Show Episode Transcript
Your a Landlord who manages their own Rental Property (maybe multiple). But you are likely doing somethings that you just need to STOP doing. Things that are harming your investment and possibly even compromising your safety and certainly your piece of mind. Let me help you...
Welcome to Episode #17 - Self-Managing Landlords - 10 Things You Just Need To STOP Doing!
Now I suspect you already know some of what I'm going to say. You know you shouldn't be doing these things as a Landlord - and that you just need to STOP... But I know - you just can't help yourself. You're set in your ways. It just seems easier. It too much work. You don't want to be mean or you want to be nice. You don't want to inconvenience anyone. You're trying to be helpful. You don't want to be a jerk. Or if you're a woman, you know what they'll call you instead of a jerk. I'm sure you have all these and even better excuses. We always do...
So let's start with...
#1. Stop Collecting Rent Like Its 1989.
Now if it were 1989, you may be excused for one of the worst ways of collecting rent - in person. STOP collecting rent in person, and for god's sake, NOT at your home! Its unprofessional. Its dangerous. Your tenants should not even know where you live (or at least don't make it easy for them to). Do you want a tenant showing up at your house trying to settle some dispute, such as if you ever have to evict?
And certainly stop accepting cash... You don't want people knowing (if you go around to collect rent in person) that you'll be walking around with a lot of cash on the 1st of each month. Don't even accept cash at your office. Don't put your safety at risk. And PLEASE don't tell me about your concealed carry permit or your big dog... I've heard it from Landlords before... "I'm packing heat" - No, you're stupid. You think its smart to make yourself a target so that you then supposedly are justified in taking someone's life over money when you're just as likely to get yourself or your big dog killed? And I say that as a person who does have a concealed carry permit. I also avoid situations where I'm likely to need to defend myself.
And don't allow rent to be paid by mail either. Its not 1989. We're now 30 years into the future. We have something called the Internet; and seemingly everyone over age 6 has what would have previously been considered a super-computer (called a Smartphone) in their hand at every waking moment. There are just two many ways of collecting rent online and if you're not Internet savvy enough to implement those, then its time to outsource your Landlord duties to a Property Manager anyway, as most of this business (if done properly) takes place online today.
But if you've still got a hard wired phone in your house with a curly cord hanging from the headset, then at least setup an account at a major bank with multiple branches around the city and direct your tenants to deposit their rent directly into that account. I have my tenants who prefer this method write their name and address anywhere on the front of the deposit slip, as my bank provides an image of the deposit slip online the following day - but then there's the Internet coming into it again.
So stop accepting cash. Stop accepting rent by mail. Stop collecting rent in person. Serious, stop letting tenants know where you live! And really, even stop accepting checks at your office - as it occupies your time or your employee's time, which costs you money. At least if they deposit the rent at the bank, its the bank's employee whose time is occupied. But I charge an additional $5 fee to pay rent at the bank, as then I or an employee has to manually enter that transaction into our online system - which happens automatically if they pay online.
#2. Stop Allowing Tenants To Pay Their Rent Late
Require on-time payment of rent and impose late fees 100% of the time. Rent is due on the 1st and here in North Carolina, its late after the 5th. Now if you don't take your business seriously, how can you expect your tenants to do so. You are as big of a priority as you make yourself. And the moment you let it be known by your tenants that you will allow late rent payments without charging a late fee and without proceeding with legally allowable actions in your state to enforce on-time rent - you are certain to get MORE late rent.
Your priority suddenly drops to the bottom of the list, and then anyone and everyone will get paid before you do. Always, always, always - charge a late fee (the maximum allowable by law in your state) - no exceptions! If you do make an exception (you shouldn't), don't have it be for the late fee - charge that every time. But after imposing the late fee, for a long-time tenant with an otherwise good history of paying rent on time and not violating the lease (in other words, no problems caused) - I may choose NOT to post and send the North Carolina 10-Day Pay or Vacate Notice - if they make a partial payment. And then allow them to catch up in the following month. So far every time I've done that (meaning twice), the tenant did get caught up the following month, including the late fee. But the point is, I still imposed the late fee. And that fact has resulted in persons suddenly coming up with the funds more often than not - upon being told the late fee would not be waived, regardless of the excuse. And I've heard some good excuses.
