The CompleteLandlord.com Ultimate Landlord Handbook E-Book

William A. Lederer

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 551

Veröffentlichungsjahr: 2009

Beschreibung

This book covers the entire cycle of becoming a successful landlord. Written in an accessible format by the entire team of completelandlord.com, this book provides valuable information for landlords from a staff of real estate experts. Readers will find essential information on: * What a new landlord can expect * How to determine which is the best property to invest in * How to keep accurate records, rental agreements and leases * How to deal with tenants * How to screen tenants * How to market your property to tenants * How to manage the day-to-day responsibilities of a landlord

Leseprobe

Table of Contents

Title Page

Copyright Page

Acknowledgements

LIST OF ICONS

Money Savers

Money Makers

Time Savers

Introduction

SECTION ONE - What Are You Getting Yourself Into?

CHAPTER 1 - Residential Real Estate as the Ultimate Storehouse of Value(s)

The Investment Case

Hard to Resist

CHAPTER 2 - Why Investing in Residential Rental Property Will Get You Where ...

Financial Factors

Taking Time

You Are the Boss

Get Your Game Face On

Still Interested?

CHAPTER 3 - The Pros and Cons of Landlording: Do You Have What It Takes?

Time Commitment

Time Savers

Financial Commitment

Set Up Separate Accounts

Getting Going

Landlord Central: Setting Up Your Home Office

Maintaining Records

Key Considerations

Building Your Contacts

Landlord Resources

CHAPTER 4 - Think Like a Real Estate Mogul: Build a Winning Strategy, Plan and ...

Team Building 101

Rounding Out the Team

Fill the Gaps

Choosing a Professional

Number Crunching

SECTION TWO - Investing in Residential Property for Income

CHAPTER 5 - Which Rental Properties Are Right for You?

Choices, Choices

A Steady Source of Wealth

Appreciation versus Cash Flow

Nailing Down Your Finances

Finance Formula

Monthly Mortgage Payment

Private Mortgage Insurance

Property Taxes

Additional Expenses

What to Look For in a Neighborhood

What to Look For in a Starter Property

Where to Look

Working with a Real Estate Agent

Ready to Buy?

CHAPTER 6 - Property and Investment Analysis

The Buying Process

Making an Offer

Show Me the Money

The Lowdown on Mortgages

Seller Financing

Keep on Buying

CHAPTER 7 - Sourcing Investment Rental Property: Searching for Bargains and ...

Improving and Converting Property to Rental Units

How Much Is Too Much?

Buying a Fixer-Upper

Converting Nonrental Property

Money Matters

Improving and Converting Property to Rental Units

CHAPTER 8 - When Should You Sell? Trick Question! Hardly Ever

Temporary Problems

Insurmountable Problems

You Will Know by Your Cash Flow

How to Sell Your Rental Property

Hidden Costs of Selling Your Property

The Worst-Case Scenario

SECTION THREE - Property Management and Your Landlording Responsibilities

CHAPTER 9 - Legal and Financial Considerations

Landlord Responsibility #1: Tenant Safety

Landlord Responsibility #2: Repairs and Maintenance

Landlord Responsibility #3: Tenant or Guest Injury

Landlord Responsibility #4: Environmental Hazards

What Are Tenants Liable For?

Avoiding Litigation

CHAPTER 10 - Maximizing Cash Flow

A Primer in Cash Flow Management

CHAPTER 11 - Tax Planning for Landlords

Income Tax Software

Income Tax Basics

Renting Your Vacation Home

Paying Your Taxes

Are You Passive or Active?

Advantage of Depreciation

Filing Your Rental Income Tax

Capital Gains Tax

Property Taxes

Do Not Tax Yourself over Taxes

CHAPTER 12 - Insuring Your Rental Property

How Much Will It Cost?

Insuring Your Property against Physical Damage

Liability Insurance

Protect Your Assets

Cover Your Employees

Tenant’s Insurance

Choosing an Insurance Company

SECTION FOUR - Plan the Work, Work the Plan

CHAPTER 13 - Beyond Record Keeping: Choose the Right Systems, Metrics, and Policies

Rental Policies

House Rules

Enforcing Your Policies

Review Your Rental Agreement and Policies

CHAPTER 14 - Handling Maintenance, Repair, and Construction

Shaping Up

Maintaining a Single-Family Home

Working with Contractors

Hiring Employees

Sweat Equity

SECTION FIVE - Residents

CHAPTER 15 - Taking Over and Finding and Showing Tenants Property

Tenants Already in Place

Before You Buy

Closing the Deal

Once You Are the Landlord

When the Lease Expires

You Are on Your Way

Should You Hold an Open House?

Stop the Showing

CHAPTER 16 - Screening and Choosing the Best Tenants

The Rental Application

Check Them Out

What to Do with the Data

Who Pays for the Background Check?

Acting as a Reference

Making the Selection

Choosing the Best Applicant

Notifying the Chosen Applicant

Turning Someone Down

Make It Official

CHAPTER 17 - Rental Agreements, Leases, and Other Forms

Types of Agreements

What a Rental Agreement Includes

Housing Choice Vouchers (Section 8)

Security Deposits

CHAPTER 18 - Rent: Pricing, Collecting, and Tracking

Calculating How Much Rent to Charge

Increasing the Value of Your Rental

Methods of Collecting Rent

Handling Roommates

Setting and Enforcing Due Dates

When, Why, and How to Increase Rent

When, Why, and How to Lower Rent

CHAPTER 19 - Communicating with Your Tenants

Legal Reasons to Communicate

Timing

Tone

Means of Communication

Putting Pen to Paper

CHAPTER 20 - How to Keep Good Tenants . . . and Cope with Bad Ones

And Now, the Hard Part

When Training Doesn’t Work

Legal Eviction Process

Getting Your Money Back

SECTION SIX - Where to from Here? Next Steps

CHAPTER 21 - Should You Do It Yourself or Hire a Property Management Company?

