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Tips For Safer Property Management During COVID-19

Many people are leery of changes, moves or disruptions to their routines during COVID-19 and with good reason. Information may be difficult to distill from regular news sources, so here are seven tips to help you manage a property during this crisis.

Routine Maintenance
There are many routine maintenance activities that must be taken care of regardless of the current pandemic. Garbage must be removed, landscaping tended, and clogged sinks need attention. All the routine jobs that keep your property in good shape can continue to be done with certain precautions.

Create a schedule and let tenants know when someone will be cutting the grass or cleaning public areas of the building. This way contact can be avoided between personnel and tenants. And if someone is moving into the building, it’s important to communicate very clearly during this time.

Showings
Managing a property requires that you show prospective tenants the various spaces that are available to rent.

The safest method is to use digital tools. Use your smartphone to create a virtual walk-through. If a prospective tenant expresses real interest you can text, email or speak to them and find out specific areas they would like to see virtually or take them on an individual tour using FaceTime.

Seriously interested parties can arrange to visit the property in person. Sanitize all touchpoint areas of the home before and after their visit and if you will be there to guide them continue to wear your personal protective equipment (PPE) and ask them to do the same.

Communicate with Tenants
Whether you’re in a COVID-19 hotspot like some luxurious Chicago neighborhoods or a rural area with very few cases, current and new tenants will want to be notified of any changes regarding their homes. If amenities are closed because they could pose a health risk, make sure to get that information to everyone in clear, concise language.

Work out rooms and swimming pools are two areas that potentially involve close contact and potential viral spread. If you would like to make certain amenities available to your tenants, figure out a schedule and a cleaning system that reduces contact between people and sanitize, sanitize, sanitize. Continuous updates, with good and bad news, should be given to residents on a weekly basis.

This assures them that you are mindful of their health. Include links to sites with more information, like the CDC. Send information to tenants using mail, email, texts, and bulletin boards. Let everyone know what additional precautions and procedures are being used to keep everyone healthy.

Protocols for COVID-19 Emergencies
It is a fact that people can carry and spread COVID-19 and never feel ill themselves. Asymptomatic spread is perhaps the most dangerous method of spread because a person does not realize that they are a threat. In the event someone in a building you manage does become ill there are certain legal guidelines you must follow. Though it may seem like a good idea to notify everyone that the person living in unit 2314 has become sick, legally you cannot do this.

Disclosure of such information is a violation of federal privacy laws and can subject you to liability. While there are no mandatory federal guidelines for protocol in this situation, there are guidelines from the CDC, local and state health departments.

There also may be terms suggested in the lease which require a landlord or property manager to notify all remaining tenants of a health threat. Most landlords follow similar guides and protocols, so communication should be very detailed.

Residents should be warned that a co-tenant, employee, or vendor has become infected and has been encouraged to self-isolate. Follow up with reminders to continue to practice precautionary hygiene procedures and limit contact with other people.

Requests from Tenants
Although you may want to limit contact between staff and tenants there are times when an incident requires immediate attention.

Think plumbing. Not only could a plumbing issue be inconvenient for the resident, but this type of issue can also cause serious damage to one or more units.

When something like this occurs make sure to prepare your staff with all necessary PPE to mitigate possible contamination from close contact with a tenant. Assure the tenant that all safety precautions are being taken and if possible, ask the tenant to leave the apartment while the issue is addressed.

Monitor Personnel
It is incumbent upon you to provide a safe work environment for your employees. Taking temperatures before working, asking questions about employees’ contacts and how they are feeling are completely acceptable if your employees are aware of the procedures. Avoiding becoming a virus hot spot is beneficial to you, your employees, and your tenants.

Be Nice
The old saying, “You catch more flies with honey than with vinegar” is always appropriate. Be nice to your employees during these demanding times. You depend on them to keep your buildings running smoothly. Your employees should be your allies in the fight to keep buildings and grounds safe for everyone. Hand out a small bonus periodically. It could be cash or a grocery store gift card — really anything that shows you appreciate the work they do.

With a little kindness and diligent sanitizing, you can easily maintain your properties with safety during COVID-19.

Position Realty
Office: 480-213-5251

Five Ways to Spot Fake Landlord References

One of the most crucial aspects in tenant screening is that of checking your prospective tenant’s landlord references, so here are 5 ways to spot fake landlord references from Keepe the maintenance company.

Unfortunately, some tenants have been known to make up references or list friends or family members as previous landlords. There are even companies that hire themselves out to pose as landlords.

As a property manager, you are bound to receive landlord references day in and day out. Some are beautifully written testaments to the incredible nature of these individuals looking to rent, while others are simply fake, with bogus testimonials about the tenant.

5 ways to spot fake landlord references

Below, we’ve shared some ways in which you can spot fake references.

No. 1 – Call the references yourself
For starters, on most landlord references, they will provide a phone number.

One of the first things you can do to tell if the reference is a fake is to call the number inquiring about a rental. If it is fake, the number either won’t work or will lead to a completely different person or place.

In rare instances, a fake number does lead to an individual, but they may seem to be either untruthful or not detailed in their answers.

No. 2 – Check up on the reference’s name
Go online and Google the reference’s name and look them up on social-media platforms.

Check to see if this person is tied to the potential tenant through tagged pictures and/or posts. If there is a lot of overlap in the people’s profiles, these individuals may have a personal relationship and not a tenant/landlord relationship.

No. 3- Look at tax records

The tax records for all property owners are in the public domain. All you have to do is look up the records for the address where the applicant claims to have lived.

The name on the tax record should match the name you’ve been given. Double-check that the property hasn’t been sold, but otherwise this is a great way to spot a fake.

No. 4 – Analyze a reference’s answers
It’s best to always fall back on your knowledge as a landlord and analyze the answers that the potentially fake landlord reference has given you.

