This year at Aborn Properties, we are celebrating our 40th year in business. During that time, we have seen real estate wax and wane and the Bay area and Silicon Valley change dramatically. Throughout all 40 of these years, our services to our owners have remained the same. We bring our experience, knowledge and commitment to every owner and investor we work with.
Our experience is based on the company’s 40 years and my own personal 22 years of experience in the real estate and property management industry. I also grew up in a real estate family, where dinner table conversations were frequently about laws, transactions, tenants and what was going on in the market.
I am personally committed to ongoing knowledge. On behalf of Aborn Properties, I attend conferences and classes so that every year, when information changes, our owners have access to tools and resources that are as accurate and up to date as possible.
We are extremely committed to the local area. We have a lot of business history here, and I grew up here. We believe in giving back to our community, and we do our best to serve as business leaders. We love meeting and seeing families we have worked with at local restaurants and at the supermarket. Sometimes, I even run into tenants who remember me, even though it’s been so long that I can’t remember them. We have families that have been with us who can recommend us to their parents and children. In the cases of both owners and tenants, we have worked with multiple generations of the same family. We appreciate their trust and loyalty, and we always do our best for them.
Once you have screened and selected a tenant, you need to pay attention to how you implement the lease and explain your expectations. This is an area that a lot of landlords pass by and then later wish they hadn’t. An alternate title to this blog could be: “What Starts Badly Ends Badly.”
We have found that being clear about our expectations before tenants enter into the rental agreement makes it more likely that they will in fact do what we expect of them. When we go over our expectations, we have had experiences where tenants decide they can’t or won’t take care of the property the way we need them to. We are glad to have those tenants go away before signing the rental agreement because they would have been a problem later.
We put everything in writing. We have a tenant handbook, where we cover everything we expect. This includes repairs, landscaping, painting and remodeling and appliance repair. Many landlords leave appliances in the unit and expect the tenant to take care of them. We call them courtesy appliances, like washers and dryers. They aren’t the systems of the house, which are the landlord’s responsibility. But if you expect the tenant to pay for repairs on things like the washer and dryer or refrigerator, you need to put it in writing. They are going to expect that you’ll take care of those things. So put that in writing from the beginning.
Trash is an area in San Jose that has frequently caused some conflict. Landlords believe that trash is a tenant responsibility. The City of San Jose used to allow tenants to open up their own trash accounts at the properties where they were living. However, that law has changed and now landlords must put the trash in their name. We add the trash cost to the rent. So if we quote the rent as $2,000, we will actually have the tenant pay $2,028 per month because the $28 is their trash cost. These are areas that you really want to get an understanding right in the beginning before rental agreement signed.
Move In Condition Report
As soon as you hand over a key, the person becomes a tenant. Make sure you collect all the money; the first month’s rent and deposit. We collect it all up front. If there are days to be prorated, you can do that in the second month. Get the money up front. Make sure you have taken pictures and have a complete statement of condition of the property. Every item needs to be checked. Have the tenant sign that form. If you need to explain to a judge why you’re keeping some of the security deposit for repairs, you’ll want to have a picture of the before and after condition. So have a picture of the perfect wall behind every door. Then, when the tenant puts a doorknob through the wall you have the before and after pictures.
Another area frequently missed is what should be done in case of a major earthquake. It might affect your property. So when moving tenants in, show them where gas shutoff is and the shutoff for water systems. If there is a broken pipe or there’s gas leaking, they know how to shut it off. This saves them from injuries and protects your property from damage.
The process of selecting and notifying tenants is just as important as tenant screening. In a previous blog, we talked about screening. Today, we’re talking about how you should go about choosing your tenant and getting your lease signed.
The selection process needs to be fair and complete. It’s an area where fair housing laws are very strict. When you’re selecting tenants and there are multiple applications, you need to prove there is no element of discrimination except the qualifying criteria you have applied to everyone.
Collecting a Deposit
After the screening process, notify the tenant of your approval and get your deposit to hold right away. Don’t take the house off the market in the hopes that they will enter into a contract with you. In our case, we give the approved tenants 24 hours to come in and bring their deposit in a secure form like a cashier’s check or bank check. We then get the lease signed right away. That way you know you’re done with the process and you have the security deposit.
