Category: <span>Sanity for Landlords</span>

Landlords VS. Pets

Are you a landlord and do you LIKE having pets in your units? If not, and if you have a “NO PET” policy, you may want to read this post.

I am a landlord, I don’t want pets in my units. The main reason for this is because I know what pets do to a house, I have pets! I had been told by what I thought were reliable sources that if you have a “NO PET POLICY” you simply won’t have to allow pets in your house. Then I heard a question about Service Animals. A way was suggested to get around having to have these animals in your units was to simply change their policy to read “NO ANIMALS POLICY.”

Then, one day, while reading Facebook, one of my daughters posted that she wanted a puppy. She lives in New York City and most of the places she has lived have all had strict “NO PET” policies. She was planning a move, but I told her that finding an apartment that would allow a pet would be next to impossible and reminded her that she couldn’t afford to pay extra just because she wanted a pet. (I suggested that she become a dog-sitter on the weekends so that she could get lots of puppy time, but NOT own a pet.)

But then, one of her friends commented on the post: “You can just write off to one of those websites that will give you a certificate stating that you have an Emotional Support Dog and any Landlord will be required to allow the pet to live with you.

This freaked me out as a landlord!

So, at that time I began to do extensive research on the topic.

This is what I have learned (so far) and I’ll try to be brief, though, if you’ve read any of my posts, you know they aren’t. Sorry.

SERVICE ANIMALS:

Service Animals are trained to do specific tasks for a disabled individual. The disability may be physical or mental. (Seeing Eye Dogs, Hearing Dogs, etc.)
Sometimes a Service Animal might be a Miniature Horse, but Service Animals are not Cats, Ferrets, Monkeys, etc.
These animals often cost between $17,000 and $22,000 EACH!
These animals are NOT pets, they are considered by the ADA and HUD as “Necessary Medical Equipment”
Service Animals are allowed to go anywhere the public is allowed to go: Restaurants, Grocery Stores, Hospitals, etc. However, they are not allowed to go where the general public is not allowed to go, such as in a restaurant’s kitchen…unless the disabled person WORKS there.

LANDLORDS and SERVICE ANIMALS:

Landlords are allowed to ask ONLY 2 questions when presented with a prospective tenant who says they have a Service Animal
- Is this a Service Animal? (yes or no)
- What TASK has this animal been trained to do for you?
You may NOT ask “what disability do you have requiring you to have a Service animal! That is personal medical information that does not have to be disclosed to you.
You may NOT charge extra rent or extra “security deposits” for the animal.
These animals do not have any type of ID or License other than regular shots/vaccinations from the vet.
You can not discriminate because of the breed of the dog even if your insurance company has said they don’t want “viscous breeds” in your rent house, such as Pit Bulls, Dobermans, Rottweilers, etc. Each animal must be judged on a case by case basis. Remember these animals have had roughly $20,000 worth of training. Do you think they are going to attack you? Really?
You CAN, however, require that the tenant PAY for any damages to your unit caused by the Animal (or the tenant).
You CAN evict a tenant IF their animal becomes a nuisance:
- excessive barking which annoys the neighbors repeatedly; or
- the dog attacks other animals in your complex (for example, you allow up to 20 lb animals, but this is an 80 lb German Shepherd who attacks other animals)
- the handler/owner does not keep the animal under control when in public areas or does not clean up after the animal or follow the pet policy you have in place (allows the pet to poop on the playground rather than in a pet friendly area)

EMOTIONAL SUPPORT ANIMALS (Assistance Animals)

These are NOT SERVICE ANIMALS (ESAs). These are, many times, formerly a pet that has been promoted to the position of Emotional Support Animal. These animals are prescribed by a Medical Professional, Mental Health Professional or Social Worker. Many people with conditions such as PTSD, Epilepsy, or Autism may find the help of an Emotional Support Animal to be a great comfort and a calming effect when their emotions get out of control.