If their answers are vague and don’t have details then it’s likely that they aren’t a real landlord and are instead a friend or family member of the person who is trying to rent from you.

No. 5 – Ask for advice from the reference
 Landlords tend to have the same frustrations, interests, and problems.

It wouldn’t be at all unusual for you as a property manager to ask for some advice from another landlord while calling for a reference. Ask for their procedure for getting rid of a tenant who doesn’t pay, for instance.

A real landlord will have an actual answer, even if they’re not interested in spending much time on the phone with you. A fake, on the other hand, will likely have nothing specific to say. This can help you further determine whether the person on the other line is a real landlord, or someone just posing as such.

In conclusion
 As a property manager, a significant part of your job involves filling properties with quality, long-term tenants. Including thorough reference verification as part of your tenant screening process, such as the strategies above, can help you avoid costly mistakes and keep you a few steps ahead of the game.

Position Realty
480-213-5251

Seven Legal Details to Know About Evictions During The Coronavirus

On March 13, 2020, President Donald Trump declared a national emergency over the outbreak of the coronavirus (COVID-19), a public health emergency that has affected all 50 states, and in conjunction with the Centers for Disease Control and Prevention (CDC) issued a 30-day social distancing guideline for the states to follow. In response, most states have issued further directives to their citizens regarding social distancing, closures of nonessential business, limitations on travel, restrictions on evictions and foreclosures, and cleaning and disinfecting procedures. As these recommendations continue to evolve, landlords, condominium associations and property managers (collectively, Property Owners/Managers) have growing concerns over how the health, safety, security and privacy standards recommended by the CDC will affect the management and operations of their buildings. This article will list practical recommendations for Property Owners/Managers to implement during the COVID-19 event.

1. Understand Your Duty
The general rule of law is that Property Owners/Managers owe a duty to exercise due care for their residents’ safety, with condominium associations having the heightened fiduciary duty to act in the best interest of all of their residents. This duty is generally limited to the lines of ownership of the Property Owner/Manager, i.e., the areas under the Property Owner/Manager’s control. As such, it is important that Property Owners/Managers thoroughly read through their respective controlling documents (i.e., the lease, declaration of condominium or property management agreement) to determine what areas or services are under their control (i.e., elevators, pool, janitorial services, security, stairwells) and what obligations they have to their residents in maintaining these areas. Historically, as long as the Property Owner/Manager exercises due care in maintaining the common areas, courts will not impose further duties (unless the controlling documents state otherwise) on the them. In addition, the controlling documents may detail how additional costs for measures implemented in response to the COVID-19 event (such as cleaning and remediation costs) are shared between the Property Owner/Manager and the tenant.

After reviewing the controlling documents, it is important for Property Owners/Managers to be educated on their local laws and statutes to determine whether there are any additional responsibilities imposed or additional powers granted to them under state law. Most states have a landlord-tenant act, condominium act and/or not-for-profit corporations act that proffers guidance on the rights and obligations of Property Owners/Managers under state law. It is important to note that these statutes do not abrogate, but rather ratify, the common law. In addition, the state statutes can also give broader powers to Property Owners/Managers that are not outlined in their respective controlling documents.

Although the some states statutes were drafted with natural disasters creating property damage in mind, many of the emergency powers granted under the statute can apply to the COVID-19 event, again highlighting the importance of understanding the local laws and statutes of your respective states.

2. Stay Informed
With the ever-changing landscape on the federal, state and local levels, it is vitally important that Property Owners/Managers keep abreast of the directives and orders being issued that may affect day-to-day operations at their properties. Not only are these directives and orders important in helping Property Owners/Managers make informed decisions about next steps during the COVID- 19 crisis, such as whether to close the common areas or limit visitor access, they may also give additional powers to Property Owners/Managers to help protect their residents and their properties during the COVID-19 event.

Staying informed on the Property Owner/Manager level also allows the Property Owner/Manager to make faster decisions, disseminate information to its residents in a timely and effective manner, and ensure that they are complying with local laws. For example, most states impose requirements on Property Owners/Managers to comply with applicable building, housing and health codes.

Lastly, there may be restrictions on Property Owners/Managers related to evictions and foreclosures during the COVID-19 event. Understanding what those restrictions are and how they apply during and after the COVID-19 event will allow Property Owners/Managers to effectively assess the economic impact to their business and the appropriate measures to take to mitigate those risks. In addition, there may be federal, state and local financial relief efforts that Property Owners/Managers may be able to take advantage of to help soften the financial impact of the COVID-19 event.

3. Be Proactive
During these uncertain times, residents may look to Property Owners/Managers for guidance on how to maintain the property during the COVID-19 event. Informing residents that the Property Owner/Manager is aware of the COVID-19 event and is taking the necessary precautions to stop the potential spread of the virus throughout the building offers reassurance to residents and also prepares them for eventual closures of common areas or other emergency procedures that may need to be implemented. Other ways to be proactive include, but are not limited to:

  • Closing down common areas such as pools, clubhouses, tot lots, workout areas or any areas within the control of the Property Owner/Manager that may attract large gatherings.
  • Postponing community events until the spread of the COVID-19 virus is contained.
  • Communicate changes to building maintenance schedules, such as limiting requests to emergency repairs only or delaying nonemergency building maintenance for a reasonable amount of time.
  • Posting the CDC recommended guidelines and materials to educate tenants, employees and visitors about all suggested and mandated “social distancing” and “shelter in place” measures.
  • Thoroughly cleaning and disinfecting common areas to help stop the community spread of the virus.
  • Preparing an emergency response plan for the property.

