Recently, we decided to sell farmland in one state and exchange it for a 4-plex multifamily complex in a different state, neither state of which we resided in. Having never done this before, we thought our readers might like to know what our first experience with a 1031 exchange as rental property owners entailed. Where we gained insight and learned a lot, it certainly was not an easy task. Would we do it again? Keep reading about our experience to find out and determine if a 1031 exchange is right for you.
Tenant moveouts are never any fun. Even if you have one who you’ve looked forward to having move on, flipping a unit and placing a new tenant is a lot of work. So, whether you’re new to this process or a seasoned landlord, please continue reading for our step-by-step guide to tenant moveouts.
If needed, set a reminder on your phone 65 days before a tenant’s lease is due for renewal. If you are not renewing their lease, typically, it is a safe business practice to give a tenant 60 days’ notice of non-renewal. Landlords can do this using a state-specific form or a simple email. Depending on your specific state, you may have to give a reason for the non-renewal or pay relocation fees. Know and understand your state and local landlord-tenant laws.
If the tenant is offered a renewal but opts to move out, they generally must give 30 days’ notice to vacate the premises. This is when the clock starts clicking for both the landlord and the tenant.
Acknowledge the Tenant’s Intent to Vacate
In written form (typically email), confirm you have received their notice to exit. Let them know that they have the option to schedule a pre-moveout inspection (more on this below) within the final two weeks of tenancy. Also, let them know that, within those last two weeks, you will send another email detailing the costs associated if they choose not to clean the unit.
Check On Old Marketing Info for Your Unit
Accepting physical checks for payment is becoming a thing of the past. Many landlords looking to replace this method without increasing expenses have considered using cash apps such as Venmo or Paypal. However, where these apps make receiving rent very convenient, they are risky. Continue reading to understand why landlords shouldn’t accept rent payments from cash apps and what their options are.
When you lease your rental property to a new tenant, information overload for them is real. They may be preoccupied with moving and all the fun stuff that comes with that monumental task. Even if you review move-in details in person, consider creating a “New Tenant Welcome Binder” for them to reference. Undoubtedly, there will be an instance when they try to remember something you mentioned. This welcome binder will keep them from having to make phone calls to you, saving you from having to repeat yourself. Here are 10 things new tenants need to know from landlords when they move in.
Our welcome binder includes all of the following:
1. A copy of their signed lease.
Yes, an electronic copy is great. However, we also include a physical copy so that tenants can do a quick reference on dates and amounts or look for the information we noted on an addendum that they can’t remember about the washer and dryer repair.
2. How they pay rent?
Make sure they have the link to the app you use, an address to mail it, or instructions on when they should expect an invoice from you (if using accounting software). If there are any specifics regarding fees or payment methods related to paying online, this is where you can remind them of it. For example, we use accounting software for invoicing our tenants on the 15th of the month before the next due date. Because it can take five business days for us to receive the rent (it gets deposited into our account), we always remind tenants to pay it by the 25th of the month before the due date so it will not be considered received late by us. This reminder is because we account for rent paid when it is in our hands, not when the system emails us letting us know the tenant paid their invoice and money is on the way.
3. Where they sign up for utilities not covered by you.
Adding value to your rental property is not necessarily a task to directly increase income, although generally, this is a benefit. By adding value in this sense, we are discussing ways to make your unit more attractive to existing tenants and more marketable to potential ones. Below we have a few ideas on how to add value for both single-family and small multifamily rental properties that won’t break the bank.
Many of these options may seem obvious, but you’d be surprised how many landlords overlook them. The nice part of these suggestions is that many of them are ones most anyone can handle and DIY.
Update Landscaping and Curb Appeal
We cannot stress enough that first impressions are key. So, when you advertise your unit, do yourself a favor and include photos of the front of the home or building. For more tips on how best to do this, check out our blog, Tips For Taking Great Rental Property Photos.
You can keep this simple or go all out. Remember that whoever lives in your rental property needs to keep it up, so be mindful about maintenance. For example, add some pretty flowers, trim bushes, and put down some bark or ground cover in flower beds.
As property managers for our family members, we had one home where we took a tired-looking area and spruced it up. We used wood chips that our city provided for free and transplanted some day lilies and purple coneflowers from our yard. We had planned on pulling these flowers out anyway as they were too overgrown for our yard. This update cost us nothing but a few hours of labor.
If you want to go all out, consider converting the front yard into a low-water, low-maintenance garden using large rocks, gravel pathways, and plants that do not require a lot of water or pruning. It helps the new tenant and looks great all year round.
Consider adding path lighting to decrease the chances of your tenant or a guest tripping and falling. These lights are a great solar option we added to our multifamily pathways.
For the house’s exterior, clean the windows and touch up any paint that may be peeling or chipped. Next, change out worn light fixtures with LED, efficient lighting. Or, if the lighting is still good but needs a touchup, buy a $3 can of spray paint, tape off the glass, and paint away.
Inside the Home
If you can believe it, back in 2014, credit agencies began accepting rent payments to measure a tenant’s credit score. It seemed to have a slow start, but since California passed SB-1157 in July 2021, we are seeing more and more landlords offering this perk and many tenants asking for it. Still, many landlords do not offer rent reporting to help tenants improve their credit score.