An ESA is NOT trained to do specific tasks for the individual and these animals may even be rescued animals from an animal shelter.
Many ESAs are generally regular pets that have been promoted to an ESA position because of their owner’s current mental or physical condition
To have an ESA, the tenant’s physician or social worker will write a prescription for the animal. This is only good for Housing and Airplanes.
An individual may have more than one ESA, but will have a prescription for each.
An ESA does not have to be a dog, it may be a cat, snake, etc.
If you have “PET or ANIMAL” policies for your rental units, the owner of the ESA is required to follow these policies, such as no animals in the pool area, this animal is not allowed to go into the pool area (Service Animals, on the other hand, are allowed to go anywhere their owner is allowed to go). ESA can go outside in approved areas (if you have pet zones) and inside the house and anywhere else pets are allowed to go on your property.
You may NOT charge an extra security deposit for the animal(s)
You may NOT charge extra rent for the animal(s)
You MAY charge the tenant for all damages
You MAY evict if the animal becomes a nuisance to other neighbors, or threatens other tenants/workers.You may also evict this tenant if they can not control their animal(s)

AS A LANDLORD, WHAT DO YOU DO WHEN FACED WITH THESE ANIMALS:

If someone wishes to have a Service Animals or ESA move into one of your unit, they must do the following:

For both types of animals, the tenant must make a written request of you requesting “Reasonable Accommodations” for their animal to be allowed to live in the unit, (be it a Service Animal or ESA).
For a Service Animal, ask only the 2 questions listed above, write the answers down on your tenant’s application and file with your records.
For an ESA, you should require a copy of the tenant’s “prescription” provided to them by their health care provider or social worker.

NOTES:

When you ask for a copy of their “Emotional Support Animal Prescription” and if they have no idea what you are talking about, chances are, this is NOT an ESA, it’s the family pet and THIS person is probably “impersonating a disabled person”, which is a crime!
There are websites that WILL let you fill out a questionnaire online to help determine whether or not you might need an emotional support animal. If the answers you provide see to be worthy, for a FEE, a mental health worker will call you and interview you. If they believe you could benefit from an ESA, they will give you a letter. While this may be perfectly legal to do, and landlords will need to allow the animal to live in their unit even though they don’t normally allow pets, ask yourself this, is this person getting the mental health care that they really need? No! BUT, you better not discriminate if they have this letter because if it really is legit, you wouldn’t want a discrimination law suit brought against you by the ADA or HUD. Better safe than sorry in this case.

THE GOOD NEWS:

All of your other rental criteria for tenants should be met apart from the animal issue. If they don’t make enough money, they don’t qualify. If they have terrible credit, or have a criminal background that is undesirable, you are not obligated to rent to this candidate. Your rental unit criteria needs to be written so that you can give the tenant a letter stating the reason for their tenancy denial. You must treat all tenant applicants equally, so make sure you are following the rules you set forth. The animal should NOT be any part of this denial, or you’ll still get sued.

Stay tuned for other posts about your written criteria for tenants if you don’t have these already established.

What do Michael Jordan, Itzhak Pearlman and Real Estate Investing have in common?

Michael Jordan – Itzhak Perlman – Real Estate Investing?

I’d be willing to bet that you never thought you’d see those two names in the same sentence, much less the same article about Real Estate Investing, right?

Welcome to my brain!

Michael Jordan: Arguably the best basketball player of all time.

Itzhak Perlman: A polio victim who became a world famous violinist.

These two men are great examples of how a person can excel if they put their mind to it. But, what does this have to do with Real Estate Investing? As property investors, our goal is to make money, possibly quit our day job, but just like becoming a world famous violinist or the world’s best basketball player, you can’t do this flippantly. A little effort may make you a little money, but EXTREME effort could make you an ALL-STAR in the Investment game.

How do you get really good? You must ‘tune up’ your brain and learn the rules. You must ‘exercise your brain’ so that every time you shoot that real estate basketball deal toward the hoop, it swishes! (He shoots, HE SCORES!)

