one or two properties, maybe 5-20 rooms, it’s not worth it.

If you have a larger portfolio, maybe buildings with 20 plus rooms you rent out, then perhaps you can make it work. It’s economy of scale.

On a smaller scale if you have low rents your cash flow at the end of the month won’t be high enough to offset potential losses. If you work on a bigger scale with more rooms, one or two losses won’t affect you to the same degree as you have more incoming to offset the shortages.

Changing The Rooming House Model

Rooming houses don’t have to cater to low end tenants, thats’ old school thinking. Instead, your rooming house should cater to the gaps in the market.

When I started, the gap in my area was safe, affordable, clean properties where tenants weren’t locked into long term commitments. I changed the model and was rewarded quite well for it.

rooming house landlord - higher end rentalsDid I still have headaches? Yes, but the number went down substantially.

Did I still lose money on occasion? Yes, but by charging higher rates and catering to higher end tenants I also made more money and reduced turnover, even without locking anyone into leases.

What you need to know, before you jump into the rooming house business, is that the more you break the traditional low end rooming house model and convert it into a profitable business the longer you’ll survive, the more people you’ll be able to help out and the less problems you’ll face doing it.

Want To Start Your Own Rooming House?

Rooming houses can be a profitable business, if you do it right. That’s why I put together the Basics of Rooming Houses.

It’s a beginners course to rooming houses perfect for someone interested in the business model and who wants to avoid soem costly mistakes learning on their own.

I walk you through the basics of finding out the local demand for rooming houses so you understand whether it’s a market you should pursue (imagine buying a property before you even know if it will, this helps you avoid that).

I show you how to learn the local rules so you don’t find yourself in trouble or worse shut down.

And I show you how you can start creating streams of steady clients who become a referral source for you making it easier than ever to keep vacancies low and profits high.

If you want to get off on the right foot, this investment in your rooming house education will get you started the right way.

Just click the following link to get started with this online course today,

Basics of Rooming Houses Online Course

 

Caveats When Buying A Turnkey Rental Property

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Does a turnkey rental property work?It seems perfect. The nice little turnkey rental property that the current landlord is selling comes complete with tenants. A puzzle perfectly coming together

You’ll buy the property, you won’t have the headaches of doing your own searching for and then screening of tenants. You’ll be ahead of the game from the start and you’ll be making money from day one! What could go wrong?

Well, let me count the ways…

Why Landlords Sell A Tenanted Turnkey Rental Property

There are usually only a few reasons someone sells a turnkey rental property that is ready to go and comes complete with tenants in place.

Some are good, some not so good, and in a few cases downright bad, so let’s run through them.

Reason 1 To Sell A Tenanted Property

Sometimes they’ve reached their goals, they’re ready to retire or move on from being a property investor and now is the time for them to sell. They’ve had great tenants in place and want to make sure they aren’t disrupted and forced to move on.

If that’s the case great this may be a fantastic opportunity. Of course you’ll still need to run all your numbers, base your purchase on it being a smart business decision and not the fact that it’s turnkey.

Remember, just because it’s being sold as a turnkey rental property doesn’t mean it’s actually a turnkey business decision.

It may work for the current owners due to their purchasing it many years prior and buying it at a much lower price point which means lower carrying costs. It may have worked for them as they put down a much larger deposit so the property would cash flow better or they may have even inherited the property and have no mortgage expense.

You don’t always know the entire story and even if you do, you still need to do your diligence to ensure it works for you. With current prices and bigger mortgages the value proposition may have faded turning this perfect property into a potential moneypit.

Reason 2 To Sell A Tenanted Property

With reason 2 we’re starting to get to the potential landmines, so pay close attention.

Often landlords sell their properties complete with tenants because they’re losing money or the property simply isn’t working. These properties may either be a nightmare, or a huge opportunity for an educated landlord!

Many landlords, especially those who jumped into the game without enough knowledge or education, simply don’t understand the business.

They may have underpriced their units, under renovated them so they weren’t getting good rents or they possibly didn’t do the “real math” that experienced Real Estate investors complete to evaluate a property.