Have a valid lease. The rental agreement needs to be legal and comprehensive. If something was to go wrong and you need to go to court to evict the tenant or get resolution to a disagreement, you want to make sure that your document is valid and that the court will side with you in any dispute with the tenant. There are several groups that can help. The Rental Housing Network in Santa Clara County can help you with forms. One really valuable form they have is a known valid rental agreement. They are also a group that empowers you to get credit reports. They can be very helpful when you’re managing your own property, so make sure you use all the resources they have available.
Proper tenant screening is crucial and it’s one of the areas that professional property managers can do better than individual landlords. We screen so many people that we have systems and processes in place that are designed to protect landlords and owners. You have to know exactly what you want, and resolve not to settle. Sometimes landlords get a little anxious when their property is vacant on the market. But you have to know what you want and keep your standards high.
Application and Credit
The application is important. Make sure your applicant fills in every question. If its non-applicable, have them check it as not applicable. Sometimes people won’t necessarily lie on their application, but they leave information out, especially if there’s something they’re not comfortable disclosing. When you get the credit report, set it down right next to the application. Make sure that all the landlords they have listed and the previous addresses they have stated match in both the application and the credit report. Sometimes they’ll leave out a landlord who had to evict them or would say something critical.
Ask for pay stubs to check your applicant’s income. Then, call the supervisor. The one question we always ask is this: what is the chance that this employee will be employed for the next five years? No employer will guarantee that, but if there is a layoff coming or the company is thinking about going out of business, you can hear that if you ask the right question.
Check previous landlord references. The current landlord may have a vested interested in glossing over what they don’t like about the tenant, especially if they are in the process of evicting that tenant or anxious to get rid of the tenant. Talk to former landlords. If the tenant was a good tenant, there’s a chance that landlords from years ago won’t remember that person. However, if the applicant was a problem tenant, the landlords will remember.
Know what you want and don’t make exceptions. We have a rule about evictions. If the landlord had to pay money to get rid of the tenant, we don’t want the problem. This will serve you in your screening. If you have any questions about tenant screening, please feel free to contact us at Aborn Properties.
Record keeping can be a bit of a challenge, but good documentation will help you stay organized and compliant as a landlord. Commit to doing contemporaneous record keeping, which means you record and track things as they happen. This makes keeping good records easy.
Owning a rental property is a business and there are a lot of expenses you can take against it at tax time. However, you can only benefit from these deductions if you write them down and recall them. There are several good and inexpensive software programs available to you. QuickBooks has a template for landlords. Good recordkeeping need not be difficult. In April, you can easily go back and see all your income and the money that you’ve spent, and it makes it simple at tax time.
If a dispute arises between you and your tenant and you go to court, judges are impressed with a well-organized document file. You can easily pull the lease or any Three Day Notices you have filed. You will have any documents that the court asks for in one place, and you’ll know they are complete. Judges are also impressed with a well-organized contemporaneous rent roll so you can show the judge exactly what the tenant owes you.
Budgeting and Holding Money
The idea of budgeting and holding money is an important one. Very few owners do this but the owners who do it are by far the most sophisticated investors. For example, your roof has a life expectancy. If it’s brand new, then maybe you have 20 or 30 years of life in your roof. But it will fail at some point. If you know you’re going to sell the property in 10 years and you have a brand new roof, you don’t have to save for a roof. But if the roof is 15 years old and you plan to have the property for 20 years, figure out what the new roof will cost and start putting aside that money. Saving for things like roofs, heating, air conditioning and other systems that are landlord responsibilities will help you be prepared. When those systems fail, you don’t have a cash flow emergency. It provides a little buffer so you have some money set aside for those things that are legitimate business expenses. It’s really a best practice and for most of the owners who have been able to do this, it’s made them happy with their rentals.
Taking care of maintenance and repairs efficiently is essential to retaining high quality tenants. You need to know what repairs are your responsibilities. Systems within the property are an owner’s responsibility unless the tenant has done something malicious or something to shorten its life. When something goes wrong, do the repairs quickly. Nothing makes your good tenants want to leave more than having to live with problems that don’t seem to be of interest to the owner.