Another way Property Owners/Managers can be proactive during the COVID-19 event is by being supportive of their residents. The COVID-19 event has been stressful on numerous parties, and emotions may be at an all-time high within the property. Maintaining an open dialogue with your residents and setting reasonable expectations about procedures and the Property Owner/Manager’s general ability to provide guidance during this time are essential to preserving the relationship between the Property Owner/Manager and tenants. In addition, open dialogue with tenants may allow Property Owners/Managers to be better informed about cases of COVID-19 on the premises.

It is important to remember that each state has privacy laws and regulations that must be adhered to, and protecting the privacy of each resident is paramount. Personal information regarding an infected individual should not be shared with other residents within the building, unless prior written consent is obtained. Property Owners/Managers may, however, provide residents in the building with a general statement that an individual on the premises tested positive for COVID-19 and include information on the procedures the Property Owner/Manager plans to implement to clean and sanitize the common areas of the building.

In all, following these three steps – understanding your duty, staying informed and being proactive – during the COVID-19 event may help Property Owners/Managers best address their concerns regarding managing and operating their properties in a safe manner.

4. Federal eviction moratoriums
A portion of the CARES Act that expired on July 25th, 2020 did require some landlords to observe a 120-day eviction moratorium. In other words, even if a tenant didn’t pay rent for 120 days, they could not be evicted legally if their apartment fell under certain conditions—one of which was if your property had been financed by a federally backed mortgage.

5. Local eviction moratoriums
Arizona, has extended its local eviction ban until October 31st, so regardless of any lapse in federal protection, Arizona tenants cannot legally be evicted, nor can their nonexempt property be seized. Therefore, it is very important to check with your local government to see what eviction protections are still in place.

6. Rent is not forgiven
Eventually, these eviction prohibitions will be lifted, and at that time tenants behind in rent payments will have to figure out how they are going to make payments going forward while at the same time taking steps to pay back rent. COVID-19 eviction prohibitions do not usually wipe out past-due rent balances, although local governments may introduce new regulations covering the handling of past due rent when the evictions bans do expire.

7. There is help available
The Arizona Department of Housing has set up a site with a self-assessment questionnaire. Certain persons can qualify for COVID-19 rental assistance by completing the questions and continuing with the assistance process. Check your state’s resources if you think your tenant might qualify for help.

While the CARES Act does offer some protection against negative credit reporting for certain late payments, late rent payments can affect a tenant’s credit score. Many landlords—especially those with only one or two units—generally do not report late rent to credit bureaus and most follow the typical landlord guide on the majority of issues with tenants.

Position Realty
Office: 480-213-5251

10 Laws All Landlords Need to Know

Dozens of federal, state, and local laws govern the residential rental industry and the landlord-resident relationship. All of these laws are important. The following calls to your attention ten important laws for you to know and follow when you’re a landlord.

The Fair Housing Act
The Fair Housing Act prohibits you from discriminating against applicants or residents based on any of the seven protected classes:

  • Race
  • Color
  • Sex
  • National origin
  • Religion
  • Handicap
  • Family status

The Fair Housing Act establishes only the minimum protections. States and localities may set additional protected classes, such as source of income — whether a person’s income is from a job, alimony, child support, unemployment, welfare, disability payments, and so on.

The Fair Credit Reporting Act
According to the Fair Credit Reporting Act (FCRA), you may use credit reports to evaluate rental applications. However, if you deny housing to an applicant based on information contained in the credit report, you must provide the applicant with an adverse action notice that includes the following information:

  • The name, address, and telephone number of the credit-reporting agency (CRA) that supplied the credit report, including a toll-free telephone number for CRAs that maintain files nationwide
  • A statement that the CRA that supplied the report didn’t make the decision to take the adverse action and can’t give the specific reasons for it
  • A notice of the applicant’s right to dispute the accuracy or completeness of any information provided in the credit report, and the applicant’s right to a free report from the CRA upon request within 60 days

The FCRA also comes into play if you want to report the nonpayment of rent to one or more CRAs. If you report a resident for nonpayment of rent and the resident cures the debt, you’re legally obligated to update the resident’s credit report to indicate that the debt has been cured.

The implied warranty of habitability
The implied warranty of habitability requires that landlords provide residents with living space that’s fit for human occupancy. To be habitable, living space must have heat when it’s cold, running water, a sufficient amount of hot water, plumbing and electricity that function properly, and so on. Landlords must also maintain clean and sanitary buildings and grounds — free of debris, filth, rubbish, garbage, rodents, and vermin.

If a rental unit is uninhabitable, residents have the right to withhold rent until the necessary repairs are made or, in more serious situations, terminate the lease.

Although your residents are responsible for repairing anything they or their guests break, you’re required to perform any repairs required to maintain fit and habitable living conditions, and you must complete the repairs in a reasonable period of time.

The mutual covenant of quiet enjoyment
Implied in every lease and rental agreement is the mutual covenant of quiet enjoyment, which grants all residents the right to the undisturbed use and enjoyment of the rental property. This covenant applies to you, as landlord, in two ways:

  • You’re not allowed to enter a resident’s unit whenever you want. You can enter in an emergency that threatens life or property, when you ask and the resident gives you permission, and to perform necessary inspections or repairs or show the unit to prospective renters or buyers (only after giving the resident sufficient notice).
  • You need to reasonably investigate complaints and potentially take action against any resident who’s disturbing his neighbors.

