Tips for Dealing with Tenants

Managing people is a difficult job. Managing people who are also your tenants and have an obligation to pay you their hard-earned rent dollars, every month, can be particularly challenging to your sanity. Ask almost anyone who owns rental houses to name the worst thing, and they’ll tell you, without even taking time to think, it’s the tenants. It seems quite clear that property owners who wish to survive very long in the business and who expect to make any serious money in it are well-advised to learn early on the job how to manage tenants.

Like anything else in life, you must pay your dues up front. Managing tenants is the price of admission for investors who operate income properties. And everyone knows that dealing with people, especially one on one, can be nasty work. It’s only natural in situations where one person always pays money and the other always receives it that disputes can surface quickly. Landlords with any experience at all understand it doesn’t take very long on rent day for normal conversation to erupt into a shouting match. Still, there are methods you can use to avoid most problems.

Your Tenants Are Your Customers

The first rule of good landlording is to treat it exactly like you would any other well-run business. Managing your property is a business and the tenants are your customers. It’s your job as a landlord to provide the best product (houses) and the best service you possibly can. If you do this better than your competition you’ll obviously enjoy much greater success. Customers (tenants) will naturally beat a pathway to your doorstep when they feel that you offer the most value for their housing dollar.

To make sure you’re ready for the kind of business you want and expect, you must try hard to offer your customer the best value in the rental business. That means a clean house or apartment, priced ideally at $10 or $20 below the competition. This may not seem like much, but for renters who compare houses and watch their expenses closely, it’s enough to swing many deals your way. It will also keep your houses full of tenants, while the other guys worry about vacancies.

How can you tell if you’re $10 or $20 below the competition? The best way I know of is to study your local classified ads—“Houses or Apartments for Rent.” Then drive out and see what the competition is offering at comparable rents. Adjust yours up or down according to what you observe.

One of the most important questions all landlords should stop and ask themselves is “Would I rather be popular or profitable?” You don’t have to be sinister or dishonest to be a wealthy landlord. What you must be is a good businessperson. “Good business” means that you collect accounts receivable (rents) in a timely manner and that your assets (houses) are maintained properly by tenants who lease them. See how simple this is.

Landlords will not be disliked or hated anymore than the supermarket cashiers when they demand the rent due. Everyone knows that cashiers will not allow groceries to leave the store until they collect the money for them. Customers expect that and don’t hate cashiers for following the rules. Landlords who insist on collecting the rents on time are no different from supermarket cashiers.

Emotions Should Not Control Landlord Decisions

I’ve worked very hard to develop my low-profile landlording techniques, which minimizes personal contacts between landlords and tenants. I see no reason for landlords to hang around their tenants, except for maintenance visits and repair calls. Obviously, I don’t chase my tenants down to get the rents. This practice lends itself to emotional confrontations, which is exactly what landlords need to avoid. I avoid personal conflicts over such matters as lifestyle, inside housekeeping, and moral issues. That’s not my business. All matters relating to tenancy should be kept strictly business.

Obviously, it would be a poor business decision to keep an unruly or destructive tenant, because it would cost you money. Making money is top priority in the landlord business, the same as in any other business.

Landlords often find themselves in trouble with tenants because they try to inject too much logic and common sense into tenant management. Logic and common sense have their place, but seldom count for much where legal issues are concerned. For example, it is nearly impossible to effectively force your personal living standards and ideals on your ten-ants—a very common mistake for many new landlords. I would advise any rental owner to seriously think about what I’m saying here, because it has a lot to do with sanity, your sanity. What good would it do you to make a million dollars from your rental properties if your tenants drive you crazy?

Always Act—Don’t React

Good landlords always act—they don’t react. Don’t fight and argue with tenants, anymore than your boss would fight and argue with you about work requirements on your job. Obviously, discussions are all right and fairness should always prevail. Landlords are the bosses of their houses and they make the rules for tenants who live there. Never compromise the issue of who’s in charge. When tenants living in your rental property have the upper hand, you’ve got big problems.
Most beginners don’t fully understand the true value of learning to be good landlords. You don’t have to agree with me about any of this. You don’t even have to like it. But please keep an open mind. Also, don’t forget, I’m still in training myself. I have many teachers every single day of every month, living in my rental houses and apartments—my tenants. They’ve taught me many tricks of the landlording trade—and the experience has been priceless, believe me.
I continue to receive letters from subscribers and distraught landlords who can’t control the people living in their properties. I must tell you now that if you cannot handle your tenants—that is, make them pay rents and follow a few basic rules—you can expect a very miserable existence owning real estate. Worse yet, you probably won’t be around long enough to enjoy those big profits I promised you in earlier chapters.

Horror Stories Are Caused Mostly by Ignorance
Almost everyone has heard about “the tenant from hell” who trashes the house and leaves owing six months’ rent and fix-up costs in the thousands. Movies have been made about the subject to further dramatize it. There is no question that this kind of thing does happen. However, it doesn’t have to happen to you—nor should it if you pay attention to what I tell you.
Often, you will hear discussions to the effect that “deadbeat tenants know all the rules, which enables them to stay in your property month after month without paying any rent.” Sometimes, the storyteller says this is so because the tenant has minor children and receives welfare or other public assistance.
The problem with this picture is that the storyteller is giving far too much credit to the tenant for being street-savvy and knowledgeable. The chances are the tenant’s success is much more likely attributable to an ignorant landlord.