Covering the Bases

What a Property Management Company Can Do for You

Due Diligence

Can You Afford It?

Where to Look for a Management Company

CHAPTER 22 - Continuing Your Landlording Education

Ongoing Resources

Appendixes

INDEX

CLL CATALOG

This book is printed on acid-free paper. o

Copyright © 2009 by Minotaur Media, LLC. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.Published simultaneously in Canada.

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eISBN : 978-0-470-44035-3

In honor of my family: Renda, Adam, Eric, and Muriel Lederer;

To Jill, John, Robert, Sarah, and Edward Doherty; Peggy, Marc (one of America’s great real estate investors and landlords), Josh, Davis, and Chloe Blum;

And in memory of Frederick Lederer, Beverly and Irwin Lippmann, and Stella Natenberg, anyone’s idea of a great real estate asset and team member

ACKNOWLEDGMENTS

I am pleased to acknowledge those without whose help and guidance neither this series nor my landlording odyssey would be complete:

• My copy, editorial, graphics, and marketing team of Bridget McCrea, Shannon Vargo, Linda Indig, Mohammed Ejaz Ali, Brian Neill, Beth Zipko, and Kim Dayman, who really pulled through for me and to whom I am much indebted. A big thank you and recommendation to the best non-fiction literary agent in America and my great friend, Cynthia Zigmund.

• My inspirations: the courageous, selfless and impactful John Wood of Room to Read, business leader and good friend Dean Debiase, and real estate entrepreneur/attorney/friend Dr. Arnold S. Goldstein, Esq.

• My wife Renda and mother Muriel deserve much credit for this ultimate series, our education in landlording, and the staying force to persist. Too seldom do family members get their due in these endeavors. I have been blessed beyond belief.

• My long-time colleagues Enid Becker, Jonas Hedsund, and Jay Rawlings; accountant and lawyers Harry Kramer, Stewart Schechter, Peter Lieberman, and Todd Mazur; and my former colleagues Bruce Masterson, Cindy Fitzgerald, and Paul Barrett.

• Mona Hellinga as my favorite and utterly professional residential real estate agent.

• My friends and business partners at Buildium property management software, including Michael Monteiro and Dimitri Georgakopoulos.

LIST OF ICONS

Money Savers

These sections are designed to save you money. Use the information in them to make frugal decisions regarding your cash outlay when investing in and running your properties.

Money Makers

Here’s where you’ll learn how to make money in real estate. Ferret out the best possible tips and advice from these sections of the book and you’ll be well braced to earn a living and more from your real estate investments.

Time Savers

We know there are only so many hours in a day, so use these areas of the book to shave precious time from your schedule and maximize the time spent on your landlording and real estate investment business.

INTRODUCTION

Congratulations! You are about to embark on an exciting new path that many successful landlords before you have come to enjoy. Whether you’re new to the business, or looking for ways to improve your current rental property ventures, you’ve come to the right place. This book, combined with the real estate investment and real estate property management books that complete this series, will equip you to take on just about anything that comes your way as a landlord.

This book is designed to serve you, the reader, in several ways. You can read it from cover to cover, stick to those sections that are most applicable to your situation, and/or supplement it with the knowledge that you’ll find in the other two volumes. Regardless of how you tackle it, the key is for you to come away with a broad knowledge of exactly what it means to be a successful landlord.

In this book, you’ll learn about the pros and cons of landlording, learn how to determine which rental properties will be best for your individual situation, get the inside track on sourcing those properties, learn how to maximize cash flow as a landlord, and—perhaps most importantly—find out how to recruit and retain good, paying tenants.

If you want to know what makes us experts in this field, consider the fact that CompleteLandlord.com has already helped hundreds of thousands of small and medium-sized landlords, who together own millions of rental units, save time and money. We believe life is short and it’s important to manage properties efficiently, easily, and profitably.

The editorial team at CompleteLandlord.com, publisher of the Landlord Profit Letter and numerous special reports, books, and monitors of the CompleteLandlord Forum, has more than 25 years of landlord, property investment, rental management, and overall real estate experience. We also have a dedicated staff of attorneys and advisors who review our articles and forms library to ensure accuracy and compliance with all federal, state, and local real estate laws.

CompleteLandlord.com is for people like you: landlords and property investors. It’s the online destination that thousands of savvy landlords and real estate investors go to for real-world advice on managing properties and tenants, as well as to pick up products, services, and essential forms. All our efforts are aimed at helping people run a more profitable and successful real estate business.

We’ve also assembled a diverse advisory team of more than a dozen landlords from diverse places such as Ohio, Texas, Georgia, and Illinois (just to name a few). This team is not afraid to mix it up and share the real scoop on what it’s like to be a landlord. They review and comment on (and sometimes argue about) our product in order to share insights with us (and you) on money and time-saving strategies and tips to help build real wealth with investment properties. The advisory team includes landlords who own, manage, and have sold both large and small multi- and single-family properties, as well as other investment real estate.

And with that, we invite you to turn the page and find out how to start and run your own successful landlording business. We’ll be with you every step of the way—both online and offline—to help you manage the rough patches and celebrate the good times. So sit back and get ready to learn the ropes!

SECTION ONE

What Are You Getting Yourself Into?

CHAPTER 1

Residential Real Estate as the Ultimate Storehouse of Value(s)

Have you heard someone say, “real estate never loses its value”? If you look historically at the segment’s performance over the past few decades, you will see that the statement is true. So while market fluctuations may have made naysayers out of some investors in recent times, a look at the bigger picture proves that real estate is a solid investment that, over time, earns its owner(s) money.