Years ago I wrote an article that explained “actual cashflow” versus what rookie landlords often see as cashflow. If you’re not familiar with it you can find it here, Do You Really Understand Cashflow?

The monthly cash flow and returns they anticipated simply evaporate as their inexperience with screening and managing tenants and their ongoing maintenance costs eat all their expected cash flow up.

These types of properties can provide a great opportunity for the smart investor willing to sink a bit of additional time and money to turn a property around. So you can’t count them out entirely.

Of course these also end up being not quite as turnkey as advertised so you need to balance that out as well!

Reason 3 To Sell a Tenanted Property

Now we’re moving to the danger zone. Sometimes a landlord ends up selling a tenanted “turnkey rental property” because the tenant (or the property) is a nightmare and the turnkey opportunity isn’t quite as advertised.

They’re just trying to get out and pass the problem on to someone else.  Don’t let it be you!

Some of the warning signs with this could be simple items like paperwork that can’t be tracked down (like missing or non-existent leases or lack of validated expenses ), not being able to talk to the current tenants (owner doesn’t want you to hear the real story) or a list of excuses about the condition of the property (lack of funds for repairs due to lack of payment?).

As in reason 2, there may still be an opportunity to turn this property around and turn it into a profitable solid long term rental property investment. It will simply require more diligence and/or immediate gains.

For a quick gain, you’d simply want to be compensated in some manner in order to assume or negate the previous landlords problems. This could be a better price, rephrased terms where you get the property vacant or other options.

For your diligence you’ll want all the possible paperwork and in the case of any suited properties all documentation verifying the legality of the unit.

There’s nothing more exciting for a landlord than assuming the property is legally suited to find out the reason the landlord is selling is due to the city inspecting the property and shutting down the second rental unit you were counting on.

Maybe exciting is the wrong word, frustrating perhaps?

It’s Not All Bad

Now, it may appear I’m saying never buy a turnkey rental property, but that’s not exactly true.

What I’m trying to point out is it’s important to get all the details, not just what the current property owner tells you.

It’s important to get all the documentation available, like leases, tenant walk throughs, amendments to the leases or special exceptions (allowed to sublet, pets, agreements for late rent payments or other allowances outside the actual lease).  You’ll also want copies of receipts of any security deposits.

You’ll want to meet with the tenants to make sure thee aren’t any problems or issues and obviously you’ll want a thorough property inspection. You just can’t leave anything to chance!

So, should you buy a property that comes with tenants? Well that comes down to what you find out with all your diligence!

What are your thoughts?
Have you bought a turnkey rental property? And did it work for you? Leave me a comment below and let me know.

Your First Rental Property

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It’s not uncommon that your first rental property is your worst rental property.Lessons learned from your first rental property

After all, it’s where you cut your teeth and learned from your mistakes.

Sometimes you learned you picked the wrong area, or perhaps the wrong type of property, or maybe it was where you evicted your first tenant out of.

Whatever you learned, that first rental property is what can make or break you.

You see often the first one is what discourages investors and landlords from carrying on. they learned that “all tenants are bad”, “you can’t make money in Real Estate” or simply that “landlording is too hard”.

On the other hand for many rental property investors, that first rental property is a stepping stone to a second, third and even more properties.

So what’s the difference?

How You Deal With The Experiences Learned In Your First Rental Property Is Key

It’s simply how you deal with it. At your first sign of problems is it fight or flight? Is it learn to do it right or get out while the going’s good?

How you react from the challenges you run into, what you take away from those challenges and how you correct them can make all the difference in succeeding or quitting before the race has really begun.

Like anything, being a landlord comes with a learning curve, you can’t be expected to now it all your first day. You need to go in eyes wide open, learn from any problems that come up and adapt so you avoid similar problems in the future.

Think of it as perspective.

With the right perspective you understand it may not necessarily be easy at first, but it does get easier. And hopefully with the resources on this site or that I share on our Facebook page (if you haven’t liked us yet on FaceBook, what’s holding you back? find me here, https://www.facebook.com/TheEducatedLandlord/ ) you’ll be learning even faster what it takes to be an Educated Landlord!