Seldom will a tenant stay long in my property if he or she doesn’t pay rents. After you’ve done a few evictions yourself and learned what papers to file and how to do it in a timely manner, you’ll have enough confidence so that horror stories won’t happen at your properties. Again, I’ll repeat, know-how is the difference between owners who operate their rental properties successfully and those who are simply hoping for the best.

Most Tenants Will Pay the Rent

Contrary to these landlord-tenant horror stories, most tenants who agree to rent your property, whether they work or not, will pay their rent. This fact eliminates about 95% of your collection worries. Trust me on this: I have enough tenants to prove it. The big problems are caused by the remaining 5% who can practically destroy your life. It’s the old story about the rotten apple in a barrel, unfortunately. “Destroy your life” is not too strong a phrase for what can easily happen when innocent but ignorant landlords do battle with savvy, deadbeat tenants.

Fewer Rules Are Best—but Be Sure to Enforce Them

Two of the rules that I insist must be followed are that tenants must pay rent on time and pay a late fee when rents are more than five days past due. If you don’t collect late fees, tenants will have no incentive to pay on time.

Another rule I follow is that no extra persons are allowed to move into my houses without prior authorization. I don’t usually deny permission as long as an additional tenant doesn’t exceed my occupancy limits and he or she fills out a rental application and is qualified to be added to the rental contract.

I do not permit parking unauthorized cars on my property (sometimes towed there). I do not allow working on cars (other than minor maintenance) for more than one day. Junky cars with their hoods up or sitting around on wood blocks give a property an unsightly image. It also sends the wrong signal about the type of tenants I want. If you allow trashy-looking cars to accumulate on your properties, they will soon look like junkyards. Enforcing this rule is a continuing effort, but it pays off at the cash register.

Limit Improvements to What the Rent Can Support

Several years after I became a full-fledged landlord, I found myself trying too hard to make my tenants extra happy. I didn’t realize it at the time, but that will never happen again. It seemed like the more I tried to please them, the more my tenants wanted. For example, some of my inexpensive apartment units have only linoleum on the floors and several of my economy houses have carpets in the living rooms and hallways, only. The tenants were always asking for extra carpets after they rented the property. My houses are always clean and painted with my standard off-white color inside; however, tenants wanted me to furnish them paint of their choice to repaint because they didn’t like my color.

Many of the requests I’ve received would have cost me a ton of money if I agreed. Often, they will ask me for rear yard fences, where there were none when they moved in, generally because they acquire a dog or decide to baby-sit small children in the backyard for extra income. Don’t misunderstand me here: I’m very much in favor of rear yard fences, and front ones, too, for that matter. But there is something missing in all of these requests. It’s called “consideration”—the contract term for the extra money. Who should pay for these special upgrades and add-on requests? Houses without carpets are like cheeseburgers without fries. However, you get the fries only when you pay extra for them.

Cut Down on Repair Visits—Get the Details over the Phone

One of my special techniques to help me cut down on extra repair visits is to ask tenants who phone to thoroughly explain their problems. This has two positive effects. First, I can get a good idea of what’s wrong. I am better able to judge the seriousness of the situation and can quite often instruct the tenants on how to fix the problem themselves. Also, good explanations over the telephone help landlords decide what type of service is needed. My “how-to-help-yourself” instruction over the phone is especially helpful when problems involve things like resetting a fuse or breaker, what to do about noisy neighborhood kids, or how to flip the toilet handle so the water stops running.
Summer months bring on a rash of calls about evaporative coolers that don’t seem to work. Often, it’s merely a case of the control knob being switched to the wrong position. Most coolers can be set to “vent only” (only the fan operates) and tenants mistakenly think something is wrong. Many don’t bother to read the knob setting; instead, they immediately call the landlord.

I have found about 30% of my tenants’ repair calls are really unnecessary. Getting good information from the caller and providing self-help instructions by telephone can save landlords many trips—and obviously a great deal of money.

Playing 20 Questions Can Discourage Unnecessary Calls

The second reason for asking my tenants lots of questions is to discourage unnecessary calls. Tenants don’t like to answer lots of questions. Don’t ask me why; I’ll probably never know. I do know, however, they won’t call nearly so often if they know I’ll quiz them. Perhaps some realize how silly the call is, so the next time they try to help themselves first, rather than calling right away.
If there’s a leak, I always ask my tenants to describe what is leaking and if they can actually see where the water is coming out. By listening to their explanations and descriptions over the telephone, I can generally determine if a supply line or drainpipe is involved. Obviously, water supply lines, under pressure, are a far more serious concern to me than dripping drainpipes.

Collecting the Rents and Knowing Where to Draw the Line with Deadbeats
One of the most controversial issues in the landlording business has to do with collecting the rents and knowing where to draw the line on late payers. First, it should be perfectly clear that landlords do not contract with tenants for the purpose of extending credit or providing free shelter. In my own county, there are 19 agencies that already do that—and I see no reason to become number 20. On the other hand, I’m a businessperson, so I recognize the need to be somewhat flexible, particularly with long-term tenants who are valuable customers to me.