Unlike the stock market and its paper-based investments, real estate is a solid, tangible product that investors purchase, upgrade, rent out, live in, and—if so desired—eventually sell at a profit. While they own the property, they either live in it full-time, reside in it part-time (as in the case of a vacation home), or lease it to one or more families in exchange for a monthly fee.

Investors who own more than one piece of property, and who rent out their units on a year-round or seasonal basis, can earn money on their homes, thus becoming landlords or businesspeople who earn some or all of their income from real estate. These landlords often become owners of multiple homes and/or properties, and in doing so carve out an extra piece of the American Dream for themselves.

Real estate investing also has some noneconomic values, such as the opportunity to create a legacy for yourself, and to support yourself and your family in both good times and bad. By owning multiple real estate units and renting them out to others, you also help the community where your properties are located, you form bonds with others, and you develop (or enhance) your business skills.

Landlord Insights

Every Christmas I send a note with a coupon for a specific amount off January’s rent or a gift card to tenants who have never been late with their rent.The tenants appreciate this, and continue with their responsible behaviors.

—Independent landlord

Landlording tends to be a “family affair”—with all members getting involved at some level, even if it’s just to lend an ear while you gripe about your latest tenant horror story. It becomes an entrepreneurial centerpiece that you and the people around you can learn from. Finally, the counter-cyclical benefits of owning nonspeculative real estate are many, including the ability to purchase and manage income-producing real estate on your own, all the while taking advantage of substantial pretax and posttax savings.

The Investment Case

The investment psyche of many Americans has undergone a major reversal since early 2000. For most of the 1980s and 1990s, the place to invest money was the stock market, propelled in no small part by the creation of 401(k) plans that put ordinary investors in the driver’s seat of their personal finances as never before. The dot-com bubble burst of 2000, combined with the market slide triggered by the terrorist attacks on September 11, 2001, left many Americans with a longing for what they had in the 1990s: double-digit investment gains with virtually no effort.

Even as stock prices fell and businesses disappeared, the real estate market continued to soar. Today, more Americans are investing in real estate to reap its financial rewards. Spurred on by low interest rates, rapid appreciation, and a growing number of ways to borrow money, many Americans now view real estate as a safe financial investment—and one more lucrative than the stock market in recent years.

Important Note

Over the past 30 years, the median price of existing homes has increased an average of more than 6 percent every year, and home values have nearly doubled every 10 years, according to historical data from NAR’s existing-home sales reports. A Federal Reserve study has shown that the average homeowner’s net worth is 46 times the net worth of the average renter.

Real estate, like any investment market, consists of patterns that repeat themselves called cycles. Knowledgeable investors continue to buy in all markets, not just good ones. In fact, some of the best make their move when the market is down. Following market trends and knowing when, where, and what to buy are the keys to successful real estate investing.

Hard to Resist

For many, the allure of landlording is just too strong to resist. After getting one or two real estate purchases under their belts, many CompleteLandlord.com members find it difficult to go wrong while developing and following their bliss . . . and being paid well for it. Since homeownership is the American Dream, it only makes sense that when you own multiple single-family homes, duplexes, triplexes, or apartment units, you become the ultimate purveyor of that dream.

Landlord Insights

This is only my second year of owning rentals and I’ve gained a lot of experience in a short period of time.The key for me has been tenant screening as well as having an easy-to-understand lease. I base my decisions mainly on my intuition and proper application screening, not the pressure to fill the rental as soon as possible. I advertise a phone number and have voice mail for answering all of my calls. Ninety-five percent of my screening happens with that initial call. The first thing I purchased after acquiring the rentals was the CompleteLandlord.com software. The suggestions have been a great help!

—Mia Collins, independent landlord

Real property has been and will continue to be the single most significant source for creating individual wealth in the United States. In fact, provided they can learn to manage and calculate the time frames that produce real property equity and cash flow gains, real estate investors can typically realize faster returns in just about any market conditions.

Those who learn the ropes of real estate investing, property management, and landlording have been known to rack up wealth without the need for an active investment approach. That’s because property owners experience incremental returns in value over time, and with little or no effort.

Circling back to what you read at the beginning of this chapter, over time, real estate increases in value.

Consider This

Even in a stagnating or declining real estate market, landlords know that given enough time their properties will always appreciate over the long run.This even holds true in regions where real estate may experience long periods of low appreciation, or even declines in values.

The most successful landlords know that real estate, like any other type of investment, is cyclical in nature. The stock market doesn’t consistently go up, gold values aren’t always on the rise, and so forth. Supply and demand kicks into gear when we talk about real estate, with good cycles attracting developers and speculative buyers, and resulting in overbuilding and an overabundance of properties for sale, much like the United States experienced in 2006 to 2008.

Based on our collective experience at CompleteLandlord, some of the more compelling reasons to invest in real estate and become a landlord include:

• Real estate is immobile.

• Real estate is in limited supply.

• Real estate is indestructible.

• Real estate is physically “real.”

Here are the challenges that come along with real estate investments:

• Real estate is nonliquid.

• Real estate requires maintenance and regular upgrades.

• Real estate requires tenants in order to be profitable.

• Real estate can be subject to damage from fire, storms, and theft.

Keep in mind that real estate is also dependent on local conditions, which means that a beach condo in a popular tourist spot will likely always be worth more than the same sized unit in a Midwestern town. The trick is to know the local economy, building regulations, market conditions, and politics, and use that information to make wise choices that result in steady financial gains.

Landlord Insights

Five years ago, my husband and I bought seven rehabbed condos in a hot area in Chicago and it has been great. The location is where a lot of young professional people want to live because of the new great restaurants, bars, and shops opening up. We also have a single-family home in the area so I can walk right over to our units in a minute. In the five years we have been doing this, I have never had an empty apartment, I raise the rent at least 7 percent with each new lease and most of my tenants renew.