Your state’s security deposit rules
Every state has a security deposit statute that typically specifies the following:

  • How the security deposit is to be held — usually in an interest-bearing account in an in-state bank
  • What the security deposit may be used for — usually to cover unpaid rent, damage beyond ordinary wear and tear, and cleaning to make the unit as clean as it was when the resident moved in and sometimes to repair or replace the landlord’s personal property in the unit if that use is mentioned in the lease
  • When the unused portion of the security deposit must be returned to the resident
  • That the landlord provide an itemized invoice of any money deducted from the security deposit

Disputes over security deposits are common and frequently lead to the resident taking legal action against the landlord. To protect yourself, comply with your state statute, and take the following precautions as good business practices, even if it isn’t required under the applicable statute:

  • Have a separate interest-bearing account for holding security deposits.
  • Complete a move-in/move-out checklist to document the condition of the property at the beginning and end of a resident’s stay.
  • Take photos or video of the property to create a visual record of the property’s condition at the beginning and end of a resident’s stay.
  • Keep receipts for all repairs and cleaning required to prepare the unit for the next resident, even though you’re permitted to charge the resident only for damage beyond ordinary wear and tear, and cleaning to make the unit as clean as it was when the resident moved in.
  • Return the unused portion of the security deposit to the resident as soon as possible as required by state law.
  • Along with the unused portion of the security deposit, include an itemized list of all costs deducted from the security deposit.

The Residential Lead-Based Paint Hazard Reduction Act
The Residential Lead-Based Paint Hazard Reduction Act, in part, requires that landlords inform residents of the hazards posed by lead-based paint. If your rental property was built prior to 1978 (the year the EPA banned lead paint) you’re required by law to do the following:

  • Disclose all known lead-based paint and lead-based paint hazards and any available reports on lead in the property.
  • Give renters the EPA pamphlets “Protect Your Family From Lead in Your Home” and “The Lead-Safe Certified Guide to Renovate Right.”
  • Include certain warning language in the lease as well as signed statements from all parties verifying that all requirements were completed.
  • Retain signed acknowledgments for three years, as proof of compliance.
  • Housing that is exempt from this rule include the following:

  • Units that have no bedrooms, such as lofts, efficiencies, and studio apartments
  • Short-term rentals of fewer than 100 days
  • Housing designated for the elderly or the handicapped unless children live or are expected to live there
  • Property that’s been inspected by a certified inspector and found to be free of lead-based paint

State-required disclosures
In addition to the federal lead-based paint disclosure, many states require that landlords disclose one or more of the following:

  • Environmental hazards, including periodic pest control and herbicide treatments, toxic mold, asbestos, radon gas, bedbug infestation, and methamphetamine contamination
  • Recent flooding or location in a flood zone
  • Security deposit policies and procedures
  • Nonrefundable fees, such as a pet fee, where such fees are allowed
  • Smoke detector location and maintenance requirements
  • Nearby military ordinance, such as a US Army base
  • Smoking policy
  • Landlord’s or property manager’s name and contact information
  • Any shared utility arrangement

Your state’s Landlord Tenant Act
Nearly every state has a version of the Landlord Tenant Act, which defines the rights and obligations of the landlord and the tenant (also known as the resident), legal remedies for breach of contract, possible defenses to legal actions, and much more. To find your state’s landlord tenant act, search the web for your state’s name followed by “landlord tenant act” and click one of the links that looks promising. If that doesn’t work, track down your state’s official website, and search that site specifically for something like “landlord tenant” or “residential rental laws.”

Eviction rules and procedures
If you need to evict a resident, turning off electricity, gas, and water to the unit to compel the resident to leave is illegal. You must follow your state’s eviction rules and procedures, which typically require that you perform the following steps:

1) Check your state’s landlord tenant act to find out whether you have legal grounds to evict the resident.

2) Give the resident reasonable notice of your intent to file for eviction, including the reason you intend to do so and, if required by state law, the time the resident has to address the issues.

3) Wait until the morning after the deadline specified in your notice, and then file for an eviction hearing at your county’s courthouse.

4) Assuming you prevail in court, wait until the day after the court’s deadline for the resident to move out, and if the resident hasn’t moved out yet, call the sheriff to evict the resident.

Failure to follow your state’s eviction process could result in your losing your case. The resident may end up living in the property for some time, perhaps without paying rent. In addition, the resident may be able to file a legal claim against you in civil court and force you to pay damages, legal fees, and penalties.

Mitigation of damages
When a resident breaches a lease, for example by moving out three months into a one-year lease, the resident is obligated by the contract to continue to pay rent. However, you can’t just let the unit remain vacant for nine months. You’re legally obligated to take steps to mitigate (lessen) the resident’s losses. In this example, ways to mitigate the damages include:

  • Accepting a replacement the resident recommended to rent the unit for the months remaining on the lease, assuming the recommended replacement qualifies
  • Advertising the unit to find a new resident, screening applicants, showing the unit to qualified applicants, and so on

Gather evidence of your attempts to re-rent the property, such as advertisements, records of applicants you screened, and dates on which you showed the property to qualified applicants.

4 Common Eviction Mistakes Landlords Make

When renting out a property you own, it is only natural to want to make the most money and incur the least expense. Unfortunately, for some landlords, this leads to cutting corners in the legal department; a potentially very costly mistake. The following are a few common mistakes landlords make during the eviction process and what you can do to avoid them:

Self-Help Eviction
The single biggest mistake landlords make (particularly those who have never rented property before) is engaging in what is known as a “self-help eviction.” The logic goes something like this: “I own the property, so I should be able to change the locks/move the tenant’s things out/turn off the utilities/harass the tenant into paying or moving/etc.” Unfortunately, this is not the case. By allowing someone to take possession of the property under a lease agreement, you have given them certain rights in the property. The only way to legally extinguish those rights is by a court order. Attempting to coerce a tenant to move out or pay rent by changing locks or switching off utilities, or simply putting the tenant’s possessions outside is likely to lead to a confrontation with the police and a very unpleasant loss in court.

If you are trying to remove a tenant from the property, the only legal way to do that is by filing an action for eviction in the courts and obtaining a proper court order. Even then, the order requiring the tenant to leave the property is usually delivered by law enforcement and, if the tenant refuses to leave, is also enforced by the police. The landlord should not be involved.