My policy regarding late payments or split payments is to be fairly strict about enforcing the terms of my rental contract during the first six months of every tenancy. After six months—a period that allows me to observe a tenant’s paying habit—I will generally become a bit more flexible, assuming the tenant’s pay record is OK. During the first six months, I routinely issue three-day pay-or-quit notices no later than five days after the rent is past due—sometimes sooner, depending on how the weekend falls. If the rent remains unpaid, I usually evict the tenant. If I receive at least half of the rent, I generally accept it and reissue the three-day notice, showing the balance due. Don’t forget: rents are the wheels on your investment vehicle. If you don’t collect them, you’ll get left behind sitting on your axle.

Discrimination Laws Do Not Protect Deadbeats
If you decide to use a three-to-one ratio (income-to-rent), it means a renter with $900 per month income can pay you $300 per month rent. Obviously, you must be able to verify the income. I always insist on seeing all occupants who will live in my houses—adults and children. If I don’t like what I see, I don’t rent to them. Disliking people is not discrimination. Discrimination is unfair treatment of renters based on race, color, religion, sex, ancestry, national origin, age, family status, and physical or mental handicap. You’ll notice that deadbeats aren’t protected by fair housing laws. If you don’t want them as customers, you don’t have to rent to them.

Should I Accept Partial Rent?

Quite often landlords ask me, “Should I accept partial payments for rent?” My answer is generally “Yes, if you feel that’s all your tenant has. Of course, you should always give him a notice to pay-or-quit for the balance as soon as you get the money in your hands.”
Let’s face it: many low-end renters are lousy money managers. Most can’t ever save a dime. Do you think you should ever tell this person not to come back until he or she has all the rent money? Can you imagine how lonely you’ll be, waiting for that to happen?

Splitting Rent Payments Can Help Tenants Pay You
I rent to a number of welfare tenants who receive assistance checks twice monthly. It’s nearly impossible for many of them to pay me the total rent from one check, unless they have other income or housing subsidies. It’s my policy to try and work with tenants by splitting their rent payments. I ask for 60% on the 1st and 40% on the 15th. In exchange for this favor, I require a larger security deposit, just in case something goes wrong. With larger deposits on hand, I reduce the risk of rent losses. Obviously, this arrangement is a compromise, but it seems to work quite well for me.

Never Change Your Paperwork to Do a Favor
An important point here is to never modify or change your written rental agreement or contract to show anything other than month-to-month tenancy. You should rent by the month, period. Your decision to accept more than one payment is strictly a verbal agreement (nothing in writing) between you and your tenant. You should explain it to your tenant—“This is strictly a special favor to help you pay. In the event you don’t do as you promise, this favor is immediately withdrawn and it’s back to the terms of the written agreement.”

Let me remind you what I said before—rents are the wheels on your investment wagon. Collect them any way you can or you could find yourself sitting on your axle with a broken bank account.

Don’t Accept Excuses for Nonpayment of Rent
If you’re intimidated by tenant threats or if you’re hesitant to begin a nonpay eviction because your renter has had problems in the family or some other crisis, you’ll have great difficulty operating your rental business. How many supermarkets would tell their customers to take groceries home without paying for them? How many banks would allow you to skip the mortgage payment this month because a tenant hasn’t paid his or her rent yet?

No other business could operate very long by trying to accommodate the never-ending hard-luck stories—and neither can you. Fair business dealings are the key to a landlord’s success. No jury would ever render a judgment for tenants who make up ridiculous excuses for not paying their rents. Therefore, your decision to quickly evict nonpaying renters is based on simple fairness and should never be based on personal emotions.

One rule that has served me well for many years, in terms of fairness— which is generally thought to be a 50-50 proposition—is to try my very best to give my tenants a full 60% worth of fairness in exchange for them giving me just 40% in return. 40% is all you’ll ever need to become very successful and very rich.

Noncontact Management Works Quite Well
As my business has grown in size, my employees deal directly with my tenants. I’m mostly involved in the background. Naturally, I make most important decisions. However, in the background, I can stay neutral and objective about my business—and it works very well for me.

Additionally, years ago I discovered I could manage tenants more effectively without making house calls. I do it with written memos and a telephone answering machine. The answering machine allows me to take repair calls and conduct regular landlord business—and to monitor all incoming calls. As a general rule, most tenants don’t like talking to a recorded message and tend to hang up a lot, unless, of course, they actually have an important reason to call. Tenants don’t like this arrangement as much as I do, but it works very nicely as long as I handle repair calls promptly and provide good service. Eventually, they get used to the recording.

There are two major benefits of using these memos to help collect rents and enforce rules. First, you can avoid getting personally involved in the emotional discussions about late rents, extra cars, or too many visitors that always develop whenever you make personal house calls. The second benefit is having a written record of everything you tell your tenants. Written memos eliminate all the confusion about who said what to whom and when. If you end up in court with your tenants, copies of memos advising them about what to expect if they don’t pay the rent will go a long way toward winning an eviction judgment.
If there are any problems with my rent or rules, I simply write a memo to my tenant advising him or her what needs to be done to fix whatever’s wrong.