—Independent landlord from Chicago’s North Side

The bottom line is that owning real estate is not only the American Dream, but it can frequently result in financial returns that far outpace other investment strategies. With residential real estate as the ultimate storehouse of values, now is the time to start building your portfolio in a way that ensures a solid financial future. A high percentage of CompleteLandlord’s members already know this, and are reaping the rewards every day.

CHAPTER 2

Why Investing in Residential Rental Property Will Get You Where You Want to Go Faster at Less Risk

Have you ever heard anyone talk about the joys of landlording? Probably not, since most of the buzz surrounding the concept of owning properties that others live in revolves around collecting rents, evicting tenants, repairing things broken by residents, and then filling the space when they roll out.

What you don’t always hear about are the positive aspects of landlording, including the financial rewards, the positive rates of return on real estate, and the good feeling that comes from providing housing for others. These positive attributes go a long way in helping property owners overcome the basic challenges of renting out their homes.

We at CompleteLandlord.com hear about the positive aspects of landlording on a daily basis through our various communications channels, and as a result we’re well versed in both the pros and the cons of owning investment real estate that’s rented out to others. We’ve been there, and we get it. So although right now you may believe that being a landlord is nothing more than a means to extra income, the reality is there is a lot more to it, namely work, time, and worry.

Maybe you are new to the role of being someone’s landlord, or perhaps you’re new to the concept of landlording. Either way, the book that you have in your hands right now will show you the ropes. Culled from the collective experience of our executives and millions of members worldwide, this book will serve as your guiding light in a sea of uncertainty. From it you will learn everything you need to know about renting your property, from choosing the most profitable units to creating a rental agreement that covers your assets.

Important Note

Even if your rental property is in tiptop shape and all of your tenants pay their rent on time and take care of your property as if it were their own, you’ll still have to deal with expenses and time-consuming duties on a monthly basis. This is something you should know upfront, so we won’t even try to pull any punches by telling you otherwise. Simply put: Landlording can be lucrative and rewarding, but it will always require effort and time.

Don’t expect to take the easy way out by purchasing a piece of property that “takes care of itself,” or that you can get someone else to manage for you. While there are property managers, repairpersons, and contractors available, they will still need to be hired, paid, and managed.

Feel free to skip from section to section to learn exactly what you need to know on a particular subject, or simply study the topics you are most interested in. Our goal is to make sure that you get the maximum benefit from the investment that you’ve made in this book. We also want you to be as well informed and as knowledgeable as possible before you take your first big step, whether that means buying your first rental property, looking for your first tenant, or maintaining your existing properties.

Now let’s take a look at some of the factors you should consider before you become a landlord.

Landlords of All Sorts

You may be considering renting out the second floor of your two-story home, or buying a 10-unit apartment building in another state. Regardless of the size and scope of your plans to buy and rent property, the rules, guidelines, and advice in this book will still apply. Keep in mind, however, that you may need to consider how certain factors fit your specific landlording situation.

Financial Factors

Everyone who picks up this book is interested in landlording as a way to make money. There is really no other reason or benefit for becoming a landlord. You can make money on real estate appreciation, rental income, or both.

Generally speaking, your goal is to:

• Take in more money in rent than you spend on the mortgage and your expenses.

• Let your tenants’ rent pay for a property’s expenses so you can reap the appreciation.

Buying the right real estate is a secure investment that can provide a solid income and pave the way to more property purchases.

The advice in this book should help you choose the best property for your goals, set your rents correctly, and earn money. However, before we get into the details, consider these advantages and disadvantages:

Financial Advantages

• Investing in the right rental property can be the wisest thing to do with your money. You might say, “It is not the rental—it is the real estate.” Choose your property (or properties) wisely and you will be financially secure for life.

• For your rental properties, you can take advantage of tax write-offs and deductions that can add up to huge savings on taxes.

• You can use the equity built in a rental property to invest in more units, and thus expand your “landlording empire” without spending all of the money in your savings account.

• As long as you have paying tenants in all of your rental units, landlording ensures a steady income.

Financial Disadvantages

• The initial buying or converting of rental property is a huge investment. Unless you have a spare condo or house ready to rent, much of your money is going to be spent on real estate.

• Maintaining that property—and your new landlording business—will also require funds. There will be decorating expenses to cover, repairs and maintenance to handle, accountants, lawyers, and subcontractors to pay, and various general business expenses to handle on a regular basis.

• Over time, you may find that your property value is not increasing as much as you thought it would. It is crucial that you consider the “big picture” value of your property, along with your current and potential rental income, to make sure you are coming out ahead.

Real-Life Experience

Being a landlord is financially rewarding, but it can be fairly expensive.

—Tamera Brake, independent landlord, Elkhart, Indiana

Taking Time

In a perfect world, you would own rental properties that are in great condition and never require repairs, and have tenants who are happy and complaint-free and never leave. However, we know that no one lives in a perfect world, and that even in these ideal conditions you will still need to devote some time every month to the following tasks:

• Accounting: Making sure rents are paid and deposited, and taxes and insurance are up-to-date.

• Maintenance: Is the grass mowed or are the sidewalks shoveled? Gutters or furnace filters cleaned? Smoke and carbon monoxide batteries working?

• Communications: Is everything okay with your tenants? Check for problems with the property or with neighbors, along with any other nuisances. Also stay informed on issues with the neighborhood, rents/expenses in your area, and other landlord issues.

If conditions are not ideal, plan on spending time and money on advertising and showing the property, screening tenants, keeping your rental units in good condition, and handling repair issues. Depending on the size and condition of your property and the turnover rate of your tenants, landlording could become your full-time job. But that’s okay, as long as your salary for that job is acceptable.