Doing Work Yourself vs. Hiring Others
Many rental property owners ask if they should do the work themselves or hire a contractor. If you have the skill to do the work and you can deliver high quality results, the option is available. But never let your investment become a millstone. So many people sell their properties because they don’t want the problems or they get tired of the maintenance. Those problems can be solved by others.
Repair Costs vs. Value
If you do the work yourself or with others, watch your costs but don’t be cheap. Sometimes the low bid or the cheapest thing is not the best business decision. I was at a meeting where a carpet contractor was talking about what happens to the cheap carpets. They crush in the high traffic areas and need to be replaced after each tenant. They might be cheaper, but if you invest in nylon carpet it will last four to six years, so you have that same carpet through several tenants. It ends up being a better bargain even if you had to spend a little more.
Build a vendor relationship. Look for small contractors who can do all the things you can’t or don’t want to do. they will give you a break in price or give you better service knowing that they are dealing with your own home and your rental property. This builds a relationship that makes things less expensive and easier on you.
Maintenance can be burdensome. But you need to jump on every kind of maintenance. Do not be the landlord who thinks he has a great tenant because the tenant never calls for repairs. After that tenant moves out, you may find you’ve had a water leak for four years and now you have to replace the cabinetry under a sink. Take good care of your property. It’s a great investment and will serve you in the long term if it’s well cared for.
Your first two responsibilities when you’re a landlord is to prepare your property for the rental market and advertise that property so you attract good tenants. There are a few things that will prepare you for these steps and ensure you are successful in completing them.
For advertising today, it’s all electronic. There are no more ads in newspapers or flyers. When people want a rental today, they go to the online marketplace. Sites like Craigslist, property management websites, Trulia and Zillow are most popular. Tenants look for properties online, and that’s where you need to be for them to find you.
Don’t oversell your property. Make sure what you say is the truth. Nothing looks worse than putting the property in the wrong area when you advertise. Remember that pictures sell. They set your ad apart so when you’re doing online ads, make sure you have good pictures of the home’s inside and outside.
When you’re leaving contact information in your advertising, don’t use your cell phone number. You probably won’t want your tenant to have your cell number. Many landlords prefer to have a seldom-used number or a number just for their business responsibilities. Let that be your phone number.
Rather than show the property to everyone who is interested, try to prequalify tenants on the phone. Know your rules and apply them to everyone. Make sure you can never be accused of a fair housing violation because you weren’t consistent. We recommend your income standards are that a tenant earns at least three times the amount of rent. That ratio works well. If a person is paying more than a third of their income for rent, they may have a problem paying over the long haul. Make sure your rules are reasonable, apply them to everyone and you won’t have a problem. You also won’t spend time showing the property to those who don’t qualify.
Preparing the Property
Most people drive by the property before they see it, and if the curb appeal isn’t good – they won’t show up for your appointment. Prepare the property for the tenant you really want to have. Tenants who will put up with a dirty or beat up house will also not take care of it in a way you’d want them to.
Many of the property owners we work with don’t really know what to expect from their tenants. Landlords would love for the house to come back the way it was given to a tenant and they would like the rent to be paid on time every month. Beyond that, they don’t really think about what they want from renters.
There is a lot more to the landlord/tenant relationship. Take some time to think about what you expect from a tenant, and when a lease is signed, tell the tenant exactly what you want and need. Be courageous and tell the truth. You have to be willing to tell your tenants what they need to know.
For example, if you have a zero tolerance policy for late rent payments, explain that. In addition to having an open conversation with your tenants, put it in writing. The lease is a good place to state your expectations clearly. You should also address maintenance procedures and limitations. At Aborn Properties, we do not allow tenants to do their own maintenance under any circumstances. We sometimes get tenants who want to know if they can cut down their rent in exchange for maintenance work. Our experience is that the maintenance will rarely get done well and then you’re still not collecting the rental income you wanted. You might as well pay the price you’re going to pay in order to have a qualified contractor who will stand behind the work.