Landlording Skills Can Make You Very Wealthy

We Do It for the Money

The short answer is quick and easy—we do it for the money. If you buy income properties correctly—that is, you don’t overpay for them—you’ll soon discover, as I have, that your tenants will be paying for everything. They pay all the expenses for operations and all the mortgage payments to finance them. To my way of thinking, you’ll need to look long and hard for a better deal. Think about it: your renters are paying for everything and, when they finally pay off the mortgages, it’s you who ends up owning the real estate.

I often refer to landlording and managing as the 10% job that earns the other 90% of every rent dollar I collect. I charge 10% to manage properties (although I now do property management only for myself). I know many do-it-yourself landlord-owners who consistently earn $100 per hour or more doing landlord work. Landlording is the key for do-it-yourself investors to make big money.

The Dream: Working for Yourself

Besides making money, being a successful landlord offers some major personal benefits. For example, you can provide an excellent quality of life for yourself and your family. You can live wherever you choose and set your own work schedule. You can spend more time on hobbies and doing the personal things that never get done when you work for someone else. Being your own boss is the envy of every wage earner, because almost everyone dreams of making lots more money working for themselves. The good news is that investor landlording is a profession that will allow almost anyone to achieve financial independence and the highest quality of life, if they really wish to participate.
A San Francisco investor friend of mine, Richard Epley, writes about our task. The following is a quote from his book about managing properties: “If you are comfortable with the role of owner and landlord and are not intimidated by the responsibility for setting out the rules by which people may live in your property, you will find a vehicle for self-employment and self-expression that is difficult to match in our society.”

I am in total agreement with my landlord friend. Hopefully, the information I give you will help get you started and prepare you for your role as manager and owner. Real estate investing can be a highly profitable and rewarding experience for you, if you know what you’re doing and learn how to do it right.

Total Control over Money Decisions Is Key
In my opinion, when investing, you cannot leave out any step; otherwise, it causes a weak link in your investment chain. Under the slightest strain, that link always breaks first. One weak link can wreck your whole plan very quickly.

When small owner-operator investors decide to hire property management companies to handle the dirty work—like interviewing rental applicants, collecting rents, carrying out evictions, and anything else they do for their monthly fee—they give up far too much control, in my opinion. One of the most important things you need to make money as an investor is total control. Never allow others to restrict your ability to make money or earn profits.
The owner is the one who sets the rents, works on the buildings as much as he or she thinks is necessary, and finally decides when it’s time to sell. In short, the owner must be responsible for the success or failure of the property. No other investing is quite like owner-operator investing, where all the control is in the hands of one person. If you can learn to do these things well, great success will be yours.

Proprietorship—A Must

Proprietorship is the big deal, because no one has the same level of motivation as the owner. Remember: it’s owners who borrow money against their homes, who invest their entire life savings in an effort to make a better life for themselves and their families. Owners have a much greater interest in their own success than anyone else. That’s what proprietorship is about—and it’s something that fees from the rents can’t buy. Picture this scenario if you will. It’s Sunday afternoon and a tenant calls in a repair to fix the handle on her toilet. It broke off and the lever fell down inside the tank. The flapper chain came loose, so she can’t flush her toilet. Naturally, all the grandkids are there on Sundays. She needs help now. I’ll give you 10-1 odds, if you have a hired property manager, that toilet won’t flush once before Monday morning. But if it does, I’ll bet the owner drove out to fix it.

My point is this: if you collect rent for Sundays, you must also arrange for toilets to flush on Sundays. It’s just sound business practice and common sense. Proprietorship is what’s most important, especially for new investors who are just starting out. Professional managers might be all right for later on, but seldom in the beginning.

Success Means Wearing Many Hats

It’s important to understand that you will need to perform many different functions to be successful as an investor. Landlording, although extremely important, is only one of these functions. You must also learn how to determine the right price to pay for properties and the reasons why. You must learn how to structure the financing. If you choose to do fix-up, you’ll also need to develop those particular skills. Learning market trends, negotiating techniques, judging locations, understanding true costs of operating rentals, hiring workers, and developing good and usable records and a bookkeeping system are also necessary parts of being a successful owner-investor.
The First Rule of Business Is to Define Your Customer
When you begin to think of rental houses as a business venture, rather than simply as investing in real estate, it will open your mind to a whole new world of opportunity. The rules of business will help you immensely as an investor-owner of rental properties. Here’s an example of what I mean.

In my town, I’ve discovered there are two primary groups of people who need rental houses. The first group consists of young folks, 20 to 35 years old. The second group is seniors, ranging from 60 to 78 years of age. My town provides the younger group with mostly service-type jobs— restaurants, stores, and gas stations. There are also a large number of single mothers, with children, who receive public assistance. Many senior renters are living on Social Security and about half of them receive additional income from private pensions. Approximately 75% of both groups can afford to pay between $400 and $550 rent per month. About 10% can pay more. The others must pay less.

Once you find similar statistics for your buying area—which I recommend you do—your strategy as an owner of rental properties will take a definite direction. In my case, for example, if I intend to rent my houses to the largest number of potential renters in my town, I must develop an investment strategy that allows me to own houses that I can profitably rent out for $400 to $550 per month. Obviously, if you buy, fix, and sell, you should think along the same terms. Many investors try to figure this out after they buy the property. That’s doing business backwards, in my opinion.