Real-Life Experience

You have to take a leap of faith letting renters move into your property. You are giving people a home, and it is their home.You have to go with that.

—Paul Lorenz, independent landlord, Paducah, Kentucky

You Are the Boss

When you become a landlord, you become a business owner. Whether you incorporate and give your new business a name, or simply rent out the property as a side job, you’re responsible for tracking your finances, paying taxes, getting appropriate insurance coverage, and generally staying on top of every detail.

You’re also liable for any failures or penalties. If you don’t declare income taxes on the rents you receive, for example, you are personally liable to the Internal Revenue Service (IRS). If you forget to renew your homeowner’s insurance (usually includes liability coverage) on the rental unit, and if your tenant falls down the stairs that were in need of repair, you could be hit with an expensive lawsuit. Owning your own landlord business means having the freedom to make the decisions, but also carrying the burden of responsibility.

Get Your Game Face On

Another aspect to being the boss involves dealing with tenants in difficult situations. Every landlord has a different approach to dealing with tenants. You can be friendly or aloof—whatever works best for you and comes most naturally. But remember, from the first moment you talk to or meet potential tenants, there may come a day when you have to take an “all business” approach with them. When the rent is late or when an eviction warning is in order, you need to be the boss, the bad guy, and the disciplinarian.

Landlord Insights

My first experience with tenants was as a regional superintendent, employed by an individual who had a separate corporation for each building that he owned. I always thought he was brutal, until I bought and rented out my two little places. To stay ahead of the tenant money-wise, do not let them cost you anything.You can be a little forgiving on late payments if you wish, as long as they pay. Go as heavy as you can on security deposits/ damage, and make sure every action you take is somehow profitable.

—Independent landlord

Losing Your Personal Life

It’s 10:00 o’clock on a wintry night and you’re just sitting down to watch the news when the phone rings. It’s the tenant from the duplex that you own across town, and he’s calling to say that the toilet is overflowing all over the bathroom.

What is your first inclination?

A. Tell him you will be over tomorrow morning to take a look and hope the water damage does not cost more than $1,000 to fix.

B. Pretend to be the babysitter and say the landlord is out for the evening.

C. Grab a plunger, pull on your boots, and head over to fix the problem.

No matter what your inclination, the correct answer is C. The lesson in this exercise is the fact that once you become a landlord, you can expect to lose at least some of your personal life. Even if you hire a management company to handle those late-night phone calls, you’ll still want to be notified about emergencies and any major decisions. Brace yourself for a new way of life:The landlord lifestyle.

Still Interested?

So now you know that landlording will take work, special skills, and commitment. But the good news is that this handy guide, and the Web landing page www.completelandlord.com/books/thecompletelandlord.com.ultimatelandlordhandbook.aspx will help you prepare for the necessary work and master the skills that will help you make the commitment. It will also make the most profit on your rental properties while minimizing the problems that many landlords have with their tenants, properties, and more.

CHAPTER 3

The Pros and Cons of Landlording: Do You Have What It Takes?

Now that you know something about the rewards and challenges of being a landlord, we’ll take a detailed look at what really goes into running a rental property. For starters, you’ll need certain resources, qualities, contacts, and preparations in order to succeed at making money on your property without running yourself into the ground. From CompleteLandlord.com, you not only get this valuable book, but also a complete toolkit and online community right at your fingertips.

As you begin your venture into rental property ownership, one basic rule to keep in mind is that every task or aspect of landlording will either cost you time and effort or money out of pocket.

For example, you can take the time to do your own accounting or you can hire a professional bookkeeper to do it for you. If you do not have the skills for a task, or if you cannot afford the time, consider hiring outside help.

This chapter tells you what it takes to be a landlord and, if you do not have it, how to get it.

Time Commitment

As you learned in Chapter 1, being a landlord requires a time commitment. At a minimum, you need to run your rental business, even if that means just managing other people who carry out the work. The most successful landlords run their businesses as businesses, and not as “side jobs.”

It’s likely that as a new landlord, you will be doing all the work yourself. If you hold a full-time job, make sure you are ready to devote some of your off-hours to being a landlord. If you own just a few rental properties, you should reasonably be able to manage the tasks in the evenings and on weekends. By enlisting the help of a spouse or partner, you can spread the work around and make it easier on yourself. It will also help if your full-time job offers flexible hours, thus allowing you to squeeze in your landlording tasks when necessary.

Real-Life Experience

It is easy to handle everything myself, especially because all my properties are in the same area. I have more flexibility with my [work] hours than most people, so I can make appointments in the middle of the day.

—Mark Berlinski, owner of multiple rental properties, Chicago, Illinois

Excluding the scouting and purchasing of new rental properties, your time as a landlord will be spent on the following tasks:

• Advertising and showing property

• Screening potential tenants

• Moving tenants into their units (organizing rental agreement, keys, house rules, etc.)

• Collecting/depositing rents, paying bills, and other accounting tasks

• General maintenance and cleaning of the exterior of property

• Maintenance and repairs on each unit

• Tenant communications, as necessary

• Renewing leases or advertising property

• Staying informed on landlording laws, policies, rents, and advice

Exactly how much time you will need to devote to each of these tasks depends on the condition of your property and how efficient you are. If you are highly organized and intent on getting tasks done quickly, and then moving on to the next chore, you will need less time than the person who procrastinates and waits until the last minute to get things done. The good news is that most of the tasks on this list can be handled on weekends or in the evenings. You can shave time off of most of these duties by using the advice in this book, which is provided to you by the CompleteLandlord team and its experienced landlord-members.

Landlord Insights

I rent houses out and in my rental contract I explain to the renter that any maintenance costing $50 or less is to be completed at their own expense (e.g., a hose bib leaking or garbage disposal not working). If they make a list of repairs then I will take care of them, as long as the damage wasn’t caused by carelessness on their part. This is just one strategy that has helped renters take care of my property.