STEPS TO BECOMING A REAL ESTATE INVESTING ALL-STAR:

Attend meetings, every meeting and go to seminars. You can visit the National Real Estate Investors Association website to see if there is a local REIA club in your area. If there is, this is the BEST place to learn how to become a REIA All-Star. (www.NationalREIA.com) My local REIA group is the Memphis Investors Group: http://www.memphisinvestorsgroup.com
Take notes. Just like in school, write them down, then review them later.
Study the notes you’ve taken, organize them into investment categories (landlording, finding good tenants, wholesaling, insurance, bookkeeping, taxes, etc.) and then study some more.
Write down questions you have, you can put these in your phone or on a note card, and ask an expert at the next Friday Luncheon or MIG meeting.
Never stop reading great books about real estate investing strategies but don’t neglect to also learn about running your business.
REMEMBER: Being a real estate investor is a business, so don’t neglect learning how to run a business (if you’ve never run a business before). In the real estate investing businesses, records, file organization and bookkeeping are extremely important especially if an auditor comes calling.
PRACTICING FUNDAMENTALS is the only way to get good, really good, at this sport.

I’m sure that Jordan has shot about 10-million free-throws in his lifetime. Perlman has probably played violin concertos until he could play them backwards and blindfolded…all from memory. You need to do this with your career in real estate investing.

In order to be great at Real Estate Investing, you need to develop a certain muscle group, mainly your brain and logic; you need an education. I’m not telling you to go back to college, though you could, but a great place to get started with your education is at MIG meetings.

Next, get creative. Take what you’ve learned from the masters and add to that your own style, your own ideas and create something unique, your own brand.

The next step is to DO. Once you get the education, you must begin to stretch your wings and take some steps into your dream. Shoot that basketball toward the hoop. Draw that bow across those strings. Will it swish the first time? Will you be a virtuoso immediately? Nope. BUT, the only way to get better is to practice. Dr. Sinichi Suzuki, the inventor of the Suzuki Violin Method (which teaches 3-year-olds to play the violin) says the old adage “Practice makes Perfect” is incorrect. He says, “Perfect Practice plus 100 repetitions makes perfect.”

Start small: Beginning on an elementary level is ok. We all start somewhere.
Get advice to do it right: Talk to your professionals, take “lessons” if you will, talk to the coach and run the drills.
Negotiate and Close the deal: Take yourself off the bench and play in the game
Make the money: Win the game.
Repeat 100 times. Perfect practice plus 100 repetitions makes you money. (Wash. Repeat).

Expand the muscles of your brain, just like an athlete or musician who has honed their skills, don’t take what you do lightly, but then again, it isn’t rocket science. Study, learn and apply (do) what you have been taught.

Always pass on what you have learned. Do or do not. There is no try. ~ Yoda

Happy Investing!

Slush Fund for Landlords

“Help, my rental unit has an expensive problem and I don’t have the cash to get it fixed!!!”

NOTE: These notes and figures were created in the Memphis TN market in 2016 and may need to be adjusted for your housing market and the year.

Does this sound like you? Are you a new landlord? Have you run into this situation with your rental units or your own personal house (or car, or lawn mower)?

We all face this. There is a time when some expensive repairs are required for things we own, but we don’t have the money to fix the problem. Somehow we figure it out, we borrow the money, we use a credit card and then slowly but surely we dig our way out of debt, but isn’t there a better way? Going into debt is awfully hard on your blood pressure, and paying it back leads to strife and money problems, as well as arguments with your spouse, not to mention sleepless nights. What can you do to make your financial life easier with regards to your rental units that are supposed to be making you rich but instead, it often feels like all you do is pour money into them over and over again?

The answer is SIMPLE: a “Slush Fund”. Your money gurus have better names for this, but it is nothing more than a savings account set aside strictly for repairs of your rental units. We all know that these expenses will arise (at the least opportune moment, like December 20^th) and when they do, it causes extreme stress especially if we aren’t prepared to take care of the problem quickly. We fret and fuss and yell, but none of that fixes the problem and often leads to sleeping on the couch.

HOW TO CREATE A SLUSH FUND:

This is hard to do during a cash flow cricis, so if you are reading this now and you don’t have a cash crunch problem at the moment, NOW is the time to start your Slush Fund.