I see many landlords who simply give up when they face the adversity of a bad tenant or a rental property challenge, don’t be that landlord. Be the successful one who fights through the adversity.

7 Lessons From Selling 9 Rental Properties in 18 Months

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It’s amazing what you can learn from selling nine of your rental properties in a fairly quick time frame.

selling rental properties lessons

But before I get into those lessons, some background on why I sold so many properties.

Dealing with a ton of rental properties can be overwhelming at times and when many of them are rooming houses with individual rooms rented on a weekly basis you can find your schedule no longer belongs to you.

That’s part of the reason my wife and I decided it was time to divest a bunch of properties. We also had a plan to potentially sell everything and move to a tropical Central American country, but kids hoping to finish high school, other projects that weren’t going to get finalized anytime soon and aging parents has put that on hold.

Yet we still needed to free up that time and we had a few items all coming together. We had several partners that wanted out, the market was reasonably stable (at least when we started selling, it started to drop shortly after we put plans in motion which was another reason to hang onto the remaining properties) and frankly the rooming houses were burning me out.

With over 30 weekly rental units at the time and a string of stressful problems all at once ( a fire, two evictions, a criminal and several deadbeats) my time was never my own and my mood would bounce all over the place depending on which problem or challenge I was dealing with.

In the grand scheme of things, I still love rooming houses. They are a fantastic way to amp up your monthly cash flow, you’re able to help a ton of people who may not necessarily have other options and it’s an empowering experience to be able to help so many people.

But as I also say, try to limit your operations to five to seven years to preserve your sanity, I was at 13, almost double what I warned others about!!

So the decision was made to cull the wheat from the chaff (we decided to sell the worst first…or at least the ones with mortgages coming due, the ones that caused too many headaches or had partners who needed out).

If you’re contemplating selling any rental properties yourself you might want to also check out this article to help you make an informed decision, How to Decide When to Sell an Investment Property.

There’s the background, now for the lessons!

Lesson One

Time your sales around mortgage due dates.

mortgage renewal dates and rental propertiesNow depending on where you live there may not be penalties for breaking mortgages early, but in most places if you break that mortgage contract you could be on the hook for a few months interest payments or the entire potential interest rate differential the lender is losing out on which can be significant if it’s early in a mortgage.

I’ve previously paid as much as $17,000 in penalties for a $500,000 mortgage with over a year remaining and trust me, it’s painful!

Again, know what penalties you may be stuck with for your particular financing before you move forward with starting to sell, it may mean the difference between profiting or losing money.

Or if you’re aware you’ll be selling in a year or two, either time your renewal to coincide with that timeline by shortening the term (one, two or three year term) or utilizing a mortgage with a lower or zero penalty (variable or adjustable rate mortgage often have smaller penalties or open mortgages have no penalties but trade that privilege for higher interest rates).

Lesson Two

Get your rental property into top notch shape before you sell it.

Painting Tools for LandlordsThis is basically the same advice you would follow before you fill a vacant property. You want to get it painted, patched and cleaned so it shows well and it sells faster.

If you’re emptying the property of tenants the longer it sits empty the more money comes directly out of your pocket, so why not put that money right into the property to sell it faster, and typically for more.

People don’t want to buy someone else’s problems, unless they can get a significant discount, so leaving marks on the wall or having a dirty home will only cost you money. Lot’s of money!!

If there are obvious deficiencies get them fixed and use it as a selling point. Hopefully you’ve made money over the time you’ve owned the property and hopefully you’ve set a portion of that aside for just this day. Especially if you’ve been planning on selling it in advance!

We’ve replaced decks, replaced roofs, redone bathrooms and kitchen counters to update properties. We also repainted almost every property we sold (more on the ones we didn’t in Lesson Four) to make them brighter and shinier!

We’ve replaced screens, hand rails, kitchen handles, we’ve brought in lawn maintenance to upkeep the property and to eradicate weeds and we’ve hired cleaners to get the properties spic and span. While hard to measure the direct impact we’re positive it is why  almost all of our properties we sold were gone within 45 days of listing them (one took 70 days as the initial purchasers had their financing fall through and we had to re-list and our most expensive property took longer due to the market conditions).