—Independent landlord

Time Savers

Here are a few tips that you can use to reduce the number of hours spent on your regular landlord duties:

• Do not waste time collecting rent checks in person. Have tenants mail rent, or set up a direct debit to your tenants’ checking account or credit card.

• Schedule time once a month to sit down and pay all of your bills and settle your accounts. Make this date about a week after rents are due so that you can immediately detect if a rent check is late.

• Batch as many landlord-related phone calls as you can and make them in one sitting.

• Set up a weekly and/or monthly maintenance schedule for batching small repair jobs to avoid multiple trips. Remember that time is money.

• Bring something to do while you are waiting to show a unit or meet a repairman. That way, if the person you’re meeting is late or does not show, you won’t waste time. This is a great opportunity to make phone calls, do paperwork, or check out the unit or building for necessary repairs and/or improvements.

Financial Commitment

Let’s assume that you’ve spent money to acquire your rental property and get it in shape for your tenants, and that you’re now ready to start getting a return on that investment. Before you jump in, realize that you’re not finished spending money yet. In fact, as a landlord, you are never finished spending. Much like a successful business owner continually funnels a portion of his or her profits back into the company, a landlord’s monetary investment in a property never ends.

Tip

You can claim your free, special report on Rental Property Management Secrets for Landlords at www.completelandlord.com. A $19.95 value, the report will reduce aggravation and headaches, improve your cash flow, and increase your profits from every investment property you own.

To handle this aspect of the business, you’ll want to have enough cash on hand to cover both regular landlording expenses and unexpected emergencies. Use Chart 3.1 to calculate how much ready money you will need.

Chart 3.1

Minimum Amount versus Recommended Amount You Should Keep in a Reserve Fund

You can anticipate major expenses by either examining the building yourself or having a professional home inspector go over the property if you are not confident. Consider the following:

When will the roof need to be replaced?

When will the furnace or the hot water heater need to be replaced?

How is the building’s foundation?

Also consider:

How long will the major appliances last?

When do the warranties run out on each?

When should the floors be refinished or the carpets replaced?

When should you paint the interior?

Take the information you gather and list a 3- or 5-year schedule of when major and minor repairs are expected, as well as maintenance work. Create a long-term budget around those repairs so you can start saving. And do not forget to update that budget every year.

Warranties and Guarantees

Keep a file of all receipts and warranty information on appliances and other major expenditures for the rental property. Check that file first when any repair work is called for on a washing machine, refrigerator, and so on.

Set Up Separate Accounts

As a new landlord, you’ll be best served by setting up a separate account for your rental business, instead of mingling those funds and expenses with your personal accounts. Deposit rent checks into this account, and use it to pay any related costs. Your bank may also offer you a business credit card when you open your new account, and if you choose to get one you can use it as yet another way to separate your business expenses from your personal expenditures.

A bank account provides a simple method of tracking rental income and expenses while keeping your personal finances out of the mix. You should also consider setting up a separate savings account or money market account where you can hold security deposits. This money, which tenants turn over as part of their rental agreement, is to be held by the landlord to cover expenses such as skipped rent or damages.

Important Note

Many states require landlords to keep security deposits in a separate account and, if some or all of the deposit is returned to the tenant, to provide the interest as well. Check your state law, your local landlord association, or housing authority.

Getting Going

So what if you are just starting out and have no reserve funds, liquid cash, or any cash for that matter? Well, the good news is you may not need a lot of money at the outset. However, it doesn’t hurt to consider how you might get your hands on some cash to handle the unexpected. Here are some options to keep in mind:

• Refinance your rental property (or your residence) for a lower interest rate.

• If you live on the premises of a duplex or three-flat, you can take out a home equity loan on the rental property (or your separate residence) that you have equity in. If you own a larger property, use the property as collateral for a line of credit.

• Get a second mortgage on the property. (This is a last-resort step, to be undertaken only if you are 100 percent positive you can assume the additional debt.)

Personal Commitment

A successful landlord—especially one who is a do-it-all-yourself type of professional—needs certain skills and personality traits. After years of working with landlords and being landlords ourselves, we’ve come up with the following list of the most desirable attributes and traits:

• Organized and detail-oriented: A landlord needs to keep track of dozens of details, including accounting, record keeping, maintenance schedule, and so on. If you are not good at staying on top of details, find a system that helps you handle your schedule and your to-do list.

• Good with numbers: You will need to track several bank accounts and make sound decisions on spending and making money, including calculating how much rent you can charge and how to make a profit.

• Excellent people skills and intuition: Can you tell when someone is trying to manipulate you? Are you skilled at settling arguments and deflecting anger? Landlords need to know how to read and handle current and prospective tenants.

• Handy around the house: Most maintenance issues are minor, such as stopping a toilet from running all night or tightening doorknobs. You’ll save yourself a lot of money and hassle by being able to handle these quick fixes yourself. If you don’t know how to handle basic maintenance, now is the time to learn. Take a class, read some books, or ask a handy friend for help.

Landlord Central: Setting Up Your Home Office

You’ll need to devote a portion of your home to your landlording workspace. This area doesn’t have to be fancy, nor does it have to take up much space. At minimum, the working landlord should have:

• A computer with Internet access and a printer

• A small filing cabinet or other means of maintaining paper records

• Dedicated space for maintenance supplies and tools

• A cell phone or dedicated phone for your business

You don’t need a dedicated computer just for managing your rental property—the family desktop will suffice. On it, be sure to keep separate folders or directories for your landlording, and be sure to back everything up regularly to safeguard it.