Aside from the fact that self-help eviction is illegal and could expose you to civil liability to the tenant, even if the tenant is behind on rent), this conduct can actually be very dangerous. After all, you are messing with someone’s home, and that can cause a violent, instinctive reaction. Showing up unexpectedly and telling someone they have to get out could easily result in violence, which is another reason why law enforcement is typically responsible for delivering the bad news after a lawful eviction.

Inadequate Notice
The second biggest mistake in tenant evictions is failing to give proper notice. Most states have landlord-tenant laws that contain an actual form that should be used to notify a tenant that they must either pay or leave or you will file a lawsuit to evict them. This is sometimes called a “Notice to Quit” or in other states it may simply be called by the number of days the tenant has to pay or leave the property, like a “Three Day Notice.” Generally, before you can file for an eviction, you have to provide the tenant with such a notice to give them an opportunity to cure the problem or leave the property and, should they fail to comply, only then can you file your action to evict.

In other cases, you must provide notice when a lease is going to terminate. For example, if someone signed a one year lease, and you are near the end of that year and do not wish to renew, you usually have to provide the tenant with adequate notice of that intention. Otherwise, the tenants can “hold over” indefinitely, provided they pay their rent. It is only if you give adequate notice and then the tenant holds over that you will be entitled to seek an eviction.

No Evidence
Finally, many landlords forget that even an eviction proceeding is adversarial in nature and requires the landlord to carry the burden of proving its case. For example, you will likely need a copy of the lease agreement, evidence of a failure to pay or other breach by the tenant, evidence of providing proper notice under the law or the lease agreement, and if you are also suing for damages you will need evidence of the actual damage caused by the tenant. Failing to provide this evidence to the court could result in you having to start your case all over again and the tenant getting to spend weeks or months more in your property, possibly without paying you any rent.

Not Hiring an Attorney
Of course, the biggest mistake of all is assuming you know what you are doing if you do not. Most attorneys handling tenant evictions offer reduced rates given the usually very quick nature of these proceedings. Take advantage of this, particularly if it is your first eviction, to make sure you have acted properly as the landlord and that the eviction goes smoothly. Otherwise, you could end up not only having a non-paying tenant in your property for months while you figure out what you need to do, but you could even end up owing money to the tenant.

5 Reasons Not to Return a Tenant’s Security Deposit

When a tenant moves into a rental property, he or she will pay the landlord a security deposit in addition to first month’s rent. This deposit will typically be returned to the tenant at the end of the lease term, as long as the tenant follows all the terms of the lease agreement. Learn five reasons a tenant may not be entitled to the return of their security deposit, in whole or in part.

5 Times a Landlord Does Not Have to Return a Tenant’s Security Deposit

Each state has specific security deposit laws landlords and tenants must follow, including the reasons you can keep a tenant’s security deposit. However, here are five of the most common reasons a tenant should not expect their security deposit to be returned.

1. Breaking or Terminating a Lease Early
If a tenant breaks their lease, the landlord can keep all or part of the security deposit necessary to cover the costs associated with this breach. Again it will depend on the wording of your lease and the particular landlord-tenant laws in your state. If you have included an early termination clause in the lease the tenant signed, they will have to abide by these terms.

An early termination clause could read something like this, for example:

“If the tenant terminates the lease prior to the one year lease agreement or does not give 30 days’ notice prior to move out once the lease has gone month-to-month, the tenant is responsible for rent owed for the remainder of the lease. The landlord will deduct the amount owed from the tenant’s security deposit. If the security deposit does not include sufficient funds to cover the amount owed, the tenant is responsible for paying the additional money owed to the landlord for the remainder of the lease.”
You may also be able to charge the tenant the court costs or attorney fees necessary if you have taken legal action against them.

2. Nonpayment of Rent
Most states will allow you to keep all or a portion of the security deposit when the tenant does not pay their rent.

Nonpayment of rent is considered a breach of lease.

When a tenant does not fulfill their contractual obligation to pay their monthly rent, you are usually allowed to keep the portion of this security deposit necessary to cover the lost rent.

3. Damage to the Property
Another reason you may be able to keep a tenant’s security deposit is because they have caused damage to your property. Damage is different than normal wear and tear on the property. Here are some examples of each:

Normal Wear and Tear:

A few small nail holes in the walls from hanging pictures
A few small stains on the carpet
A small amount of mildew forming in grout lines in the shower tiles
Dirty grout
Tarnish on bathroom fixtures
Loose handles or doors on kitchen or bathroom cabinets
Reasonable amounts of dirt, dust or grime on the floors, walls, or appliances

Damage:

Multiple/large holes in the walls
Huge stains or holes in ​the carpet
Extensive water damage to hardwood floors
Missing outlet covers
Missing or damaged smoke or carbon monoxide detectors
Cracked kitchen or bathroom countertop
Broken bathroom vanity
Broken windows
Broken doors
Keys not returned at end of tenancy

4. Cleaning Costs
Under normal circumstances, you cannot make deductions from a tenant’s security deposit to cover normal cleaning costs.

If the cleaning necessary is excessive, and not the result of normal wear and tear, you may be able to keep a portion of the tenant’s deposit.

For example, if a tenant leaves one bag of garbage in the apartment, it is unreasonable to try and charge the tenant a portion of their security deposit to cover your labor. However, if the tenant has left trash all over the apartment, food in the refrigerator, and numerous personal belongings throughout the property, then yes, you may be able to keep a portion of the security deposit to cover your expenses, as the tenant has not left the property broom-swept clean.

Another example would be if a tenant had an animal that used the carpet as a toilet. You would be able to charge the tenant for the cost of cleaning or, if necessary, of replacing the carpet.