You see, most landlords have debt on their properties and thereby a mortgage to pay each month. That is in addition to taxes, insurances and maybe an HOA. Plus keeping reserves for repairs and maintenance, capital expenditures (large ticket repairs, like an HVAC or roof replacement), vacancy, and hopefully property management (even if just paying themselves to manage). Once all these (and maybe other) expenses are accounted for, the average Landlord is lucky if they get to keep $100 or maybe $200 of the rent for themselves. Some keep even less than that and are not accounting for reserves. And sure you have the Landlords who have paid their properties off after having owned them forever - and so they have no mortgage payment. So this Landlord is likely getting to keep most of the rent for themselves at that point. But they've earned that money, likely over decades. This rental is now likely their source of retirement income.
So I say all that to point out that when a tenant pays their rent late, they are effectively borrowing money from the Landlord (depending on your prospective you could even say steeling) - as its against the Landlords will. Someone has to pay that mortgage (and its supposed to be the tenant), so if the tenant does not pay their rent on time, it has to come out of the Landlords pocket. That's not fair to the Landlord (mortgage or no mortgage) - if money due is not being paid when due. Now this assumes the Landlord is doing their part to provide a home fit for human habitation and is fully upholding their obligations within the lease. But if so, you can't walk into a restaurant, eat a nice meal, and then when the bill comes - ask to see the manager and explain that your grandma died, or your car broke down, or you lost your job... So you'll not be paying for this meal you just ate at this time. You'll go to jail because that's called theft! And food is even more essential to life than shelter - but both are required. But for some reason we treat it differently when a person tries to eat for free than we do when they try to live in someone's property for free. I don't see the difference. Why is one OK but not the other? Neither is OK.
So don't tolerate it... Charge a late fee as large as is allowed in your state or city and post or send a notice as permitted by the laws in your area to immediately start the clock moving towards eviction. What you'll find is that with this handling firmly established, you'll rarely have to deal with late rent and you (like me) will avoid having to evict anyone. I'm 4 years in and still avoided that outcome. Sure it'll happen one day, but it won't be due to me being lacks on my rules and following my lease.
#3. Stop Renting To Friends And Family.
I know... It's hard to say no - especially to friends and family. But you're running a business - not a charity. If you want to keep the relationship, saying NO is the only way to do so. But you say "I'm renting to my friend or family member at the same rate I would rent to someone else" - what difference does it make!? When your friend or family member pays late (and they WILL pay late eventually at some point) - are you going to be able to impose a late fee? And if you do, how are they going to feel about it? What are they going to think of you?
Human nature is such that they are going to feel you have done them a great disservice, even betrayed the relationship by imposing a late fee. And they're NOT going to feel the same way of themselves for having paid late in the first place. Because they don't have a house, and you apparently have two or more - how date you! Human nature will force them to see it no differently than if they were starving and their you sit with two melons - refusing to share with your beloved friend or family member. How dare you! They will not see this as your business, and even if they do - still, how dare you! We're friends! We're family! It's a no win situation for you.
Will you be able to put them out of this house (not renew their lease and require them to vacate or even evict them) - should they stop paying the rent or otherwise violate your lease? I don't even know you and I know the answer is NO. You would allow them to remain rent free, because they lost their job, or got injured, sick or are in the hospital or someone died or whatever is the excuse. And now suddenly you are losing hundreds, maybe a thousand or more per month over someone who if they had asked you to borrow that same amount of money, you likely would have said NO to that request. But now because you've allowed them to rent your home, the same situation is at play, and will continue month after month with no end in sight - because you went into an uneven business relationship with a friend or family member.
Now I'm not saying to never do business with friends or family... But if so, it should be an even business relationship where both have to contribute and will both benefit in an equal or similar manner from the effort - business partners. But the dynamic at play in a Landlord / Tenant relationship is NOT a partnership, and when it's between friends and family it's certain (not likely, but certain) to fail - and you as the Landlord will be the bad guy in everyone's eyes.
DO NOT rent to friends or family. But if you just can't avoid it (and you should avoid it), then in addition to the lease, have the person sign and notarize a letter explaining that they will get NO PREFERENTIAL TREATMENT as it relates to the lease and tenancy. And then get all the related parties together and have them all on video as you clearly explain and they acknowledge (on video) that they are entering into a lease as your tenant and they will be treated just like any other tenant. That you will enforce your lease, late fees, eviction, and all... just as you would with any other tenant. And if they put you in that position FOR ANY REASON (make clear it doesn't matter what the reason is, and name some that are likely) - it is their fault, not yours.