A Brief Overview of California SB-1157
California lawmakers created SB-1157 with the objective of providing renters with limited income the opportunity to improve and build their credit score by reporting their rent payments. By reporting on-time rent payments to the major credit bureaus, renters can improve their credit scores without opening a new line of credit or taking out a loan.
This senate bill requires landlords of assisted housing developments with more than 15 units to give every new and existing renter the option to report their rent payments to a consumer reporting agency. To learn more about this senate bill, click here.
Why This Service Is Important For Both Landlords and Tenants
Even if you do not own subsidized rental properties, this service is still important to consider. Being in Sacramento, our units have housed many recent college graduates. Often, these new renters have little or no credit history and require a guarantor for their lease. Others who may need this service to boost their credit score include those who lost their job during the pandemic and had their credit score take a downturn. Students in your student housing rentals certainly could need this service to start their credit building sooner rather than later, and tenants who are restructuring credit after filing for bankruptcy could use this boost.
Ok, so why does this matter to you? You would not accept them anyway if they cannot qualify, right? So we are right there with you! However, we have had circumstances where we have had minimal movement on a vacancy. As mentioned above, we received an application from a recent grad with a parent willing to guarantee their lease. So to us, these tenants are even more secure because they are entering the real world and want to prove themselves, and their guarantor certainly doesn’t want to receive a call that they now have to cover the unpaid rent. If, when these recent grads were students, their landlord offered to help improve their tenants credit score by providing rent reporting, you could eliminate the need for the guarantor. It would show right there on their credit report, each and every rent payment, much like a credit card.
Here are three reasons why offering rent reporting will benefit your rental property business.
It is not uncommon for tenants to have guests. But when those guests never leave, they become unapproved roommates to your tenants. They have not signed your lease and, therefore, do not have to abide by the rules or policies outlined in your lease. This blog post will show you ways to find out if someone other than the tenant is living in your unit and how to handle an unapproved roommate in your rental property.
Let’s touch a minute on why this is important. First, as a landlord, you should take the time to vet your tenants. Typically, you’ll check their credit and previous landlord-tenant relationships to ensure they can and will pay rent on time. Next, maybe you do a background check to confirm they are a law-abiding citizen and do not pose a threat to other tenants or neighbors. Finally, you do what you can to make sure the person leasing your rental unit is a good fit for you, the unit, and the complex (if you own a multi-family).
You jeopardize your rental property business when someone starts living with a tenant without being vetted. For example, this unauthorized roommate may not have the financial means to qualify for your unit. In addition, they may have been evicted by their previous landlord for lease violations or may even have a criminal background that adds liability to your other tenants or neighbors should that illegal activity continue in or around your unit. But, on the other hand, they may be a perfect tenant who you’d welcome to your rental property!
Ways To Discover Unapproved Roommates In Your Rental Property
Evaluating a rental property is much more than just making sure it cashflows or is a good investment financially. There are several items that you should do your best to evaluate before you make an offer. This may be difficult if you are evaluating from out of state but if you have a good realtor or contractor on your team in that location, they can certainly lend a hand and make sure the following structural items are evaluated prior to buying a rental property.
We want to put it out there right up front that we are not contractors and we are sharing the information that we have learned while purchasing our properties. If possible, please get a licensed contractor or experienced investment realtor (flipping, renovations, etc.) to walk the property if you cannot. Do not rely on Google. The photos you see may be several years old and the property could be in worse shape than it appears.
Yet, another reminder of making sure you have a good team in place regardless of where you invest. It starts with “boots on the ground” to lend a hand for inspections. For information on how to create a good investment team, check out our blog Landlording, A Team Sport
The following information is a guideline so WHEN you have the conversation with your contractor or realtor you can impress them with a little knowledge 😉 Let’s jump into the list:
Exterior
Roof
Oftentimes you’ll see in the description of the property online “new roof.” Like you, I would be excited to have a large expense already taken care of! One thing to be mindful of is how many layers of roofs does it have?
When we purchased our single family home rental we noticed it was in need of a new roof. What the bummer ended up being is that it had a total of three roofs on the home. It is common to layer a new roof over an old one but this can create issues where the roofline meets the gutters plus they don’t tend to last as long. If there were prior leaks, the sheeting likely was not pulled off and could be dry rotted if the roof leaked for awhile. Sometimes adding a roof over the old one is just adding a band aid. Not fixing the problems can lead to way more problems down the road as well as expense.
Lastly, the cost to remove them all was much more than if there was just one roof, plus dumping and garbage rates are crazy expensive to dispose of all the materials.
Materials Used
When looking at the roof, look at what type of materials were used. Try to avoid wood shingles if the property is located near a wildfire zone. According to the pro’s, asphalt shingles are the most common and best material when considering life and expense.
Of course, roofing materials change depending on the climate so make sure you have a good understanding of cost if you’re evaluating a roof in a different area of the country than you are used to living and operating your rental property business. Roofs in California are much different than those in Florida. Completely different climates, extreme rain and wind with humidity in Florida, while California has more mild weather climate but high wildfire danger.