5. Unpaid Utilities
A tenant may not be entitled to the return of their deposit if they have not paid their utility bills. You may be able to keep a tenant’s security deposit to cover any utilities they have neglected to pay and were required to pay as part of their lease.

Be a Smart Investor… Do the Math

Should I use cash or credit? ARM loan or fixed rate? Ten percent down or twenty percent? Should I pay down debt or keep a cash reserve? These are all good questions, and here’s some of the answers.

Cash vs. Credit: The Concept of Leverage

In order to understand real estate financing, it is important that you understand the time value of money. Because of inflation, a dollar today is generally worth less in the future. Thus, while real estate values may increase, an all-cash purchase may not be economically feasible, since the investor’s cash may be utilized in more effective ways. Leverage is the concept of using borrowed money to make a return on an investment. Let’s say you bought a house using all of your cash for $100,000. If the property were to increase in value 10% over 12 months, it would now be worth $110,000. Your return on investment would 10% annually (of course, you would actually net less, since you would incur costs in selling the property).

If you purchased a property using $10,000 of your own cash and $90,000 in borrowed money, a 10% increase in value would still result in $10,000 of increased equity, but your return on cash is 100% ($10,000 investment yielding $20,000 in equity). Of course, the borrowed money isn’t free; you would have to incur loan costs and interest payments in borrowing money. However, you could also rent the property in the meantime, which would offset the interest expense of the loan.

Taking leverage a step further, you could purchase ten properties with 10% down and 90% financing. If you could rent these properties for breakeven cash flow, you would have a very large nest egg in 20 years when the properties are paid off. Balance that with what you could make by investing the cash flow on one free and clear property for 20 years. And, of course, look at the potential risk of negative cash flow from repairs and vacancies on ten properties. Finally, consider the tax implications – if you have cash flow, you have taxable income; if you have increase in equity, there’s no tax until you sell.

Cash Flow vs. Cash Reserve

On a similar note, the size of your down payment will affect your cash flow on rental properties. Let’s consider two examples.

Example 1: $100,000 property with $20,000 down. $80,000 loan @ 6% interest, including taxes and insurance is about $600/month. Assuming you could rent the property for $800/month, you have $200/month cash flow or $2,400/year. Not bad.

Example 2: $100,000 with no money down. $100,000 loan @ 8% (higher rate is generally common for zero-down loans) would make your payments closer to $900/month. With zero down, you have $100/month negative cash flow.

Which is better? Well, it depends on what your goals are and what the rest of your financial picture looks like. Let’s say your goal was to hold the property for 10 years. In the first example, you have $200/month cash flow, but no cash reserve. In the second example, you would have $100/month negative cash flow, but you have $20,000 in reserve. The knee-jerk reaction of some people is that example #1 is safer. But is it really?

Think about it… in the first example, if your property becomes vacant for one month, you’d be out of pocket $600. It would take three months to make that up. In the second example, you have $20,000 in cash cushion to make up the deficit. With $20,000 in the bank, you could handle $1200/year negative cash flow for 16 years. If the property were in an appreciating market, you’d come out fine, even with negative cash flow. Another factor is the choice of loan. You could buy a property with nothing down and an interest-only loan fixed at 5% for three years. If your exit strategy is a lease/option that should cash you out within 36 months, why do a fixed-rate loan?

The point here is that you should not automatically go with a fixed-rate loan. Nor should you seek positive cash flow as the only goal. Likewise, you should not buy properties with nothing down and negative cash flow and assume that short-term market appreciation will be the only source of your profit.

Paying Down Debt

For years, our parent’s generation discouraged debt as a “bad” thing. For some investors, the goal is to own properties “free and clear,” that is, with no mortgage debt. While this is a worthy goal, it does not always make financial sense. If you have free and clear properties, you will make certain amount of cash flow and pay a certain amount of income tax. If you need more cash, you are forced to sell the asset, creating a taxable gain.

If you refinance a property, there’s no taxable event. And, since mortgage interest is a deductible expense, the investor does better tax wise by saving his cash. Think about it… the higher the monthly mortgage payment, the less cash flow, the less taxable income each year. While positive cash flow is desirable, it does not necessarily mean that a property is more profitable because it has more cash flow. More equity will obviously increase monthly cash flow, but it is not always the best use of your money. On the other hand, paying down debt may make sense if you can’t get a higher return elsewhere in the market. Also, if paying down debt can have other rewards, such as bringing a loan below 80% LTV, you may be able to cancel private mortgage insurance and save additional money.

In Short, Don’t Rely on Assumptions… Do the Math!

The 9 Best Tips on How to Find a Property for Profitable Investing

Over the years real estate has proven to be one of the most profitable investing strategies. Unfortunately, this doesn’t mean that just any investment property will bring high return and success to its owner. The secret to making money in real estate is finding profitable rental properties. If you are a new real estate investor with no experience in the business, don’t worry because you’ve come to the right place. In this article we will provide you with the best tips on how to find a property for profitable investing.

Tip #1: Buy a Property in a Top Real Estate Market
Anyone in the real estate industry will tell you that location is the first and foremost factor for a profitable investment. Where your rental property is located will determine the price you have to pay for it, the rental demand, the best rental strategy, the type of tenants you can expect, the rental rate, the occupancy rate and vacancy rate, and ultimately the return on investment. Thus, the first thing which any investor preparing to buy a property should do is to read about and research the best places for real estate investing in the US housing market. Don’t make the mistake of many beginners who focus on large cities only. Sometimes small towns and even villages offer a much higher return than major cities. For example, according to data from Mashvisor, a real estate data analytics company, the census-designated area with a population of about 7,000 people, Joshua Tree, has been one of the top locations for Airbnb rentals in the past few years.