But even with that extra document and video, it will still go badly in 98% of cases (that's a stat resulting from an extensive research study by the Do Not Rent To Friends or Family Society of America that I just made up for emphasis). But now at least you have them in writing and on video in their own words acknowledging how a lease violation will be handled and that they will get a late fee and all just like any other tenant.
So a few years after you were forced to evict them and you run into them again at the family reunion, you can play the video for them (keep it on your phone) and maybe sufficiently removed from the emotion of the situation and some time has passed, they may be able to see your point, finally - and salvage the relationship. Or you can just avoid all of that by NOT RENTING TO FRIENDS AND FAMILY in the first place - Don't do it!
# 4. Stop Failing To Screen Your Prospective Tenants Properly
This may be even more important than #1 and #2 combined! Because if you don't allow the wrong tenants into your rentals to begin with, then they won't expect to pay rent in person. They'll want and expect to pay rent online and will be disappointed if you're not setup for it. And they won't pay rent late often (if at all). The vast majority of my tenants haven't paid rent late even a single time in years of being tenants. And for the few that have paid late, when it does happen, its rare.
I do have one tenant who pays late on a regular basis, and they were already in the home when I bought it - so they never went through my Tenant screening process. And because they are otherwise good people and decent tenants, I allow them to remain despite the late rent payments. But had they not already been present when I bought the house, it's unlikely they would have made it through my screening process.
Do you just take an application on paper and get "a feel" for the person? Or do you actually check credit reports and scores (more on credit scores in the second half of the list)? Do you pull criminal background checks including liens, judgements and evictions (as well as eviction filings)? Do you verify employment and pay by more than just a pay stub, which can easily be faked? Do you verify rental history, including calling their most recent 2 or 3 former landlords? And when calling the former landlords, do you just use the details that the tenant provided on their application and assume it all to be legitimate? I don't, I undertake a few additional steps to make sure the person I'm speaking with is not just their cousin or someone who they told to expect my call, since they may not want me speaking with their actual current or former landlord.
Do you actually check the references provided? Because if they can't find 3 or 4 people who will say good things about them, then why would I want them to be my tenant!? And theoretically, these provided references are among the best people in their life for me to speak to as to their character. So I'm going to be interviewing them a bit as well, because if they are the best - I want to get an idea of where they stand related to the worse in this person's life who is seeking to live in my $120,000 or higher investment property - that I don't want damaged. Nor do I want to be dealing with a problematic tenant for a year and have a tenant turn-over after only one year. So do you check social media of your prospective tenants? If not - Why not!? Its great to see them on Facebook or Instagram smoking with their dog while they claimed on the application to be a non-smoker with no pets.
And even beyond that, my tenant screening begins even before the first contact, with how I write-up my rental listings and the directions I provide on how to inquire about the home, which then gives me a clue as to if this person can follow directions or not. This then brings me to the next item on my list...
#5. Stop Doing Things Manually (Again, It's Not 1989) - Systematize And Automate!
My tenant screening (as with just about everything I do in business) makes heavy use of automation. From the first contact to inquire about a vacant rental, I send back an automated email response that tells them how to apply online, how to request a showing, and my full rental criteria, along with some highlighted rules that are often points of conflict with tenants. For example, I let them know right in that first email communication that we charge a 5% late fee at 6PM on the 5th and post a 10-Day Pay or Vacate notice the following morning on the 6th. So right there if a person knows they'll be paying rent late, they move on to the next listing (yours) because they do not want to be bothered with me.
As one prospective tenant said to me when I asked why she cancelled her showing appointment... "I read the email that goes out and it seems like you get evicted for breathing too hard" - as that email mentions the many reasons why we'd have to proceed with evicting a person for certain violations and other rules that we enforce. If their going to have a disallowed pet, or a non-approved person living in the house, or smoke, or pay rent late, clog up the toilet and expect me to pay for the plumber - or any number of the other things that tenants often do to give landlords headaches... Why would they want to live in one of my houses when it is clear from the start that I'm not going to tolerate any of that and we're going to be in constant conflict resulting in their getting evicted for a lease violation - why bother!?
