Property Management and Investor Information: May 2008

In California there is no such thing as a non refundable security deposit.  The purpose of a security deposit is to enforce some action, and all of it must be refundable.  Anything else is rent.

Be very careful not to automatically charge for things like a flea spray if the tenant had pets or a professional carpet cleaning.  Only charge for such things if you can document the move in condition and the move out condition and the service is actually needed and performed. 

NEXT:  What can the security deposit be used for?

This is the language that needs to be in your California rental agreement:

Registered Sex Offender Notice:  Pursuant to Section 290.46 of the Penal Code, information about specified registered sex offenders is made available to the public via an Internet Web site maintained by the Department of Justice at www.meganslaw.ca.gov . Depending on an offender's criminal history, this information will include either the address at which the offender resides or the community of residence and ZIP Code in which he or she resides.

Did you know that a landlord can fined $25,000.00 for denying a sex offender housing based on their registration? HUD housing is one exception to this law.  The purpose of registration is to notify neighbors so they can protect themselves, but it is not intended to deny housing.

See our Rental Agreement at http://www.homepointe.com/rentalagreement.pdf .

We have houses for rent in the following areas:
Houses for rent in Sacramento, Houses for rent in Natomas, Houses for rent in Elk Grove, Houses for rent in Laguna, Houses for rent in Galt, Houses for rent in Franklin, Houses for rent in West Sacramento, Houses for rent in Davis, Houses for rent in Orangevale, Houses for rent in Citrus Heights, Houses for rent in Fair Oaks, Houses for rent in Gold River, Houses for rent in Carmichael, Houses for rent in North Highlands, Houses for rent in Antelope, Houses for rent in Roseville, Houses for rent in Rocklin, Houses for rent in Granite Bay, Houses for rent in Lincoln, Houses for rent in Loomis, Houses for rent in Marysville, Houses for rent in Plumas Lake, Houses for rent in Olivehurst, Houses for rent in Rancho Cordova, Houses for rent in Rosemont, Houses for rent in Cameron Park, Houses for rent in El Dorado Hills, Houses for rent in Shingle Springs, Houses for rent in Serrano, Houses for rent in Rescue, and more

My family had finished Thanksgiving dinner several years ago and after the relatives had gone home I sat down to watch the 11 o'clock news.  The lead story was about a house fire.  One of my tenants had burned the place they rented from me down!  The tenant's son was playing with the fireplace and caught the couch on fire and burned up the living room. 

After making sure everyone was ok, we had to inform the tenant that they would have to pay for the damage.  Luckily he had renters insurance which worked with our insurance company to get the living room redone and smoke damage taken care of. 

Here is the clause in our rental agreement that takes care of this issue:

Resident shall pay Owner for costs to repair, replace or rebuild any portion of the premises damaged by the Resident or Resident's guests. Resident's personal property is not insured by the Owner and Owner recommends that Resident purchase insurance to protect Resident's interest in case of damage or injury caused by Resident.  Owner shall not be liable for any loss, damage, theft, or destruction of any of Resident's personal property.

 www.HomePointe.com

Many rental property owners do not want to rent to people who smoke.  There are good reasons for this, like the walls and carpet get smelly and discolored.  But is it legal to do this?

I think it would be hard to justify telling a potential tenant what they can and cannot do.  How can you tell someone to not smoke?

What I know you can do is tell your tenants that they cannot smoke while at the property.  In a single family home this means inside.  In an apartment, you could also restrict smoking in some common areas.   

You can be a smoker, just don't smoke in my house!

Here is the clause in HomePointe's Rental Agreement:

No smoking is allowed in the rental property or in any common areas that may affect other residents.

www.HomePointe.com

We have homes for rent in the following locations:
Homes for rent in Sacramento, Homes for rent in Natomas, Homes for rent in Elk Grove, Homes for rent in Laguna, Homes for rent in Galt, Homes for rent in Franklin, Homes for rent in West Sacramento, Homes for rent in Davis, Homes for rent in Orangevale, Homes for rent in Citrus Heights, Homes for rent in Fair Oaks, Homes for rent in Gold River, Homes for rent in Carmichael, Homes for rent in North Highlands, Homes for rent in Antelope, Homes for rent in Roseville, Homes for rent in Rocklin, Homes for rent in Granite Bay, Homes for rent in Lincoln, Homes for rent in Loomis, Homes for rent in Marysville, Homes for rent in Plumas Lake, Homes for rent in Olivehurst, Homes for rent in Rancho Cordova, Homes for rent in Rosemont, Homes for rent in Cameron Park, Homes for rent in El Dorado Hills, Homes for rent in Shingle Springs, Homes for rent in Serrano, Homes for rent in Rescue, and more.

