With continued talk of a down-turn in the economy, the Fed keeping interest rates low and first-time home buyers buying new homes at record rates, rental property owners should be employing any and all means possible to “recession-proof” their investments in real estate.
1. Revamp your application process….clean up/update rental application forms and strengthen credit requirements. If you are using an old “retail CBI” report, update to the use of a scored credit report – much like mortgage credit reports – where the application’s current obligations can be viewed v the amount of the proposed monthly outlay for the rental home. If the applicant is over extended in credit card debt, student loans or other high-cost consumer debt, these types of reports will automatically calculate their monthly obligations and advise if they will be able to pay the stated monthly rent from their current income. Some tenant screening services now have the availability to screen for lawsuits and evictions. Consider using these services as an added protection.
2. Rewrite lease documents….to tighten up unstated landlord’s options….in VA, rental property owners, with proper lease wording, are not required to serve a 5-Day Pay or Quit for rent prior to filing a UD. Insert this wording so that at the expiration of the late fee period, you can file the UD immediately rather than having to wait an additional 5 days. Learn how to file a UD, have these forms on hand so that you can prepare them, file them as appropriate on the 6th and get the brown-shirted sheriff on your tenant’s doorstep ASAP. Insert wording to the effect that you can mark up any security deposit costs to cover your time/energy if they leave it dirty, don’t make necessary repairs or leave with rental monies owing. Tighten up your late fee policy. Consider allowing 5 days for rent to be received and then charging a large, late fee. Update any NSF to cover any charges assessed by your bank and make sure your lease wording applies your late fee to “each adult applicant”. Encourage “group” tenants to issue one rent check so that you are not tasked with collecting the stray roommate’s money. The most responsible tenant should collect from roommates and issue one check. If a roommate’s check bounces, let them handle between themselves.
3. Get ‘web active’ with your rental marketing and communications…..as ad revenue is dropping, print media are routinely increasing their advertising rates to cover their printing costs and revenue shortfall. Rental property owners with web access can post FREE internet ads on YAHOO and can maintain rental listings on the RentConnection site for a nominal membership fee. By insisting that your residents maintain an e-mail address, you can communicate more easily and eliminate postage costs for all but the most essential communications. By collecting prospective resident’s e-mail addresses on applications, you can assume they are maintaining a checking account or have access to a credit card in order to maintain an ISP.
4. Get a handle on maintenance and repair costs….if you have the time and skills to maintain your rental properties yourself, establish a “back up” program in case you are not available for emergency or routine maintenance issues. Establish outside providers for cleaning gutters, servicing HVAC systems, changing furnace filters, responding to appliance breakdowns. Cancel or don’t renew costly maintenance service contracts on appliances – they are expensive and in most instances, replacement is cheaper. Maintaining these contracts provides a “false sense of security” especially when you must wait with a key at the property to meet the assigned technician who is driving from F’burg and will be there between 10AM and Noon. Your tenant is not going to stay home from work to allow entry and neither should you.
5. Get realistic on increases and FMR……As a proponent of ALWAYS increasing rent for lease renewals, now is not the time to miss the opportunity to increase your rental income – even nominally.
ALWAYS increase your tenant’s rent on lease renewal – ½ the market rent would be reasonable OR, absent their ability to pay on a routine/regular basis, shift some of the property expense burden to them. Agree that they pay first $50 of any minor repair costs such as leaks, drips, or minor upgrades to save on energy costs. Task residents with changing furnace filters monthly. Residents should pay for ANY plumbing stoppage and if you lease does not address this, insert this provision either at initiation or renewal. Address landscape and yard issues. If tenant can not maintain the yard and exterior appearance of the property, increase their rent for next 12 months to cover costs of professional yard maintenance. They pay over 12 months for an expense outlay you have for only 5-6 months of the year.
6. Address utility costs and task residents to pay where applicable. In SFRs with separate meters, most residents knowingly pay their utilities; however, on duplex or multi-unit buildings, this may not be the case. In the case of large apartment complexes, management can have third-party billing services assume payment for these services and bill residents separately through sub-metering or utilizing historical usage. Smaller unit owners can bill residents on basis of unit square feet, number of occupants OR on a fractional basis of the use of the dwelling. The easiest method is for owners to continue to maintain these services in their names and then bill tenants for their usage. Lease wording should specifically address that billings for usage must be paid within 5 days of bill and that accumulated delinquent utility reimbursement will accrue as rent and subject tenant to assessment of late fee. Make sure that departing residents fill any fuel oil or propane tanks and don’t assume they have done this. Owners should specify that tenants maintain their fuel delivery on an “automatic fill” basis so that costly furnace repairs are not called for when a delivery of fuel would have solved the problem.
7. Start re-renting process earlier as needed……With students, contract employees, landlords should know well in advance when to start their re-renting process. Have your application and any instructions you routinely utilize in your application process. Applications can be scanned into PDF for e-mailing to applicants. When faxing, realize that they returned faxes will be slightly reduced in size so accommodate this in your procedure. Get as much information to your applicants ASAP so that you are not spinning your wheels showing your unit to unqualified prospects – wasting your time as well as that of your current tenant and prospective applicant. Screen for specific qualifications in your web or newspaper listing – when available, features, pets allowed, rent.
8. Consider having many of your administrative costs covered by terms of the lease. Make your late fee, NSF charge reasonable. Consider a “notice service fee” for service of any notice required to initiate an eviction action. If tenant needs to assign and/or sublet a re-lease their unit, institute a $200 lease administrative fee to re-write the lease for the new resident. Many large property management firms in areas with scarce rental inventory charge residents for lease renewals – $50 to $100 for offering an additional year’s lease.
Whether you have one or 20 rental units, remember that you are operating a business and need to look, act and operate the management of your rental property as a business in order to maximize your investment’s potential.
Wallace S. Gibson is the owner of Landlord Tenant Services and Gibson Management Group, Ltd. in Charlottesville, VA. She has over 30 years of residential and commercial property management experience. She holds the professional designations of Certified Property Manager (CPM) from the Institute of Real Estate Management (IREM) and the Master Property Manager (MPM) designation awarded by the National Association of Residential Property Managers (NARPM). She is the 1999-2000 Chairperson of the Virginia Association of Realtors Property Management Advisory Council and as well as being the NARPM’s 1999-2001 Legislative Chair. Wallace currently serves as
a NARPM director.
INSTITUTE OF REAL ESTATE MANAGEMENT (IREM), Certified Property Manager (CPM) designation
NATIONAL ASSOCIATION OF RESIDENTIAL PROPERTY MANAGERS (NARPM), Professional Property Manager (PPM)designation and Master Property Manager (MPM) designation
National Director, NARPM, 2001
Chair, Virginia Association of Realtors (VAR) Property Management Council for years 1999 & 2000
Contributing Editor to web sites: Rental Housing Online; MrLandlord; RentLaw; PrairieLaw; AskMe.com; RentConnection
Editor/Publisher, Landlord Tenant Services quarterly newsletter distributed to Central Virginia rental property owners