Reasons Behind My Renting Strategy

The main reasons for my decision to enter the lower-income rental market were based on the economics—and it offered the least possible risk of going broke.
The economic reality for me was that I had very little money to buy real estate. Buying older, rundown houses and small apartments fit my budget. I found that buying “ugly duckling” properties and turning them into “beautiful swans” allowed me to obtain much higher rent markups than my competitors. For example, I might pay $20,000 per unit, then spend $4,000 on fix-up, after which I would rent the unit out for $400 per month, or $4,800 per year. That’s a 20% annual return per unit ($4,800 annual rent divided by $24,000 value). Contrast this return with a “pride of ownership” property that costs $50,000 and rents for $450. Never lose sight of the reason for being in business—to make a profit.

Increasing My Odds for Success

Most everyone knows that any new business venture is filled with many uncertainties. Perhaps the most important question is “Will there be enough customers to pay the bills?” Renting houses is not much different from selling widgets or running a restaurant. Both depend greatly on paying customers.
In order to increase my odds for success, I decided that my rental houses should be priced so that the largest number of renters could afford to rent them. Stated another way, I wanted my houses to be within the price range of 75% of all tenants in my town. To do this I would need to own houses that I could profitably rent out for $400 to $550 per month.

I think you can see the safety part of my strategy. By targeting 75% of the renters, where low-income rentals were already scarce, I felt quite confident that vacancies would never be a serious problem for me. Vacant houses, providing no means to pay the mortgage payments, could have easily shattered my investment plan. I had no extra cash in the bank for a rainy day. That’s why the least amount of risk was very important to me.

The Value of Tenant Cycling

What I tell you here applies mostly to fix-up investors like me. It has to do with tenant cycling. Let’s say you purchase six apartments that need fixing up. Rents are $350 each when you buy them. However, you’ve determined that two-bedroom units, once you’ve fixed them up, should rent for $550 each.
I’ll assume you’re short of fix-up money, like most investors. You figure it should take at least 12 months doing the work yourself. It’s important to keep your cash flow as high as possible during the fix-up phase, to pay the expenses and mortgage payment. That’s the situation. Here’s how to keep the rents coming in.

Interim Tenants Pay Your Bills While You Fix Up the Property

First, understand you can’t jump up from $350 renters to $550 renters in one giant leap, not unless you empty the building and do a “rehab blitz.” That means doing all the work in all the units at one time. That costs a ton of money, plus you lose all rental income—$2,100 per month, in this case, for several months. You’ll go broke doing fix-up projects that way.

Many low-end tenants can’t stay put. They move from place to place like gypsies. You need them. “Gypsies” will be your rent-paying customers for the next 12 months or longer. They will pay your bills as you transition from $350 rents to $550. It will take at least 12 to 18 months to make the changeover when doing most of the fix-up work yourself. Meanwhile, keep the units filled up with “gypsies”—and keep those rents coming in.
You can’t fix up one unit in a six-unit building and immediately begin charging $550. The other five units will hold you back. You can, however, move up to the $425 to $450 range on the first change of tenants. The reality is that your normal $550 tenant won’t live next door to $350 renters, no matter how nice the apartment is. On the other hand, “gypsies” will. They see your apartment as a bargain. They plan to stay only a short time anyway and don’t care who they live next to, as long as the price is right, for now.

Your Broker Will Likely Never Understand This Strategy

During the 12- to-18-month fix-up period, it’s customary for some of the tenants to move out. Obviously, they can see that rents will soon be going up. Better-class tenants won’t show up for a while because most of them cannot visualize how attractive the completed project will look. Your interim solution to cash flow can be the “gypsies.” They come and they go, but they pay their rent and that’s what you need most during the fix-up stage. I’ve found it takes most do-it-yourself investors a little while to perfect this strategy. My good friend and real estate agent, Fred, still doesn’t understand how I do it. Nevertheless, he still agrees that it works very well for me.

Keys to Good Management Are Action and Enforcement

Enforcement of the rules, whether the civil code (laws) or your own house rules, is the best way to develop a smooth-running management operation. Preventive techniques are as important to managing tenants as they are for the doctor who manages your personal health. One of my main criticisms of professional property managers is that they very rarely act— mostly they react. They’re always ready and willing to fix a malfunctioning toilet—but only after it has overflowed and ruined the living room carpet.

You Must Always Get the Money First

Rent monies are the “lifeblood” of apartment owners. Yet, I know many property managers and owners alike who participate with their tenants each month in a silly little “rent collection ritual.” The tenant starts the game by saying, “The check is in the mail.” Then the landlord begins calling every day or driving out to the property to inform the tenant that he hasn’t received the check yet. Sometimes this goes on for weeks.
Playing this game will only eliminate whatever respect one party might have for the other. It generally leads to more bickering about other matters, as well. Don’t allow yourself to be part of this game. You’ll fare much better if you simply use the rules already on the books. I’m referring to your state’s landlord-tenant civil laws and, of course, your own rental contract terms, to which your tenant has agreed.
Rent collection is a landlord’s most serious business. Quick enforcement of the rules, when needed, is the best method I know to keep your tenants paying as they promised.