What is a proper and legal amount to charge a tenant when the rent is not paid as agreed?

Many landlords and property managers employ late fees to penalize their tenant for the added risk of a late payment.  Some charge a flat fee and some a percentage of the rent rate or a percentage of the late amount.  Some even charge a daily penalty. 

I am not an attorney but I do know that the late fee should compensate the landlord for the damage incurred by the late payment. 

One way to figure this "damage" is to mirror the late fee a mortgage lender charges.  This fee is typically 6% of the mortgage payment.  Less than this is no problem if the landlord can live with the lesser amount.

I know some landlords charge up to 10% of the rent payment and in some cases a daily penalty can exceed that.  The problem comes up when the late fee is challenged by the tenant in court.  A landlord could be accused of being usurious.

u·su·ri·ous -adjective

Remember Blockbuster?  They got in trouble for excessive late fees.  Don't think that you are free to charge whatever you want.  There has to be a reasonable connection to your risk.

When starting a tenancy a landlord has to figure out when rent is due and when it is late.  It makes sense to have all rents due on the first of each month no matter what day the tenant took possession and no matter when the lease ends.  This is industry standard.

So, the rent is then late on the second.  But most landlords employ a grace period before a late fee is charged to the tenant's account.  Many landlords allow a five day grace period.  The problem with this is that weekends and holidays cannot be counted as the last day of the grace.  So, if the 5th of the month fell on a Saturday of a three day weekend, then the rent would not be subject to a late fee until Tuesday, the 8th!  I suggest that your grace period be cut down to the 3rd, to eliminate the weekend problem.  Some landlords have no grace period but that can appear to be a bit heartless. 

Here is the paragraph from HomePointe's Rental Agreement:  

If entire rent due is not received in office by the 3rd of any month, 6% of rent rate may be added to the amount due as a late charge.Resident agrees to pay the maximum the law allows for all checks returned by the bank. After two returned checks, Resident agrees to pay with only certified checks for the next 12-month period. Resident agrees to pay the cost to serve/mail notices to enforce this agreement in addition to late fees. Resident agrees that payments, at the option of the landlord, may be credited in the following order:Late charges, NSF charges, repair charges, notice serving charges, other charges, rent, unless otherwise stipulated and agreed to by allparties. Acceptance of any partial payment does not relieve Resident of the obligation to pay any outstanding balance due.

NEXT:  What is proper late fee to charge?

www.HomePointe.com

 Rentals and Professional Property Management

In our area the summers are HOT!  So does it make sense to spend money to put in central heat and air conditioning in lower end rental units that do not currently have central air conditioning?

I did the math and came up with this:  New central heat and air, where the current is wall heat and no air conditioning priced out at about $7,000.00 including the cost to take out the old heater.  This included upgrades to the electrical system.  I went to my current tenant and told them if they would pay an extra $100.00 per month, I would install a new air conditioner.  In the first year the extra rent would be $1200 so the return on the investment would be 17%.  In 5.8 years the air conditioner would be paid off by the tenant!

I liked those numbers, so I put them in all my old rental units for those that would accept the increase or when the property came vacant. 

Better than money in the bank.

I also asked each tenant to sign a new one year lease.  I have since found that my units are staying rented longer which really helps improve my bottom line.  I would suggest putting the entire unit on the roof, mainly for security reasons.