Open a NEW Slush Fund Account – either at a local bank or online, but make it a separate account from any account you currently have. This will help keep you from accidentally spending it, you will access it on purpose for a specific reason in the future.
Now begin funding your Slush Fund. How much of your cash flow can you afford to live without right now? If you say, none, you are in trouble! If you only own a couple of rent houses, chances are, you have a day job, so put 100% of your cash flow into your Slush Fund to fund it quickly. If you use your cash flow as income, you’ll have to reduce your spending to afford to put some of your cash flow into your Slush Fund. Set aside a particular amount each month and set a total goal. Make a decision, deposit the money as soon as you receive it, not at the end of the month when the money will suddenly not be there anymore. PAY YOUR SLUSH FUND FIRST.

HOW MUCH DO I NEED IN MY SLUSH FUND?

This is probably the million dollar question. There are no easy answers here, but this is how I would evaluate it. I will run through a recent example to try to give some guidance, but ultimately only you know your own properties. My friends who own a bunch of units in Midtown which could be upwards of 100 years old may need more cash per unit, however, they are typically smaller units, so the numbers may still work out in the end. My units are newly constructed single family houses, so their maintenance, at least for the first 10 years should be minimal other than “tenant damage.”

EXAMPLE: You own a rent house, maybe 10-15 years old with no major maintenance issues. The HV/AC is in decent shape. The electrical systems are all up to par. The roof and carpets are all great. All the appliances work…for now.

How much do you need in a slush fund for this ONE house?

What is the worst case scenario? Tenant moves in and does great for 6 months straight, then one of them gets laid off at work. They’ve trashed the carpets (kids and Kool-aid) and because of the “getting laid off” they fight, the husband damages a few doors because he was mad. Because mom and dad are fighting, the toddler opens the dishwasher and stands on the door to reach the cookies…now the dishwasher door won’t close all the way, but they use it anyway and the leak damages the kitchen floors. Now, because they have no job and know they can’t pay rent, they move out in the middle of the night taking with them the stove, all the ceiling fans and leave you holding the bag for this month’s rent. They of course don’t leave you the keys, but DO leave you a semi-trailer amount of crap and a broken down swing set and trampoline in the back yard.

How much will this cost to repair and get ready to rent again? I know this does not happen every time you have a tenant move out, at least I hope not, but let’s explore some possible costs.

Carpet Replacement $1000

Dishwasher $500

Plumber Labor $300

Vinyl in Kitchen $800

2 new Doors $60

Carpenter Labor $300

Locksmith (you have extra locks, so you change out the locks yourself)

“Got Junk” $500

Paint $1500 (they had painted all rooms a funky color)

Past-Due Rent $950 (or actual rent amount past due from tenants)

Lost Rent $950 or more (clean up time and finding new tenant)

TOTAL REPAIRS $6,860.00

These numbers may be off a little, but many MIG members with real life experience can tell you their actual numbers, some are true horror stories. Recently I had to rehab a house after 8 years of the same tenant. He had the NERVE to call me and tell me that it was all “clean” for his move-out inspection. The total cost of the rehab was $4,500 not counting lost rent. His $775 Security Deposit barely covered his past-due late fees much less the rehab on the building. He actually threatened to “take us to the court house” to try to get his $775 back, luckily we took pictures and have receipts. He didn’t try.

We replaced all the carpets and had to paint the entire interior.
We had to replace the HV/AC unit, (he didn’t tell us it wasn’t working… but it was fried), not that he was responsible for this, but it would have been nice to know.
The disposal didn’t work and the kitchen sink was totally clogged, therefore the dishwasher couldn’t drain.
He had apparently let sodas or beers “spew” in the great room so there was sticky goo on 2 of the 4 walls and no attempt had been made to dab up the spills, therefore, there were at least 3 hard, dried, sticky beverage “disks” stuck to the carpets.
There was also a strange green stain on the carpets, like a green sharpie had lived under the sofa, bleeding its green blood onto the carpet until it finally died a slow and agonizing death.
He had, at some point, overflowed the toilet and water got onto the carpets. At the time I offered him a cleaning option which included him doing the cleaning, (we don’t pay for overflowed toilets) and he opted to clean it by renting a machine. When he moved out, the entire master bedroom had black mold all over the carpets.
He had smoked so much (in the non-smoking unit) that the windows were brown and had to be scraped clean with a razor blade!
One bedroom’s closet had staples in the drywall, about 10,000 staples where posters or something had been affixed to the walls. There were torn corners of posters left and the painter charged us extra to remove all these staples.
There was also extreme mowing required because he moved out on June 1st, but had not mowed the yard once that spring/summer.
One exterior light was busted, had to replace it.
One window was broken
I had to re-key all the door locks as his room-mate wouldn’t return her keys.