Good Tenant Records Are Essential

Some property owners tell me that it’s not necessary to have written rental contracts and agreements, if you choose the right tenants. I certainly can’t argue with that. The problem for me—as for most other landlords—is that it’s impossible to do that 100% of the time. Obviously, folks who tell me this have never been exposed to a courtroom eviction drama. If they had been, they would understand that, if it’s not in writing, you don’t have a case.
Don’t Take Shortcuts with Formalities
The tenant interview and application process do not change because a tenant is renting economy-priced rental property or because he or she does not have a regular job. You should follow the same application procedure, no matter what the applicant’s circumstances. You must have complete tenant files in order to operate a rental business successfully. Don’t misunderstand what I’m saying about tenants without regular jobs. This doesn’t mean you should rent houses to unqualified people. Let’s be clear on that point. Obviously, there must be sufficient income from some source or you don’t rent to them, period.
The Application Form—What You Need to Know
It’s very important to learn everything you can about an applicant before you hand over the keys. This information should be required whether you’re renting $300 apartments or a suite on top of the Trump Tower.

The first thing you need to find out is if the tenant can afford to pay the rent you’re asking. Second, what can you do to collect the rent in the event your tenant fails to pay during his or her stay with you?

The more personal information you can obtain on your rental application, the better prepared you’ll be if something goes wrong. You need names and addresses of parents, friends, and co-workers. You also need references, including his or her last two landlords. One question on my application asks, “Who will co-sign for you if your own credit information is not sufficient to qualify you?” The answer may lead you to financially sound backups who don’t mind co-signing your rental contract with the tenant. Often parents or in-laws will do this if you ask. Always have them fill out your application, the same as tenants, when they agree to be a co-signer.
There’s absolutely nothing in my contract that should make it necessary for much further discussion beyond the initial rent-up. Obviously, when a tenant rents my house, he or she has already inspected it and decided to live there. I need to know just one thing—Are they qualified? That’s it! It’s not really necessary to like your tenants. A landlord’s obligation is to provide the best housing for the tenant’s rent dollar.

Can Your Tenant Afford the Rent?
As a general rule, young tenants can pay about 35% of their net take-home money (after taxes or payroll deductions) for rent. Older tenants and seniors can often pay 50% of their income and have no problems. The reason for this difference is because they have learned to budget their resources and because they’re wiser. Obviously there are exceptions.

As a rule of thumb, the rent-to-income ratio must be lower for tenants with young children, automobiles, and pets. These things cost extra money. Whatever rent-to-income ratio you use, don’t rent to applicants who do not have adequate income to pay the rent you charge. If you violate this rule, you’ll end up chasing rents and listening to “tearjerker” stories every month about why the rent is late or how the check got lost in the mail. Clearly the saddest part of the story is that you’ll have brought this on yourself.

Renting to Low-Income Tenants
One major difference I’ve found when renting to low-income tenants, as opposed to those with more money is that, when a crisis develops, they have no cash reserves to keep them afloat. Many do not even have decent-paying jobs. Others depend on housing subsidies, Social Security, and welfare assistance. Another problem, quite common with the younger renters, is their inability to handle money. Many have difficulty living within their means.

People often ask me if it’s better to rent houses to tenants with low-paying jobs than to others in low-income brackets, such as tenants with HUD assistance (Section or AFDC (Aid to Families with Dependent Children). Frankly, I see very little difference.

Service jobs in my town pay very low wages and don’t include any benefits. Take-home pay, net cash, is about the same for a full-time service job worker as it is for a single woman with two dependent children receiving federal assistance. Financially, the woman may be slightly better off because she also gets food stamps and free health care. It’s better for me if she doesn’t have a car to buy gas for. Try to be objective here. Remember: we’re talking about the tenant’s ability to pay.

Section 8 Tenants: Rent-Assisted Program

Federally funded Section 8 programs, administered through local city and county Housing Assistance Programs offices, provide extra protection and sometimes higher rents to landlords. It involves extra paperwork, but the agency will prepare most of the documents for you. You, as a landlord-owner, will still select the tenants. Often they are sent to you by the agency from their waiting lists. Regardless of the extra paperwork required by HUD rules, you should still have every tenant complete your rental application and, if approved, sign your rental agreement or contract.

The major difference with HUD Section 8 tenants is you need good cause to evict. The good causes are listed on the HUD lease documents. Obviously, nonpayment of rent and property destruction are good causes. The best feature about the Section 8 program is the guaranteed rent provision. If your tenant goes bonkers, you can receive up to two months’ extra rent. Also, should damage to your property occur, the agency will inspect the property, determine fault, and reimburse you for all authorized repairs, minus the wear and tear, of course.

Rental Contracts Don’t Need to Be Complicated
Always use an application form and a rental contract or agreement. Ask prospective tenants to fill out your application first. If you approve their application, then prepare your rental contract. My contract specifies the terms (rules) that tenants must agree to, if they wish to live in my property.