Using a Computer

You can rent property without using a computer. All tasks can be done with a pencil, paper, and calculator. In today’s technology age, however, a computer can serve as a great business tool and help you get tasks done faster and in a more organized fashion.With a computer you can:

• Keep track of your accounts. Use standard off-the-shelf accounting software to enter deposits and payments and sign up for online banking.

• Perform credit checks on prospective tenants. It is fast and easy to request credit checks online.

• Create advertising signs, flyers, and classified ads. Once you have written them, just update as needed. (Examples can be found online at www.completelandlord.com.)

• Create or revise rental agreements, notices, policies, and so on. Download templates and customize them on your computer.

• Send and receive faxes.You can buy software that lets your computer act as a fax machine.This might come in handy for receiving completed rental applications and leases, and it is cheaper and takes up less space than a fax machine.

• Educate yourself. Stay up-to-date with state and federal landlording laws, research local rents and real estate prices, and chat with other landlords across the country. It’s all at your fingertips on the Internet.

You will find a list of recommended sites at the end of this chapter, and online at www.completelandlord.com.

Maintaining Records

Like any business, your landlording duties will bring with them a paper trail that you’ll need to maintain. Develop a filing system that makes sense for you, and that includes the following:

• Signed rental agreements and leases

• Up-to-date contact information on tenants

• Building records

• Receipts and bills

• Insurance policies

• Maintenance schedules

• Tax records

• Tenant correspondence, such as rent increase or lease violation notices

Remember that paperwork that involves information declared on your federal income taxes (rental income or deductions) should be retained for seven years (Chart 3.2). If you are limited on space, box up each year’s receipts and forms after you pay taxes and store them in a safe, dry place like the attic or a closet shelf.

Chart 3.2

Document Retention Times

Key Considerations

There are a few other “must-haves” for landlords who want to run their businesses in an efficient, profitable manner that doesn’t intrude too heavily on their personal and work lives. These may seem like common sense, but you would be surprised at how many property owners neglect to cover these details.

For starters, you’ll want to put all of your most commonly used tools (hammer, screwdrivers, plunger, wrenches, and so forth) in a portable toolbox to have ready to go when needed. Keep the tools in your garage or another handy area (such as the trunk of your car), or consider leaving tools on-site at your rental property. You may be able to keep a locked box in the basement of your multiunit building where you can access wrenches, a plunger, or a putty knife, as needed.

You’ll also want a dedicated land or cell phone line. This is one area where you definitely want to keep your personal life separate from your landlording life. Having a separate phone for your business helps you control communications with tenants, prospective tenants, and contractors, and also provides a more professional sound on your voice mail message.

The best way to have a landlord hotline is to get a cell phone devoted (or partially devoted) to managing your property. Many cell carriers offer free or inexpensive phones when you sign up for two years’ of service, and you can pick a basic plan that gives you enough minutes (without all of the bells and whistles), usually for under $50 a month.

Use this number as your landlord hotline and give it to tenants and your professional contacts. Make sure to list the number in rental ads and on your business cards and forms. If you prefer not to use a cell phone for your landlording business, you can either install a second phone line in your home or use your home number. Either way, make sure you have an answering machine or voice mail service that allows you to check messages while you are away from the house.

Important Note

Telling your phone company that you want a business line installed is like asking it to charge you more. Instead, simply request a second personal line, like you did for Internet access or to handle your teenager’s calls. Skip this advice and you will pay more for installation and calling charges for a “business” line.

More to Think About

It’s a fact of life that landlords must be available to their tenants (or their management company) around the clock. If you go out of town for a week, or just for a day, people will need a way to get in touch with you. If you will be unavailable—in the hospital for surgery or backpacking across Europe, for example—appoint a contact person for emergencies and let your tenants know how to reach that person.

Building Your Contacts

In the next chapter, we’ll walk you through the fine points of building a competent team of professionals and service providers to assist with your property purchase and landlording duties. For now, you should understand that even if it makes good financial sense to do everything yourself—from balancing the books to installing deadbolt locks to fixing commodes—you should always be able to call on skilled, reliable professionals in the event of an emergency.

Your lineup of go-to people should include:

• An accountant and/or tax preparer who specializes in property management

• A lawyer who can handle liability suits and questions

• An insurance agent

• A plumber

• An electrician

• A carpenter

• An HVAC contractor

To locate contacts in your area, you might join a local association of rental property owners. These associations provide terrific networking opportunities, and will help you get answers to your landlording questions and stay abreast of your local laws and rental market.

You can also network through your community by contacting your local chamber of commerce, or by joining a group like the Rotary Club, which is sure to include professionals from various industries. Remember, the more people you meet, the wider your network of contacts, and the more successful your landlording venture will be.

Landlord Resources

Reading this book and browsing through the information online at www.completelandlord.com will get you up and running as a landlord. But if you want to excel as a property owner and manager, your learning should not stop here. You can continue your education through several avenues: reading books and periodicals, browsing the Internet, and talking to other landlords and related professionals.

Here are some suggestions for resources you might find useful:

Web Sites

• National Apartment Association, www.naahq.org: This association is an advocate for quality rental housing, serving the interests of rental property owners, managers, and others. Landlords can get insurance through NAA and get information on vacancy rates, the rental housing market, and other indicators.

• National Association of Residential Property Managers, www .narpm.org: Looking for a property manager? This is a terrific resource.

Now you have an idea of what you need to be a successful landlord: money, time, and skills, as well as an office setup, a phone, a list of contacts, and ongoing education. These key elements are all within your reach, so now it’s time to move on to the nuts and bolts of how to start your new rental property business, starting with effective team-building, which you’ll learn about in the next chapter.