We always suggest you keep your motivations in check when you are determining what you want from your tenants. Have a maximum late fee if you don’t want any rent to come in late, and charge the tenants if a 3 Day Notice is required. This will help the tenant understand from the start the importance of paying on time. You have to know what you want and you can’t say one thing then do another thing. Be consistent and fair. Before you enter into a business relationship with your tenants, you need to have your goals and expectations clearly defined and communicated. It will save you a lot of time and frustration.
If you have any questions about maintaining a good relationship with your tenants, please contact us at Aborn Properties, and we’d be happy to help you.
Choosing the right vendors to work on your rental property is extremely important. We have a lot of clients ask us why we will only work with vendors who are licensed and bonded. We do this to protect our property owners. If there is an injury on your property and the contractor doing the work isn’t licensed or insured, you can be liable for any worker’s compensation. That’s not an expense most property owners plan for, and that’s why it’s important to make sure your vendors are properly bonded.
We also have clients ask if they can do the repairs themselves. Absolutely, if you have the skills and the expertise and the time, you can make any necessary repairs or take care of maintenance issues that you’re familiar with. The one thing we stress is that you have to make sure you are able to make those repairs in a timely manner. The work has to get done right away and it has to be the highest quality of work. If you or someone you know is able to fix something or perform routine maintenance, do it. Just make sure you do it immediately. You cannot keep your tenants waiting. If you wait three weeks to make even a minor repair, your relationship with that tenant will suffer.
At Aborn Properties, we recommend you find a small contractor who runs a smaller company and does good, reliable and affordable work. The best contractors will easily understand what you want and be willing to go out there and get the job done. Finding a reliable contractor will save you money and time in the long term.
You don’t want to go straight to the biggest ad in the yellow pages. That company has to pay for those big ads, and you might find yourself having to help cover the cost by paying higher rates. People often ask us about the low bid process and for most small jobs, going through a bidding process can actually cost you money. Most people don’t want to pay for just the bidding process. Choosing the lowest bid can also be detrimental. That low bid often won’t be there when you have to have the contractor come back and do the work that wasn’t completed correctly the first time.
Try to get work that is in the top third for prices that are in the bottom third. We have found that works out well and when you develop relationships with vendors, it’s easy to do. Maintenance will eat you up as a property owner if you don’t do it well and it affects your bottom line. You need to develop an efficient maintenance process for your rental home.
Any time a landlord or an investment property owner asks us who sets the rent for the properties we manage, our answer is: you do. Every tenant and every landlord has a role in setting the rent as they begin to develop their relationship. The rental market also has a huge say in how much you can charge for renting out your property. In single family residences and condominiums, no one owns enough of them to set one price and have it be dominant. Likewise, tenants are on their own in shopping for properties and deciding how much a home is worth. This is truly a supply and demand model, and that’s the only way to judge the market.
If you are managing your own property and setting a price for that rental, a good starting point in virtually every city and community is Craigslist. Although the Craigslist site won’t tell you what the owner ultimately ends up getting in rent, it does tell you what price the owner offered. It’s a good starting place for you to begin developing your understanding of fair market rent in your area.
The right price almost always depends on size and location. Rarely does it have anything to do with granite countertops or Jacuzzis or stainless appliances. When you’ve got a single family home, you’ll get a good price on a four bedroom house because families need bedrooms for their children and they will likely need more than one bathroom and possibly a fenced yard for the kids to play.
If you advertise on Craigslist, you might get 25 calls in the first week, and that will seem successful. You might feel like you’ve priced your property correctly, and you’ll have no problem finding a tenant quickly. At Aborn Properties, our ratio is about 100 to 1. That means we believe it takes 100 calls to reach that one great tenant for your property. You want to get a good volume of calls, and if you aren’t getting that volume, you need to re-examine your price.
You do not want your property to sit vacant for even one month because that lost rent cannot be made up. Every day that your place isn’t rented is a day that rent is lost for good. When you set the price, be responsive to the market. If a lot of people are interested in the home and you have a good pool of applicants, you can be sure your price is right.
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