I have never discovered any need for a long-winded rental contract with page after page of monotonous terms. For one thing, no one will ever read it—and, second, I might be asked to explain it someday. Remember: five pages of regulations are not worth anything unless your tenant is willing to abide by the terms. Never forget this: a good landlord-tenant relationship is not better because you have a “killer contract;” it’s better because you learn to select tenants who will pay you and abide by the rules. Therefore, learning how to qualify and screen your tenants is the area where you should strive to improve. The contract will be needed only if that effort fails.
Rental contracts should specify that tenants are to keep the property in good repair, live peacefully alongside their neighbors, pay rent in a timely manner, and allow the landlord to inspect with proper notice. They should also specify who pays attorney fees to enforce violation of rules, when a late fee is required and the amount, and who is responsible for tenants’ personal property losses. Make it a point to have all adult tenants sign the agreement, as well as co-signers, if they guarantee the rents.
Other important terms should include the tenant’s liability regarding his or her personal property, when late fees are due and the amount due, and who is responsible for repairs when things break while the tenant is in possession. My agreement is a legal-size (8½ x 14) sheet, printed on both sides. I have amended it several times over the years. It’s very basic, but it covers about everything.

In the event you discover you’ve rented to a deadbeat, a simple, straightforward contract will serve you best as an attachment (exhibit) to your lawsuit (unlawful detainer—a suit by a landlord to evict tenants and receive back rent). Surprising as it may sound, judges want to find out very quickly who has done what to whom and why. A well-written contract helps them understand. If there is any confusion or doubt concerning the paperwork, nine times out of 10 the tenant is automatically given the benefit of the doubt. Therefore, my rule concerning a rental contract is this: “If it’s simple, it’s good.” Keep it simple for them and you’ll walk out of court a winner.

Deposits Provide Added Protection
I do not collect first and last months’ rent from my tenants. However, I collect larger deposits than many other landlords. It’s easy to justify a large deposit when you explain that it’s still cheaper to move into your house because, unlike other landlords, you’re not charging last month’s rent in advance.
Typically, a landlord in my town will ask $450 rent for the first month, $450 for the last month, plus a $300 security deposit. So, the move-in will cost the tenant $1,200 total. I think it’s much better to charge $450 rent with a $650 security deposit. My total move-in cost is $100 less than others and the $650 deposit is fully refundable if the tenants leave my place clean when they move. Obviously, I’m much better secured with the larger deposit.
This strategy avoids a “game” tenants often play with landlords. On the first of the month, they are short of money. So, they give a 30-day notice to move—“New job,” they say. They request that the landlord apply their prepaid, last month’s rent for the current rent due. The landlord must comply. Then, toward the end of the month, they proudly announce, “I won’t be leaving after all. My new job fell through.” Obviously, most landlords don’t want vacancies so they feel somewhat relieved. The problem is that now the last month’s rent is used up and it never gets put back in the landlord’s account. This means the landlord is holding a very small deposit ($300, in this example). This is not enough money to adequately protect the landlord or to make a tenant think twice about skipping (not paying rent) and staying as long as possible before the marshal arrives to toss him or her out.

One final note: when something goes wrong, act immediately. Serve the proper notice to begin eviction. Action makes a believer out of your tenant quicker than any words you could ever find.

Tenant Urgency—Not My Urgency

It is your business to see that rents are collected and that tenants abide by the rules and regulations stated in your rental contract agreement. You must never allow a tenant to intimidate you. It will almost always lead you to make poor decisions. In my view, the most common mistake landlords make is to allow the tenants’ urgency to become their urgency. Let me explain.

After many years of doing this job, I’m hard pressed to think of any situation so compelling that there wouldn’t be enough time to think it through. For example, if there’s a fire at my property, the community fire department will handle everything. As for me, I’m protected by insurance on the building. Should someone die in my house, I’ve yet to meet the landlord who’d be of much help. The county coroner is the person you need.
In short, leaky pipes, broken windows, and cockroaches are no more urgent to a landlord than dying patients are to a doctor or raging fires are to a firefighter. They are simply a part of doing business.

Pipes will always leak, people sometimes die, and buildings occasionally burn to the ground. That’s just normal stuff when you own a lot of rental houses. Your job as a landlord is to be as responsive as possible to your tenants. But never, never allow yourself to be stampeded into making rushed decisions, simply because your tenants think you should.

Landlords Must Know the Law

Every landlord should know and understand the landlord-tenant laws in his or her area. Once you know the laws, your fear of renters or of being intimidated by them will vanish. An overwhelming number of owners incorrectly assume these laws favor deadbeat tenants. I can assure you this is not the case, although it appears that way sometimes. Laws are mostly about equity. It’s well to remember that there are unscrupulous landlords just as there are bad tenants.

Owners Should Do Evictions

Landlords should do their own evictions, at least the first few times. This provides “combat training” and some valuable experience learning how the system works. Besides experience, there are two other important reasons. As always, the first has to do with money—yours. The second involves time, but since time is also money, you can see an obvious connection.