The impact became most obvious when we watched similar nearby properties languish on the market well past our close date even though they were listed well before ours!

Lesson Three

Do your own pricing homework!

selling rental property do your pricing homeworkIf you know you’re selling shortly start watching the market, especially for similar properties in the same area.

It’s very easy to have your Realtor set up an automated update system for you where you get notified of all the listings and sales for equivalent properties around you. I even have my Realtor automatically send me listings for similar properties to my personal residence and remaining rental properties so I can understand what’s happening with prices for those properties.

When it comes time to list you should know exactly what you should be able to sell the property for rather than depending on a Realtor to inform you of it’s value. If you’re really investing in Real Estate you should have a good idea anyway and this just helps you avoid getting led down the garden path by someone telling you about unrealistic selling prices just to get a listing.

Now I’m not saying all Realtors will inflate the potential selling price to get the listing, but it’s a common tactic of some just so they can get that prized listing. You simply need to be smart and not get caught in that trap.

If the Realtor has to lower the price a couple months later it only affects their commission by a few hundred dollars but it’s cost you multiple thousands in carrying costs. You have the most skin in the game when it comes to selling this property so make sure you know your numbers.

Some additional caveats that you also need to be aware of is to check your emotions at the door.

This is more typical of people selling their personal homes, but even investors can get emotional about their rental properties and this can cause them to artificially inflate the asking price above what it should be. And this can work both ways as you may see it as “just a rental”.

If your Realtor comes back with a price much lower or much higher than what you came up with, be sure to get all the facts from them as to why they believe this and balance it against your homework. Maybe you’re missing something important because you’re simply to close to the property.

Lesson Four

Let everyone know you’re selling your rental property!

It's important to tell people when selling rental propertiesWhy would you keep it a secret? Tell other investors, tell your friends, tell everyone!

Who knows which of your contacts, or even contacts of theirs, might be looking at rental properties or that possibly have a friend looking for a home in that area?

In lesson two I talked about updating and renovating your rental properties and I mentioned I didn’t do that with some. That’s because I sold them directly to other investors as turnkey properties.

They were looking for rentals and mine fit their needs so voila. I may have taken a slightly lower price as there wasn’t Realtors involved, but it went quick and easy and provided a great solution for both parties! So word of mouth does work!

At a recent seminar I attended the presenter asked us if we knew what people who invest in Real Estate secretly are. His answer was broke and it was because they miss out on the best deals as no one tells them!

The message from that was don’t keep it a secret and let everyone know.

Lesson Five

Leverage your strengths.

StrengthsThis one can be tricky, as everyone’s strengths are different, but in my case one of my strengths is marketing. So I wrote all the ads for the properties listed on the MLS.

If you’ve owned your property for any length of time and have been writing your own successful ads to fill vacancies you should be able to provide input that can help position your property to it’s best.

If your tenants all rave about the beautiful views from the deck or the nearby schools or the proximity to amenities the sales copy you or your Realtor provide should include that as well.

Simply leverage the positives and the benefits of your property to the best possible results in order to help sell that property for you as quickly as possible.

And it doesn’t end with marketing (well that depends on who you talk to as many people will tell you everything revolves on who you market). If you and your wife love gardening leverage your abilities to beautify the curb appeal.

If you have an eye for design (my wife’s an interior designer by training) leverage those abilities and skills.

Simply use your talents to benefit yourself and to help expedite the sale of your property.

Lesson Six

Ditch the emotions.

I touched on this in lesson three when referring to pricing your property, but you also have to take this into account when negotiating.

Someone will try to low ball you at some time. Don’t take it personally. Either move on or counter with something more reasonable and with a response that you won’t continue to negotiate unless they move up substantially.

Many investors often start with a lowball offer in order to negotiate down halfway between the listing price and their low offer, don’t get caught in that negotiating trap. If you’ve done your homework properly, understand your market, fixed up your property and are basing everything off business decisions versus emotional decisions someone will likely appear willing to offer you a fair price versus a discount price.