If you add the lost rent to my $4,500, the total was now up to $6,050. BUT, he lived there for 8 years, so $756.25 per year (or about $63 per month) would be needed for my Slush Fund to fully fund itself for this unit if this is a fair assessment of what could happen on any given rent house. But if he had done this much damage in one year and moved out, I would be severely lacking in funds if $756 was all I had in my Slush Fund.

So in answer to the question, “How much Slush Fund” do I need for THIS house, the answer is $6,000 or more per house…depending on how many you own, but we’ll get to this later. Ideally you should have this on hand on day one. Hopefully every tenant doesn’t leave your house this bad (The bathroom walls alone; what DIED IN THERE!?!) but to save yourself a lot of stress and strife between you and your spouse/partner, you need to be prepared.

One way to fund your Slush Fund would be to set aside this much money as you buy the property. You know there will be closing costs, taxes, insurance, there will also be needed repairs and rehabs. COUNT THE COST and set aside this money immediately, the entire $6000 if you can, then you are good to go no matter what happens as a general rule.

But you tell me, I have 5 rental units, or 20, or 50. How much Slush Fund do I need? Do I just multiply $6,000 times the number of rental units? Twenty rent houses times $6,000 is $120,000! You could probably buy a few more rent houses for that amount of money! The question here is; how often do you need to rehab a house? Does every house need major renovations every time you change tenants? And, do all your tenants move out at the same time? The answer to both of these is, ‘no’. If you have been at MIG for long, you’ll know that getting good tenants by having a great screening process in place helps many times, just not always. Most tenants wants their security deposit back, so they will try to keep the unit well and clean it before they leave. Some landlords teach their tenants well and treat them fairly, so the tenant tends to want to keep the unit better. But some tenants will never understand what “clean” is, therefore will never be able to accomplish clean.

So, if you don’t have a lot of money to start with, you already own a bunch of rent houses and don’t have a Slush Fund, set a goal, $100 per month, or $500 per month. As stated above, use 100% of your cash flow if you only own a few properties and you still have a day-job so that you can fully fund your Slush Fund quickly and then live with peace of mind, once fully funded, you can begin to use your cash flow to acquire more properties, or go on vacation, but until you have a fully funded Slush Fund, don’t spend your cash flow.

Think about this, though; if you have 10 houses, you probably don’t need 10-times $6,000 ($60 grand). They won’t all need renovations at the same time. Also, there will be varying degrees of rehab required for individual units depending on the tenant. So, my suggestion is to save about 3-5 times your ideal “per house” Slush Fund and keep it in the special savings account. Then when you need to rehab one house, use some of the money ONLY if you can’t fund the rehab from your regular operating expenses account (this is actually the goal, to have a rehab line item in your normal budget). An easy clean up rehab (maid service, lawn mowing, carpet cleaning, touch-up paint) can generally be absorbed with regular funds, but one bad tenant may require additional funds from your Slush Fund. IF, at that point, you dip into your Slush Fund, your deposits to the Slush Fund need to be started back (or increased monthly) to re-fund it to get it back up to your total target (Ex. 5 x $6000 = $30,000 – Slush Fund Goal for someone who may own up to about 10 houses). If you use $5,000 out of your Slush Fund, then repay yourself over the next year ($416.66 monthly) or 2 years ($208.33 monthly) to fully re-fund your Slush Fund. If you always keep this Slush Fund funded, you should never have the stress of not having enough money, or having to find a loan, or maxing out your credit card and you’ll get all the cool horror stories without all the stress. If you own 140 houses, like some in our group, you should keep a slush fund for huge emergencies, but your business plan and annual budget should have a percentage set aside for rehabbing your properties. If you have 140 units, you have probably been at this game long enough to know exactly what you will spend in any given year for rehabs. But for you new investors, be SURE to count the cost before you invest every penny you have into your property and then don’t have more when things go bad.