It would be so much easier for them to just keep looking elsewhere until they find YOU and YOUR rental listing and quickly learn that they can just stop by your house to pay rent pretty much any time, whenever they want (because you're not going to charge a late fee). And it doesn't matter that they smoke and have pets and will have their boyfriend or girlfriend living with them who has a record and is on the sex offenders registry - because its not like you're going to check or do any sort of real tenant screening anyway. And you're certainly never going to do an inspection, so they can pretty much do whatever they want once they get in. And then you wonder why your properties keep getting trashed and you're always in conflict with your tenants and HATE being a Landlord.
Whereas I love being a Landlord and get along great with my tenants (for the most part). And those I've not gotten along with in the past was a failure of proper screening on my part, for which I've since improved my process. Whenever I encounter a problem of any kind, I ask myself - what could I have done in the beginning to have avoided this issue? And whenever I find myself in a time wasting situation, I ask - how could I have avoided this? That's why I'm heavy on use of automation, as it both protects my time and helps to eliminate those people from consideration as tenants who will not work well in my systems of automation.
If a tenant calls me on my office number , which forwards to my cell (some know my cell phone number directly, which I still debate if that is a good or bad thing), and they report some issue that needs attention. I thank them for letting me know, and then I direct them in opening a ticket to report that in a manner that will allow me to forward it to the team member who will be taking action on it. It doesn't take long before they get the message that calling me to report an issue is a waste of time, as it falls outside of my automation system. But if they report the issue in the correct manner (from the start or after being reminded to do so), it then populates our system with a priority assigned and a related team member tagged to handle. I've got a portal and help desk and email processing into tickets within the help desk... it's all great and a great saver of my time. And the tenants are forced to do things in a manner that works best for ME, which then indirectly also works best for them. That is if they want the issue handled (which I assume they do), which I will gladly do promptly - once it has been reported in the proper manner.
Use of automation saves your time and makes you a more efficient Landlord... So STOP doing things manually.
Due to time, I'm going to end this episode here at #5 as Part 1; and I'll continue next week with #6 thru #10 as Part 2 of "Self-Managing Landlords - 10 Things You Just Need To STOP Doing!"
I'll also have another interview episode coming soon, along with an episode announcing the official launch of Blue Chariot Realty. I got two houses under contract for clients this past weekend to close next month, so I'm excited to speak about what I can do for clients as a Realtor and Broker-in-Charge of Blue Chariot Realty for which the Website is BlueChariotRealty.com. I can aid those local to the Raleigh / Durham area who seek to buy or sell a house, as well as, Investors in other areas seeking to obtain rentals in this market.
And of course if you already have rentals in the Raleigh / Durham area, visit BlueChariot.Management to start a conversation about me and my team at Blue Chariot Management taking over the property Management duties for your properties - as we certainly don't do any of the 10 things on this list that Landlords just need to stop doing.
In this 18th Episode of the [...and Landlord!] Rental Real Estate Investing Podcast, I speak on "Self Managing Landlords - 10 Things You Need To Stop Doing!"
But it got a little long on time, so I actually ended up splitting it into 2 Episodes, with this Episode #18 being Part 1, featuring #1 to #5. And Part 2 will be Episode #19, featuring #6 to #10.
The first 5 of 10 Things That Self-Managing Landlords Need To Stop Doing - covered in this episode, include...
1. Stop Collecting Rent Like Its 1989
2. Stop Allowing Tenants To Pay Their Rent Late
3. Stop Renting To Friends And Family
4. Stop Failing To Screen Your Prospective Tenants Properly
5. Stop Doing Things Manually (Again, It's Not 1989)
Come back next week for Episode #19 to hear the next 5 of 10 Things That Self-Managing Landlords Need To Stop Doing - resuming from #6.
All 10 items on the list are things that are common for Self-Managing Landlords - and I've been guilty of some of them myself in the beginning. And the longer a person has been a Landlord, the more likely they are to be guilty of multiple things on this list - like those who started in the business in the 80's or 90's or before.
If you're going to be a Self-Managing Landlord, then you need to stop doing these things. Or, you should outsource your Rental Property Management to a professional like me and my team at Blue Chariot Management.