It can help to establish ahead of time what your lowest possible price will be and any timelines you have to work within. Perhaps you’ll take a slightly lower price if they close in 30 days, but if it looks like 90 days you’ll be stuck with several extra payments so you need a higher price.

If you know these numbers ahead of time you’ll be able to position yourself for a win during negotiations versus a disappointment.

Lesson Seven

Have a plan.

selling rental properties by planning aheadOnce you start down the course of planning on selling your investment property, what’s your plan? Are you putting the money in a new investment? Will the loss of cash flow affect you going forward and/or will you be able to replace it or survive without it?

In our situation we used the profits to get rid of a bunch of debt. We paid down some other mortgages, paid out some second mortgages, bought partners out and repositioned ourselves to be in a better equity position going forward. Plus I freed up a ton of time allowing me to focus more on articles like these and other ventures!

Depending on your unique situation will the sale trigger tax implications? If so, what are your options?

If you’re in the US if you reinvest back into more rental properties you can defer any tax (please confirm this with your accountant as your specific situation could differ from my experience), if you’re elsewhere do you have deductions to offset the taxes?

Sure it’s great walking away with a $200,000 check from closing, but if you have to give $100,000 back to the government for taxes it takes a lot of the thrill out of it. If you’re not sure how it will affect your tax situation talk to a tax accountant to make sure you take the necessary steps to pay the least amount of tax you’re legally responsible for.

Bonus Lesson

Empty your property of tenants.

Should you get rid of tenants when selling a rental property?But I’ll be losing out on rent each month and I’ll have to pay the expenses out of my pocket while it’s vacant!!! That’s the typical response I get from people when I tell them to vacate the property and it’s true.

The problem is if the tenant isn’t too excited about the opportunity to move once the property is sold or they want to sabotage the sale they have numerous different ways to turn your cost saving strategy into a nightmare.

This could range from little measures like leaving the place a mess which can reduce the dollar amount of any offers. They can make it difficult to show the property by blocking or denying showings for various reasons.

But those aren’t the worst. Perhaps the most devious tactic is stalling their move out and blackmailing the landlord in order to move out on time. If the buyers are expecting vacant possession and the tenant is still there you could be in brach of the sales contract at worst or you could end up with a delayed closing costing you more money.

It’s simply better to take this type of situation out of the equation. Especially if you’re not selling the property as an investment property and it’s likely the new owners will be living there.

Much like timing your mortgage coming due if this is your plan you’ll want to make sure your leases line up for this strategy as well. It may also help if you understand the local rules for terminating leases and what reasons you can use to terminate such a the sale of a property.

If it is being sold as an investment you may be able to keep the tenants in place, but you’ll want to be upfront with them and make them aware you’re hoping to keep them in the property in order for an easy transition and if they help with showings it will go a long way to letting them stay.

Of course if I was buying someone else’s rental properties I’d be wondering why they were getting rid of them. So you better have a valid reason, you’ll want to have all the necessary documentation like rental agreements, walk throughs and even tenant files that you can provide to pacify potential investors.

As a side note, just because it’s vacant doesn’t mean you shouldn’t do some minor staging. A few hand towels in the bathroom along with hand soap, vases, knick knacks and ornamental items on the kitchen counters and even some small furniture pieces can all help fill empty space in a property and make it more appealing. 

Selling Your Rental Properties Fast Is Key

We should all be aware extended vacancies are the fastest way to fail as a landlord, the same can be said about extended listing periods.

You’re stuck with all the expenses and none of the benefits once they’re vacant so why would you want to drag it out? Selling your listed rental properties as quickly as possible can solve that problem, but as I’ve gone over in the above lessons, there is work involved on your behalf.

The best and the most successful Real Estate investors with the best rental properties are also the most prepared so use my lessons to help prepare your self and make the future sale of any of your rental properties an easier proposition!

To wrap it up, what are your thoughts? Do you agree with this, disagree or better yet have something to add that I may have missed.

Take a minute and share your thoughts by leaving a comment below to help out the landlord community and if you found it helpful be sure to share it on Facebook, Twitter LinkedIn and more using the handy social media sharing buttons below.

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!