I manage property rentals in the greater Sacramento area, from Lincoln to Elk Grove, and Cameron Park to Galt and Marysville to Davis. 

www.HomePointe.com

We have rentals in the following communities:
Rentals in Sacramento, Rentals in Natomas, Rentals in Elk Grove, Rentals in Laguna, Rentals in Galt, Rentals in Franklin, Rentals in West Sacramento, Rentals in Davis, Rentals in Orangevale, Rentals in Citrus Heights, Rentals in Fair Oaks, Rentals in Gold River, Rentals in Carmichael, Rentals in North Highlands, Rentals in Antelope, Rentals in Roseville, Rentals in Rocklin, Rentals in Granite Bay, Rentals in Lincoln, Rentals in Loomis, Rentals in Marysville, Rentals in Plumas Lake, Rentals in Olivehurst, Rentals in Rancho Cordova, Rentals in Rosemont, Rentals in Cameron Park, Rentals in El Dorado Hills, Rentals in Shingle Springs, Rentals in Serrano, Rentals in Rescue, and more.

Do not allow tenants to perform repairs and all requests for repairs should be in writing. Your lease should prohibit the resident from performing repairs on the property. The resident is not likely to be a repair expert, so you will probably be disappointed in their workmanship. Even if they can do the repair, what if they fall off a ladder or electrocute themselves? Can you afford a lengthy legal battle involving time and expense over a repair item? Second, you should state that all repair requests be in writing This will give you a written record of all requests for your records, a good defense in the case of lawsuit. 

The one exception to this rule is yard care.  It is one chore that has not hit the lawsuit circuit. 

Email is an excellent vehicle to make repair requests and to respond as to the action being taken. 

www.HomePointe.com

 An annual inspection will protect you and your resident from safety and financial liabilities.  Since some residents remove smoke alarm batteries, this is a chance to verify that the alarm(s) is both working properly and that it is placed in the proper location(s).  Also, many residents do not faithfully change their air conditioner and heater filters.  The annual inspection will reveal this and give you a chance to change the filter before your AC unit gets damaged. 

The annual inspection will also allow you a chance to catch any lease violations and deferred maintenance.  Are their any pets at the property that you do not know about for example.  Be sure to check for caulking and any leaks under sinks or roof leaks.

Some tenants have been known to turn the house they rent into a drug growing or manufacturing operation.  Getting inside once a year will curtail the temtation.

Be wise, many jurisdictions will only allow the landlord to enter the property for a limited number of reasons.  Annual maintenance that the landlord wants to perform will normally qualify.

www.HomePointe.com

We have homes for rent in the following locations:
Homes for rent in Sacramento, Homes for rent in Natomas, Homes for rent in Elk Grove, Homes for rent in Laguna, Homes for rent in Galt, Homes for rent in Franklin, Homes for rent in West Sacramento, Homes for rent in Davis, Homes for rent in Orangevale, Homes for rent in Citrus Heights, Homes for rent in Fair Oaks, Homes for rent in Gold River, Homes for rent in Carmichael, Homes for rent in North Highlands, Homes for rent in Antelope, Homes for rent in Roseville, Homes for rent in Rocklin, Homes for rent in Granite Bay, Homes for rent in Lincoln, Homes for rent in Loomis, Homes for rent in Marysville, Homes for rent in Plumas Lake, Homes for rent in Rancho Cordova, Homes for rent in Rosemont, Homes for rent in Cameron Park, Homes for rent in El Dorado Hills, Homes for rent in Shingle Springs, Homes for rent in Serrano, Homes for rent in Rescue, and more.

When a poker player has good cards, sometimes they slow play the hand by not betting much in the hopes of attracting more players to stay in the game.  They hope the other players will put more money in than if they player with the good hand bet big early.  It is a way to make more money. 

The banks that are trying to sell there Real Estate Owned (REO) property are sometimes slow playing the offers they receive.  I have noted that sometimes they will sit on an offer for weeks on end.  I believe this is so they can hopefully attract more offers.

I think the banks would be better served by making counter offers and getting on with the deal.  Slow playing in real estate is a waste of everyone's time in my opinion. 

If you are an investor looking to buy REO's I  suggest you get a good realtor to help you.  They can identify all the listings out there and help you find the best ones.  Once you have your property, find a good property manager to help you fix up the property and to help you locate a tenant and collect the rent.  If you are in the greater Sacramento, Placer, El Dorado, or Yolo areas of northern California, come see me at www.HomePointe.com  .  We will not slow play your business.