CHAPTER 4

Think Like a Real Estate Mogul: Build a Winning Strategy, Plan and Build the Team to Match

You’ve heard the phrase “No man is an island,” and nowhere does the statement hold truer than in landlording circles. As the owner of one or more properties that are rented out to tenants, you simply cannot operate on your own and expect your business to grow and thrive. Those who opt to do it all themselves often wind up being labeled as slumlords and other derogatory names. They spread themselves too thin, and wind up unable to keep up with even the most basic day-to-day operational elements of being a landlord.

Team Building 101

In this chapter, we start with the property scouting and purchase process, and then work through to the point where you’re successfully managing multiple units with the help of your team. Successful real estate investing is all about teamwork, which means you’ll need to start looking around for team members to help round out your real estate strategy. In this book, our experts tell you why this is so important and how to go about finding the best possible people to work with.

Throughout this book, we also explain the critical role that effective property management plays in the real estate investing process, and point you in the direction of professionals who can lead you to great buying opportunities. In this chapter, you get a primer on this aspect of your business and in Section Three we delve more deeply into your property management responsibilities and tell you how to get help in handling them.

For starters, here are just a few things you’ll need to understand (or find someone who does and add him or her to your team) simply to invest successfully in real estate:

• Contracts

• The need for paperwork

• Financing for the single purchase

• Financing involved with being part of a larger group doing something together, such as land acquisition, infrastructure, or construction loans

• How to do a changed use and when it is necessary

• How to obtain the entitlements

• How to get the building permits

• The construction process

• How to handle property management

As you can see, going it alone in real estate investment isn’t only foolish, but it’s also completely unnecessary. There are myriad professionals out there who are willing to lend their time and expertise to your cause, and it’s up to you to take advantage of these valuable resources.

At minimum, your investment team should include:

• A real estate agent

• A mortgage broker or lender

• A real estate lawyer

• A Certified Public Accountant

• A certified inspector

• A real estate appraiser

• A property and casualty insurance agent

Once you’ve become a landlord, your team will also comprise:

• A property manager

• A stable of reliable contractors and service providers, including:

• A restoration service (for storm and vandalism remediation)

• Pest control

A locksmith

A window replacement/repair contractor

• An HVAC contractor and a roofer

Tip

When it comes to financing expertise, you’ll want to partner with experts in real estate financing, even if you’ve bought and sold your own home in the past. This is important because financing nonowner-occupied real estate is different from the kind of financing used to purchase a primary home.

These individuals and/or companies will help make your landlording experience more rewarding and successful, despite the fact that each will command a fee for services. Let’s say you want to invest in real estate, but you have a full-time career. You’re good at what you do, you enjoy your work, and it provides you with a steady paycheck. But this work is separate from your business as a real estate investor and landlord. The combination of skills necessary to do the kinds of analysis necessary for wise real estate investing isn’t sensible for one person. So get your team together and begin reaping the rewards.

Rounding Out the Team

Which individuals you select for your team depends on the depth of your own knowledge and skills. If you come up short in any area, you’ll want to acquire the missing parts from service providers in the marketplace. If you are extremely handy, but if you don’t have much experience in the real estate investment world, then your lender and real estate agent will have to pull more weight than your handyman.

Much like business owners would seek out partners who complement each other’s strengths and weaknesses, you’ll want to choose wisely in order to increase your chances for a smooth transaction. Let’s say you’re an engineer by trade. This probably makes you feel comfortable about inspecting a residence or small commercial building. Your structural engineering background may leave you scratching your head when it comes to mechanical systems, however. Add to your team a firm that has people who can fill in the gaps of your knowledge and you’ll be best equipped to make wise real estate landlording decisions.

Tip

Here’s a look at what your first four team members can do for you:

• Real estate agent: A Realtor is a real estate professional who has an affiliation to a real estate office or brokerage, and who is charged with helping home buyers sell homes, and with helping homeowners sell their homes. Realtor is a trademarked name used by agents who are members of the National Association of Realtors, and who abide by the group’s code of ethics and standards.These days, most agents are Realtors. Real estate agents are a repository of property information. If you have a specialized need, consider hiring a specialist. You should at least inquire into the agent’s experience with the type of property you want to buy.That agent is your window into the marketplace. He or she hears about the better opportunities faster than you ever would, and can lay out the choices that come and go quickly without being marketed in a very public way.

• Mortgage broker: A mortgage broker is a licensed professional who acts as a middleman between borrowers and lenders. Over 80 percent of home loans issued today involve a broker. Banks have used brokers to effectively outsource the task of working with borrowers, and also to outsource some of the liabilities for fraud and foreclosure onto the originators through legal agreements. During the process of loan origination, the broker gathers and processes paperwork associated with mortgaging real estate. A loan officer acts as the conduit between buyer and lender. Most states require the mortgage broker to be licensed.

• Certified public accountants: CPAs are accounting professionals who have passed the Uniform CPA exam, which was developed and is maintained by the American Institute of Certified Public Accountants (AICPA), and have subsequently met additional state requirements for licensure as a CPA. Only CPAs are professionally licensed to provide to the public attestation (including auditing) opinions on publicly disseminated financial statements. Many states prohibit those without a CPA license from calling themselves “public accountants.”

• Real estate lawyer: An attorney who is authorized to help with the day-to-day specifics of ownership transaction and other aspects and concerns of real estate. Whether you’re a first-time buyer or you’re buying or selling a home without an agent, a real estate lawyer can answer your questions, help you negotiate, and take care of a lot of the details you might not be aware of. Real estate lawyers handle everything from helping consumers buy and sell homes to settling landlord/tenant issues, and from mortgage matters to zoning.You can find these attorneys online at web sites like www.realestatelawyers.com.

Fill the Gaps

To achieve success as quickly as possible, start filling the gaps in your team as early as possible. Being proactive will put you in a much better position because you need information about the availability of property. You also need to be able to discover the condition of a property, and you need information about mortgage financing choices, and legal, financial, and tax advice.