Archive for the 'Tenants' Category

How To Keep A Good Tenant Without Going Broke

said on June 28th, 2017 categorized under: Tenants

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One of the greatest fears many Minneapolis duplex owners have is losing a good tenant.

A good tenant is usually defined as someone who pays rent on time, keeps their unit relatively clean, and is realistic insofar as what the landlord should repair in a timely manner.

Let’s face it; good tenants make like easier for duplex owners, and great tenants — the ones who truly treat the property as if it were their own, are a dream come true.

Generally speaking, the landlords I run into will do almost anything to keep a good or great tenant from leaving. Most often, this strategy entails keeping rents 20 percent or more below current market rates. After all, the theory goes, why would anyone leave if it’s going to be more expensive elsewhere?

I understand that logic. And yet, my question is; if rent was just 5 or 10 percent below market rates, wouldn’t it have the same result?

Tenants study Craigslist. They know when they’re getting a great deal. Odds are they aren’t going to spend money renting a truck and plying their friends with beer in order to get help moving if they’re still getting a good,  but not great deal.

And if they’re a long term tenant, odds are the property’s expenses have risen during their residency. Higher costs, without a corresponding increase in revenue result in reduced cash flow.

As a duplex investor, cash flow is important not only for the highest rate of return on the dollar, but also for the value it adds to the property when it comes time to sell.

After all, the financial rewards of real estate investment are why most of us got into owning duplexes in the first place.

 

 

How To Use The Fair Housing Act To Screen Tenants

said on August 17th, 2015 categorized under: Buying A Duplex, Tenants

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duplex tenant screeningI am in the process of renting a vacant unit I just got done rehabbing.

As I look for a new tenant, I am trying to use my experience with the last residents to guide me.

Frankly, there were warning signs with those people the day they applied to rent the unit that I didn’t heed.

And I’ve since come to the conclusion that had I simply had written criteria for tenant selection present at the property when they applied, they may never have even filled out the paperwork.

The federal Fair Housing Act prohibits landlords from discriminating against a prospective tenant due to race, color, national origin, religion, sex, disability, and familial status. State laws (depending on where you live) may go further. In Minnesota, for example, landlords may also not prohibit someone from renting due to creed, sexual orientation or public assistance.

The easiest and best way to make sure to be in compliance with these laws is to have a written set of criteria as to what you are looking for in a tenant. This list is just a set of guidelines available for prospective tenants to view before applying for the property.

For example, these guidelines may include things like:

  • Must have no criminal background.
  • Must have no prior evictions.
  • Must have verifiable employment history.
  • Must have landlord references.
  • Must have a minimum credit score of 600 (or whatever number is acceptable to you).
  • Must provide a copy of a drivers license.
  • Must provide an application fee (equal to the amount the company you use charges for a background check)
  • Maximum percentage monthly rent must be to income.

It is the last item on the list that would have saved me the challenges caused by my last tenant. After paying rent, they were left with about 40 percent of their monthly income to live on. I discussed this with them at the time, voicing my concern, but didn’t have it clearly stated as a barrier to application.

They were persuasive, and I didn’t stick to my guns. Of course, as soon as life threw them a curve, it affected their ability to pay rent.

Looking back, I wonder if I’d had the written criteria stapled to the application like I do now they would have even applied.

Lesson learned. Not only does having this information on hand protect me from the risk of being accused of discrimination, it would have saved me court costs, rehab costs and all the lost income from the months the property was vacant and being repaired. The tenants who talked me into renting simply wouldn’t have applied in the first place.

 

 

Where Is The 24 Hour Notice Law Written?

said on April 28th, 2015 categorized under: Tenants

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residential tenancy agreementOne of the most frustrating things Realtors run in to when trying to show a duplex listed for sale on the Multiple Listing Service (MLS) is the misconception that tenants are required to receive 24 hours notice prior to a showing.

Realtors and our clients are often trying to coordinate times to look at properties, and then to concentrate showings in a geographic area. There may, for example, be three or four properties in a city or neighborhood we have interest in seeing.  In the interest of efficiency, we try to schedule them all at the same time.

Both agents and their buyers understand we are visiting a tenant’s home. We will do all we can to provide as much notice as we can to them that we would like to see their unit. However, a full day’s notice isn’t always possible. And if all the other duplexes are available to be seen with less notice, odds are very high we won’t circle back to that neighborhood to look at the one that required a day’s notice until we’ve exhausted all of our options elsewhere.