The simple truth is that knowledgeable landlords can save a sizable sum of money in attorney fees—and are in a much better position to move quickly and get rid of undesirable tenants. Quite often attorneys consider evictions as “fill-in” or “bottom-of-the-barrel” work. Unless you’re a regular client, your eviction problem will not have a very high priority with most lawyers. They’ve got more important things to deal with. Tossing out deadbeat tenants is not the kind of work that will get an attorney’s name painted on the front office door. Besides, most are far too slow, in my opinion.
Naturally, owners have the advantage with evictions because they know all the details about their tenants. Another plus is that owners can give immediate attention to a single problem, whereas attorneys, more often than not, are working on many cases at the same time. This immediate-attention issue is most important, because you don’t want hostile tenants living on your property any longer than absolutely necessary.
Here’s what happens—the longer an eviction gets delayed, the more angry and hostile most tenants become, and the more your property is at risk for a trash-out. Trash-outs happen when a tenant goes bonkers, kicks in the plasterboard, plugs the toilets, cuts wires inside walls, and spray-paints the interior black. You can greatly reduce the risk of a trash-out by conducting quick, efficient evictions. That means no name-calling and no threats, confrontations, or harassment. When you know the laws and understand what you can and must do, you are in the driver’s seat.

Learning Eviction Paperwork Is Not Difficult

Filling out the proper forms and going to court, when required (90% of my evictions default before ever facing the judge), is as easy as changing locks, painting walls, or fixing a faucet drip. The key is you must learn the procedure. Although court clerks are generally forbidden to give you legal advice, they are quite helpful and will tell you what forms to use. After you’ve been through the routine a few times, you’ll feel like Perry Mason. Who knows? You might even develop a brilliant law career to fall back on in case you flop as a landlord.

Repairs and Customer Service
If you rent houses, you should think of yourself as a businessperson. Businesspeople provide a product or service for money. You’re providing houses for rent. It’s basically the same. The point I wish to emphasize here is that, if you provide top-grade service to your customers, you’ll stay in business a long time. You’ll also come out far ahead of your competition, which improves your bottom line (cash flow).

Many part-time landlords get themselves into serious difficulties by stalling or putting off repair call-outs. Here’s a typical “putting off” response: “Yes, Mr. Renter. I know it’s only Wednesday, but if you’ll just be patient and hold off using the toilet until Saturday, that’s my husband’s day off, you know.” Ask yourself, if you were the renter, would you appreciate that response? I rather doubt it. So, then, neither will most of your tenants.

If you collect rents, you are obligated to keep the property in good working order. Pattern your repair visits after Sears or the telephone company. Both have been in the service business 100 years or so. It’s interesting to note that neither company sees the necessity of doing routine repairs during nonbusiness hours. The key to good repair service is to determine the urgency, schedule the job realistically, and then get it done.

What will set you apart from other landlords is how well you handle repairs. Tenants will always complain about high rents. You can’t change that; however, when they get top service for their money, they will accept rents better. As a result, they’ll remain your customers much longer, which, of course, is what all owners want.

Be Snoopy, When You Can—but Be Tactful
A bonus benefit for hands-on owners is that call-out repair visits provide the opportunity to “snoop” around inside your property without the normal 24-hour notice formalities. The more things you know about your tenants—like if they’re decent housekeepers, the number of beds (the count should match the authorized tenants), and the number of pets living on the property versus those listed on the rental agreement—the better control you will have as owner-manager.

Obey the Laws of Habitability
It doesn’t matter whether you rent $100-a-month river-bottom shacks or $10,000-a-month hilltop mansions, the rules are the same. Pro-tenant states, like California, have nasty penalties for what they call “slum land-lording.” Slumlords are owners who milk their properties, pocket the rents, and never contribute a nickel to their upkeep. This is a very shortsighted plan and a straight path to disaster.

California Civil Code, Section 1941.1, specifies the minimum habitable living standards for California. Other states have similar statutes. However, even if there are no statutes, common sense would dictate adhering to these minimum living standards.ere are the laws of habitability for rental properties in my town. You should use them too.

No leaky roofs, doors, or windows. Exterior of house must be weather-tight. Cardboard on windows won’t qualify.

Plumbing and gas facilities must comply with building codes. They must be kept in good working order.

The building must have a properly approved water system, with hot and cold running water. Drains must be connected to an approved sewer or septic system. Hoses running out the back door from a washing machine are not approved, when anyone’s looking.
Heating is required. It must be approved in accordance with local codes. Gas appliances must be properly vented and maintained in good working order.

Electrical wiring (lights) and other equipment must conform to building codes and must be kept in good repair. Be careful with electrical fixtures in bathrooms near water. Shocked tenants might forget the rent payment day, which could shock the landlords.

Apartments and houses must be clean when you rent them. There can be no junk piles or garbage lying around. Also, rats, mice, roaches, and other pests must be eliminated—or at least relocated. Always rent clean properties. It’s good business.
Owners must provide garbage cans or city receptacles (bins). They must be routinely emptied and cleaned and they must be in place on the day you rent the unit.

Floors, stairs, and handrails must be kept in good repair. Also, make sure lighting is provided in stairways. If your tenant can’t see the handrail at night, why bother having one? Watch for weak spots in flooring.

Don’t forget these eight items. They are not optional. They are the law. If you rent with violations and if your renter turns you in, you’ll have the kind of problems you don’t need, believe me. Landlords have found themselves in serious trouble for noncompliance. Even worse, they may be sentenced to live in their own units with—guess who?

Real Estate X

Real Estate Blog