Tip #2: Don’t Spend More Than What You Can Afford
As a beginner investor, you should always start with a small, cheap, easy-to-manage property. After all, the best investment property is the one which you can afford and which you can manage. To find such a property, you should prepare a budget. On the one hand, factor in your savings, the income from your full-time job and other sources, and the money you expect to make from your rental property. On the other hand, make a list of all the one-time and recurrent costs associated with buying, owning, and managing an investment property such as the property price, appraisal cost, home inspection fee, closing fees, fixes and repairs, monthly mortgage payments, property tax, insurance, property management, maintenance, and others. In this way you will be able to figure out exactly how much you can afford to spend on a property without risking a foreclosure.

Tip #3: Find the Best Financing Method
One of the great things about real estate investing is that you have many financing options to choose from. You can go for a conventional mortgage, a hard money loan, a private money loan, a syndication, or a partnership, to mention a few possible choices. You should study each option carefully and decide on the best one for your particular case, based on their pros and cons and your specific situation.

Most probably, as a first-time investor, you will end up taking a mortgage loan. In this case, it is advisable to make the down payment as big as possible, without overspending on it of course. The higher your down payment is, the faster you will be able to repay your loan and the less money you will end up spending on repayment. Figuring out the best financing method is crucially important for profitable real estate investing.

Tip #4: Use Different Sources for Your Property Search
To find a property for profitable investing, you should put efforts into searching for properties for sale far and wide. Now that you know where you want to buy an investment property and how much you can afford to spend on it, start checking out local newspapers and real estate websites with both MLS listings and off market properties, talk to your friends and acquaintances, network with other investors in the area who might be selling a property, and connect with a local real estate agent. Each one of these sources will have access to a different kind of properties, and you should check them all out before deciding on the best type of investment property for you and narrowing down your choice.

Tip #5: Consider Investing in a Foreclosure
The most lucrative investments in real estate are those properties which you can buy below market value. Thus, you should consider investing in a foreclosed property. Forget the popular myth that foreclosures are always houses in a dire situation which makes them bad real estate investments. To the contrary, it is feasible to find a foreclosed property in a good shape which will bring you high return on investment. The reason is that you will most likely pay only a fraction of the fair market value of the property as the bank or other financial institution is trying to get rid of it quickly, while you can still charge full market value rental rate.

To find foreclosed properties to invest in, talk to the banks in the area, search for specialized real estate websites with foreclosed property listings (including government agencies’ websites), and look for agents who work with foreclosures.

Tip #6: Hire a Real Estate Agent
Avoid the mistake of many first-time real estate investors who think they can manage the whole process of finding and buying a property on their own. It is recommended to look for an agent who works mostly with property investors and hire him/her to help you along. Your agent will be able to help you find lucrative properties for sale, connect you with lenders, prepare the offer, negotiate the best price, and close the deal quickly and smoothly. Moreover, you don’t have to worry about inflating your budget as agent fees are usually covered by the property seller and not the property buyer.

Tip #7: Conduct Thorough Property Analysis
An indispensable step in the process of making the most profitable real estate investments is performing an investment property analysis. Once you have narrowed down your choice to a few top properties, you should study them in detail to calculate exactly how much return on investment you can expect from them, based on your preferred rental strategy. Find out the cash flow, the cash on cash return, and the capitalization rate which you can expect. To beat the competition in the local real estate market and find the best property for profitable investing, make sure to use real estate investment tools such as a rental property calculator. This will save you a lot of time in analyzing properties and allow you to make an offer before the other investors in the area.

Tip #8: Choose the Best Rental Strategy
You can rent out your investment property on short-term basis as an Airbnb rental or long-term basis as a traditional rental. The optimal strategy in each case depends on the location, the demand, the rental rates, and other factors. So, in your investment property analysis you should see which rental strategy will bring you a higher return on investment. If you decide to go for a short-term rental, don’t forget to study the local regulations carefully as many places have adopted major restrictions on this type of rentals in recent years. Ideally, you should look for a location where both owner-occupied and non-owner occupied properties can be rented out on short-term basis in all residential neighborhoods. For example, the Dallas real estate market is one of the major cities with the least Airbnb legal issues in the US at the moment.

Tip #9: Select the Best Property Management Strategy
Profitable investing in real estate doesn’t end with finding and buying a property with a high potential for return. Afterwards, you have to manage your rental property in the best possible way. If you invest in your local housing market, have some free time, and exhibit the right personality (welcoming and kind but also assertive), you can become a landlord and deal with a rental property and tenants on your own. However, before you decide to manage your property by yourself, you should know that this can take a lot of time and efforts and can turn into a real headache.

If, on the other hand, you invest out of state, have a busy job and a family to take care of, and/or are simply not fit to be a landlord, you can hire a property management company to deal with your investment property. You should be prepared to pay them a monthly rate, but it will be worth it as they will be able to maximize your profit while you can enjoy the positive cash flow in your free time.

How to find a profitable investment property is the first thing you have to learn as a real estate investor in order to make money. The good news is that it is absolutely feasible and doable if you follow our 9 tips above.

Position Realty
Office: 480-213-5251

5 Best Insurance Coverages for Your Rental Property

You’re probably familiar with getting homeowners’ insurance for your primary residence, but how are you covering your rental properties? Just because you got a great deal and paid cash doesn’t mean you should ignore the potential losses that could occur should something happen. These are the five coverages you need to make sure you have now.

Liability Coverage. The house itself isn’t the only thing you should be covering. You need to cover your liability for any accidents that occur on the premises. If someone trips and falls on that crack in the sidewalk that popped up this winter, you aren’t going to want to pay for a broken arm out of pocket. That’s only the beginning of things you could have happen on the property that you could be held accountable for.

