Tip Of the Week

Save some time and learn a shortcut. Here you will find valuable weekly tips on landlording, the Internet, and computers that will make your life as a landlord or manager a little easier.

TIPS OF THE WEEK

RAISING THE RENT, IT'S A MORAL IMPERATIVE

Do not forget to raise your rents. The reasonable rental value of your property is what a willing tenant is willing to pay a willing landlord to reside in the rental unit. It has nothing to do with your costs of owning and maintaining the unit. These costs do not determine what the rent will be, they only determine whether you can stay in business.

It follows that your decision to raise the rent, or lower it if market conditions demand, should have nothing to do with whether or not your cost of doing business has increased. If market rents have increased in your area, your rents should increase as well. Why? Keep reading.

There are a number of good reasons why you should increase your rents, if the market so dictates, on an annual basis. If it is a multi-unit building, the value of your property is largely determined by the amount of rent it generates. It is this cash flow that investors will buy when it comes time to sell. If you procrastinate and allow rent to fall significantly below market levels, you may still be able to sell the property, but it will not fetch nearly what it might if you keep up with the market because any buyer will have to take into account the problem of giving a massive rent increase after he buys the property. This may not bother you, but it will definitely bother your heirs. If you give regular rent increases, then they will be relatively small. Waiting may necessitate a large rent increase later on, when you finally realize what is happening. This is a perfect formula for the creation of a tenant's union. On the other hand, if the increases are small, then your tenants will have an easier time gearing up to the new rate. Regular, moderate rent increases are a favor to your tenants. Rare, shocking increases are a disservice to them.

Increase your rents regularly and modestly. Provided you keep within the market, your tenants may grumble a bit, but they won't move.

You may want to take a look at “ Keeping Tenan ts Longer ”and “ Rent Increase Etiquette ” , available in the Infocenter.

CHECK THOSE REFERENCES

When you screen a tenant, you should have him fill out a rental application. Note that there are a number of spaces for references. There is a reason for this. The tenant may be able to fake one or two, by having shills standing by the phone ready to provide a glowing reference, but there is no way he can fake 6 or 7. Get a number of references, previous employers, at least two previous landlords. Once you have them, follow up and talk to them. Ask the questions that are important to you. And if the quality of reference differs markedly from one person to another, e.g., the current landlord gives a glowing reference and the previous one a poor reference, look out .

Normal Wear and Tear

When your tenant moves out leaving needful repair, or replacement of appliances and fixtures, you have a decision to make: What do I charge against the deposit? You will have to account for the disposition of your former tenant's security deposit, and most states only allow a limited time to do it.

The universal rule is that the deposit may be used, among other things, to restore damage to the premises, fixtures, and appliances over and above normal wear and tear. So what is “normal wear and tear,” and how much should you charge your tenant?

The key to understanding this concept, and arriving at fair charges that will stand up in court if necessary, is to think in terms of service life or use. If you provide a refrigerator that ordinarily would last for ten years, and due to tenant abuse it is destroyed after five, then that is damage over and above normal wear and tear. The same thing applies to all other assets such as paint, wallpaper, carpets, and so on and on.

So you have to buy a new fridge. This costs you $300. Do you charge the tenant $300? No. You did have the use of the refrigerator for one-half of its service life, five years. A fair charge would be one half of the cost of replacement, or $150.

At first blush this may look like an unnecessary concession to your tenant, but it is not. In all states your tenant can take you to small claims court if he thinks he is being overcharged. In some you may be penalized if you appear to have made unfair charges willfully. Be fair and avoid future problems.

Is Your Prospect Lying?

In The Maltese Falcon , Humphrey Bogart, as Sam Spade, responds to one of the DA's questions with “Everyone has something to conceal.” There was never a truer statement in all of film, but when a prospect lies about a material fact relevant to his tenancy, then he is going to make a poor tenant, and may even be a ticking time bomb ready to blow up in your face.

So how can you tell if your applicant is lying? Any good trial lawyer who has had to cross examine a lying witness will tell you that, 99 times out of 100, you can't, at least not without thorough preparation. First, get a WRITTEN application, even if you are renting to a relative – some would say especially if you are renting to a relative. Our application form has undergone years of development by experienced property managers. You should use it. Second, make sure all of the blanks are filled with something. Some may not be applicable in a particular case, but all of the questions pertain to the decision to rent. If your prospect refuses to provide some of the info, then resist the temptation to fill your vacancy at all costs. Thank the prospect politely and go on to the next one. Third, follow through. Check all references and get a professional screening, a credit check at least. You will find advertisers on our home page that can do it for you, and even more information here . The cost is nominal compared to what you may lose if the rent payments stop or your property is trashed. Finally, if your investigation contradicts what your tenant has told you, and there is no satisfactory explanation – mistakes or misinterpretations can happen – then reject the application and move on.

You may decide that you want to rent to the prospect even if he is below your standards. If so, at least you will be doing it with your eyes wide open. And if you do, then be sure to get our booklet on ways to guarantee rent collection.

LANDLORDING TIP:
After the equity boom of the '90s there will be a strong temptation to use some of that buried money to expand and generate even more wealth. This is most often a pretty good idea, but something to be done advisedly, particularly if you are planning to use equity in your residence to do it. Read this piece by Julie Garton-Good for the 17 questions you need to ask and answer before using the equity in your home for financial expansion.