Many landlords are afraid of losing their tenants as a result of either them not having ample notice for a showing. However, if that tenant has a valid lease, leaving for that purpose would be a violation of that legally binding document.

Minnesota landlord/tenant law states a landlord may enter the premises at any time for business purposes provided there has been a reasonable attempt to notify the tenant of the visit. No where in Minnesota state law is that amount of time defined.

Successful duplex sellers simply have a conversation with their residents before the property is actively listed on the MLS. They explain the tenant is protected by his or her lease and can’t simply be kicked out because there’s a new owner. They add the residents are not required to leave for showings. And finally, they explain while everyone will do all they can to provide notice, they are not entitled to 24 hours, nor the right to refuse showings.

I have seen many sellers lose sales opportunities because they didn’t understand the law; and it cost them thousands of dollars.

Minnesota Landlords Face Annual Deadline

said on January 22nd, 2015 categorized under: Tenants

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duplex owners face state deadlineIt’s almost the end of January, which means Minnesota landlords are facing the deadline for issuing Certificates for Rent Paid (CRPs).

All rental property owners and managers must issue a certificate to anyone who rented from them in the previous year.

The CRPs must be provided by January 31, 2015 if you either paid taxes on the property or made payments in lieu of taxes.

Renters need this form in order to file for what’s often called the “renter’s refund”, more formally called the Homestead Credit Refund and Renter’s Property Tax Refund.

Failure to issue the CRP on time may result in a fine of $100 for each incident, so it’s best to get them done.

 

Section 8 Wait List Expected To Hit 60,000

said on January 20th, 2015 categorized under: Tenants

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section 8If you have a tenant struggling to pay rent, you may want to encourage them to explore Section 8;  federal program that helps low income residents pay rent.

While this isn’t an immediate fix, last week, the Metropolitan Council did announce for the first time in 10 years it will add new names for a wait list for Section 8 housing vouchers in the suburbs.

Section 8 is a federal program that helps low income residents pay rent; covering as much as 70 percent of the monthly charges.

It’s expected that 60,000 people will apply for just 2000 spots chosen by lottery to be placed on the wait list.

The demand is the result of a 2.4 percent vacancy rate across the Twin Cities; down from 2.5 percent one year ago. High demand has forced rent to rise.

The Met Council found in 2013 that one in three rental households could be considered “housing cost-burdened”, meaning they spent nearly 30 percent of their income toward housing. Another 13 percent of households were severly housing cost-burdened, spending 50 percent or more of their income on housing. This means that almost half of all tenants in the seven county metro area are cost burdened.

On average, it’s taken seven to eight years for a family to move from the Section 8 waiting list into an apartment.

Vouchers for those who receive assistance in this case may not be used in Minneapolis or St. Paul. They may, however, be used within Carver, Anoka, suburban Ramsey and Hennepin counties.

The Section 8 application window will be online only, with applications accepted through the Met Council’s Housing and Redevelopment Authority from 8 a.m. Februay 24 through noon on February 27.

 

 

Can You Evict A Section 8 Tenant?

said on November 10th, 2014 categorized under: Tenants

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EvictedIf a tenant whose rent is paid in any degree by a Section 8 subsidy, can you evict them for failing to pay their portion of the rent?

Yes.

A Section 8 tenant who does not pay his or her portion of the rent, whether it’s $20 or $200, may evicted for non-payment.

Eviction may result in those tenants losing their Section 8 status.

The procedures for a Section 8 eviction are the same for a tenant who is not receiving subsidies.

Of course, a duplex owner may also find it just as effective to remind their tenants they may lose their housing subsidy, and at present, not even the waiting list for Section 8 vouchers has availability.

Whose Duplex Lease Is It Anyway?

said on October 16th, 2014 categorized under: Tenants

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residential tenancy agreementIf you buy a Minneapolis duplex that has tenants, do you have to give them all new leases?

Believe it or not, this was actually the topic of a heated discussion between to agents in my office the other day. One believed the buyer of an investment property needed to issue new leases in their own name, the terms of which would be identical to those contained in the lease the previous owner had signed.

The second agent argued leases were assigned to the new owner at closing. This, she contended, would be identical to a bank assigning or selling the rights to a loan to another lender. In that instance, as in this, the only things that change are who the checks are made payable to and what address appears on the envelope.