Dwelling Coverage. This one is obvious. If you buy a house, you want to make sure you can pay to rebuild or repair it to the same like kind and quality. The perils that are covered in the policy typically depends on how much you’re willing to pay. You can choose to cover only major catastrophes, like fires and tornados, for a smaller price or you can opt for a more comprehensive coverage that covers many more issues.

Loss of Rental Income. Owning a rental property is a business, and hopefully, you’re making some money from that business. Coverage for the loss of rental income may help you if the home is damaged by a covered peril. If the home had enough damage from a tornado or fire that the tenant had to move out and rent stopped coming in, you could be reimbursed for your loss of rental income. If you depend on your rental income to maintain your lifestyle, it’s a handy coverage to have. Depending on the extent of damage, it could take months to make the property habitable again after a loss.

Landlord Personal Property Coverage. Did you agree to rent out your property furnished with some things from your grandma’s old house? Did you leave the refrigerator and washer/dryer combo since you’re renting to a friend? Even if the tenant has renter’s insurance, it’s not going to cover any personal property you may have left for their use inside of the home. You’ll want to make sure you have sufficient landlord personal property coverage for any items in the rental owned by you.

Vacancy Coverage. If you’re rental is going to be vacant for any period of time, it’s likely you’re going to need vacancy coverage. A vacant home presents many more unique risks than a home occupied by a tenant. Things to make sure you have coverage for when the property is vacant includes: vandalism, water damage, and burglary, in addition to the major perils like fire. If you already have a policy for your rental property, talk to your agent about limitations in your current policy and supplementing it with vacancy coverage until the home is occupied again.

Having a comprehensive landlord’s policy is key to protecting your investment. It can’t be replaced by a regular homeowner’s policy or the tenant’s insurance. (However, it’s still wise to require that your tenants provide proof of insurance for their personal contents and liability). Reading policy language can be difficult, but knowing the right coverages to look for and finding a great agent to service that policy can make all the difference.

Position Realty
Office: 480-213-5251

3 Things to Consider Before Investing in a Rental Property

Having a rental property can be a great investment. Not only can it appreciate, but many times the rent you receive from tenants will also cover most (or all) of the mortgage.

Of course, it’s not exactly passive income. You’ll probably be managing renters, hiring yard care and cleaning, and taking care of repairs. Even if you hire a management company, you still need to ensure that these responsibilities are covered.

It’s also important to make sure the investment property you choose sets you up for success. There are a lot of mistakes to avoid. With that in mind, here are three things to consider before investing in a rental property.

Understand the Numbers

Before you invest in any rental property, it’s vital to understand both your financial situation prior to the purchase, as well as, the financial results after the purchase. Let’s look at each one.

Your Starting Financial Status

Before you even think about property investment, make sure you have everything you need—personally and professionally. Are you paying your bills easily? Are you in trouble with debt? Do you have enough cash flow for emergencies, insurance, and retirement for your personal life?

If not, now is not the time to invest in a rental property. You can’t buy a home and expect renters to arrive and bail you out of a difficult situation. You want to invest from a position of strength, not an area of desperation.

Once your personal life is in order, take a look at your savings. Do you have money for a down payment? Can you afford homeowner’s insurance, taxes, fees, and repairs? Remember, the more you borrow, the less your property will return to you.

The Rental Property Itself

Once you’re in the right position to invest in a property, you want to understand the numbers behind each purchase option you evaluate. You need to choose one where the return on investment is strong, to ensure that you will actually have an investment and not a burden on your hands.

Consider the location and size of the property to determine how much rent it will command. Think about whether quality tenants want to live in that area. Don’t overlook the repairs you’ll need to make if it’s not a turnkey property.

Compare your return against your expected expenses to make sure you’re receiving positive cash flow from the property over time. Think about taxes, fees, periodic repairs, and anything you’re paying to a management company. Don’t forget to factor in the mortgage payments as well!

Look for a Desirable Location

High-quality renters are attracted to top-of-the-line spaces. It may seem like a great deal to invest in a run-down property or an undesirable part of town because you can get it for a low price. However, even if the expected (lower) rent is a good return, the truth is that you won’t get quality renters.

You need to find an area that people want to live in long-term. Otherwise, your property will be a revolving door, and you’ll always be looking for new tenants. Each month of vacancy is money out of your pocket and dramatically reduces your return on investment.

Think about the good schools and transit routes in your area and look for desirable properties near those amenities. If you can find something near great restaurants, parks, and entertainment, that’s even better.

Of course, these better properties will cost more. However, knowing that you have a desirable location with long-term tenants will make the financial outcome worthwhile. You will also have the added benefit of appreciation. In more desirable areas, the value of your investment will appreciate much faster than in undesirable areas.

Consider Your Risks

Any investment has a risk of loss. That’s why there’s the possibility of a return! When you’re considering an investment property, you need to think carefully about the risks of renting and be prepared to handle them.

Vacancy is probably the most significant risk. Having months of no tenants means having months of no income, but your expenses will remain the same. It’s important to limit this risk as much as possible by choosing a high-quality property in a desirable area. You should also budget to have some additional cash available in case you face lean times.

You also want to be prepared for major repairs. Sometimes these can be planned, and sometimes they pop up out of nowhere. Having proper insurance and a reserve fund is vital.

Finally, you need to be ready in case you have difficult tenants. Some may pay late, promise to pay but never do so, or even need to be evicted. Handling these issues is time-consuming, so be sure to have a plan in place ahead of time.

Be Prepared Before You Invest

Having a rental property can be highly profitable if you do it well. Once you’ve taken these considerations into account, you’ll be able to tell if you have the right opportunity in front of you.

When you go in with a clear vision, you’ll set yourself up for success.

Position Realty
Office: 480-213-5251

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