So who was right?

The second agent.

The lease is the only document that in a way, trumps the rights of the new duplex owner. It follows the property, regardless of who the owner is.

As a result, the new owner can’t kick tenants out, raise their rent or change any of the terms for the length of the lease until it has expired.

Sharing with tenants that they are protected by their lease usually helps put them at ease if the duplex is on the market. Conversely, buyers can rest assured their investment property will be occupied for months to come.

 

 

 

 

Duplex Sellers And Tenants Afraid Of The Dark

said on August 18th, 2014 categorized under: Tenants

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MonsterMany duplex sellers and their tenants believe there’s a monster under their beds.

Sellers fear deciding to sell their duplex will either scare off the tenants they already have, or keep new tenants from moving into the building.

And many new and existing tenants worry  that new ownership will mean a sudden change in living; whether it be an immediate spike in rent or sudden change in rules.

In both cases, those fears are largely unfounded.

The reason?

The lease follows the property, not the owner. In other words, no matter who owns the property, they must honor the terms of any existing lease, unless the owner and tenant mutually agree to a change them.

So a tenant can’t move out until the lease expires. The landlord can’t change the amount of rent either.

The only thing that should change for the tenant is who they send rent checks to.

Granted, tenants may experience rent increases when that lease expires; especially if they are currently paying well below market rents. However, those tenants have no guarantee their current owner won’t raise rent at that time either.

And sellers can still expect their tenants to pay rent on time, and begin eviction proceedings if rent goes unpaid.

Explaining this to tenants in clear, understandable terms often goes a long way toward obtaining their cooperation in showing units while the property is on the market.

More importantly, doing so helps everyone involved sleep better at night.

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one hundred dollarsOne of the challenges many prospective duplex owners face when making the decision to sell is timing the end of tenants lease periods to coincide with the property being on the market.

Some sellers believe it’s best to have a property fully leased before putting it on the market. While this is absolutely the best way to sell most income-generating properties, it isn’t always the case for duplexes.

Why? The answer is simple.  Duplexes have a pool of buyers most large apartment buildings and retail shopping centers don’t: owner occupants.

These buyers are the very reason many duplexes sell for more than what might be worth strictly as an investment property. By en large, these folks hope to live in a desirable neighborhood, in a unit with amenities similar to what they might find in a home, but do so less expensively than if they purchased a single family residence.

And, even if these buyers don’t expect to move in right away, their lender may require them to. All FHA insured financing for duplexes mandate that an owner occupant must take up residency in the property within 60 days of closing.

So what happens if an owner occupant wants to purchase your duplex, but both units are leased beyond 60 days?

I have found that many times when a tenant realizes change is imminent, he or she is receptive to the idea of accepting a  financial incentive to move.

When faced with this situation, most sellers have preliminary conversations with their tenants. If one is receptive, terms are negotiated, with the understanding that payment and notice will be given the day the property closes escrow. In most cases, the tenant receives half  of the compensation at that time, with the balance placed in escrow and released upon successfully vacating the property on time.

Of course, if neither tenant is interested, the terms of the lease survives and the buyer who hopes to owner occupy must honor its terms and conditions until the lease ends.

Don’t Be Afraid To Put Tenants Out In The Cold

said on February 7th, 2014 categorized under: Tenants

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Small houseThere are a lot of misconceptions about investment property ownership in Minnesota.

The two that I hear most often, however, are that a landlord must give a tenant 24 hours notice before entering their unit, and a tenant cannot be evicted in the winter for non-payment of rent.

It is easy to trace the origins of the latter. In Minnesota, the Cold Weather Rule applies to utilities. While it does not prohibit companies from shutting off a customer’s utilities for non-payment, they must reconnect any customer whose household income is at or below 60 percent of the state median income. (Governor Dayton increased the percentage from 50 to 60 percent on February 4, 2014.)

This law requires utility companies to be willing to enter in to payment plans with tenants.

It does not, however, apply to rent whatsoever.

As human beings, the thought of putting someone out in sub-zero temperatures is difficult for many of us. Sometimes tenants take advantage of that; going all winter without paying rent.

Remember, we are running a business; one many of us hope will fund our retirement. A business can only suffer losses for so long, or it ceases to exist.

Of course, if you live somewhere other than Minnesota, be sure to check your local laws and regulations regarding winter evictions.