Gutters and Downspouts
Clearly you can see if the gutters appear to be rusted or have missing downspouts. It may not seem like a big deal, but if rain water is not directed away from the foundation, it can find its way into the crawl space or basement and create a mold issue.
Foundation
For properties with a crawl space or a basement, it’s really important that you are checking the foundation and around it. Look at the foundation and see if you can find any cracks. Small cracks are ok and usually easy to fix. Large cracks with gaps may require structural repair and that adds up fast.
Many properties don’t have a foundation and are located on a concrete slab. Cracks in the slab would only be seen inside, and only if the flooring was removed so good luck with that.
Sloping near foundation
Every landlord needs a good contractor. No if’s, and’s, or butts about it. Unless YOU are the contractor, ensure that your team includes someone you can call for any task, from replacing a garbage disposal to building new stairs. More importantly, landlords need to use independent contractor agreements when allowing others to work on their property.
The General Contractor
Let’s start with defining a contractor. We are referring to general contractors or “GCs” for our purpose. Typically, you find GCs run and manage a construction project. They are licensed, insured, and bonded (more about this below) and may or may not be the person doing the physical labor.
Often, our GCs will do most of the work and then oversee the subcontractors they hire to do other tasks they are not licensed or experienced in. For instance, most of the time, our GCs will hire their go-to plumbing or electrical contractor to run water or electrical wiring for the project. Similarly, even though no license is typically required, they will also sub out tile work, countertops, and flooring installation.
License, Bonding, and Insurance
We suggest only using licensed, bonded, and insured contractors when allowing them to work on your rental property. A contractor who takes the time to pass the general contractor test puts up the money for a surety bond, holds proper liability and workers compensation insurance is one who likely wants to do right by their business and your project.
General Contractors License
In a perfect situation, a contractor would have worked for another GC to learn the basics, then study codes and practices, take and pass the General Contractor Test for the state they wish to work. But unfortunately, getting licensed is not cheap. It can cost hundreds to apply to test and thousands if they take courses in advance to learn material not taught on the job.
Surety Bonds
Many states require a licensed contractor put up money for a surety bond. This bond is what you can go after should the deal go south. The bonding company will cover your lost expense and go after the GC to get the money back. It removes the task of you having to go through a lengthy legal process to get your lost funds returned.
Insurance Policies
A reliable GC will be adequately insured. If you know us, proper insurance is a big deal. We’ve written several blogs about insurance for rental properties alone. Contractors should carry liability insurance if they perform a task that causes damages. For instance, they are working upstairs and bust a water pipe that floods the unit below. Yes, you have insurance, but why should your rates go up from filing a claim when the contractor has proper insurance to cover the issue?
If a GC has employees, they must have worker’s compensation insurance to cover them in case of an injury on your project. Accidents happen A LOT so make sure the contractor you choose carries this insurance. Be mindful of a contractor that picks up a couple of day workers at the big box store to work on your project. Who do you think they are going after to receive compensation if they get injured? The property owner for sure.
Why are these items essential? Because if a person is willing to go through the trouble and expense to do things the correct way, they likely will have this same drive and responsibility to do right by the jobs they are hired for.
Screen Your Contractor
Now, let’s be real. Many states do not require a general contractor actually to test on building codes and tasks. Much like getting ordained to marry others, in some states, anyone can go online, apply, pay the fee, and boom! You’re a licensed contractor. This is why it is of utmost importance to screen a contractor like you screen your tenants.
Make sure they are licensed. Simply go to your computer and search “(Your state) contractors license search,” and the link to verify if they are licensed should pop up.
Verify their bond and insurance are current by asking to see a copy of it. The expiration date will be noted so you can see if it has lapsed or not.
Interview them
Ask:
- How long have you been in this line of work?
- Do you have a specialty in the field?
- How many employees work in your business?
- Do you pull permits, or do I?
- When would you be able to start working? What’s your timeline?
Check out their social media and google them:
Many contractors will start social media accounts to show images of the jobs they’ve performed. Check the comments below to see if anyone has good or bad things to say about their quality of work.
Check the Better Business Bureau
This will show you if any complaints have been filed against them. Yelp even has a section for contractor ratings.
A good GC will have references ready to go. Often, their last client will allow a potential client to come to their home to see the work performed and talk to the homeowner about their experience.
If you’ve found someone reliable, hire them to do a small task first. This job will give you a good sense of the contractor’s time management, skill, and temperament before getting into a large project. We did this. Our painter (friend) had recommended a general contractor who had worked on his mom’s house. We hired this GC to do some dry rot repair on the back of our 6-plex to gauge his experience, workflow, and ability to be mindful of expense without cutting corners. Although he was slow, he was meticulous. All corners were tight, there were no large gaps to fill, and he was not wasteful of materials. The cost he charged was much less than we had paid before; however, his performance was slower, and the cost per hour ended up being around the same when the project was all said and done.
We fell into our GC by referral. Ask other rental property owners in your area who they use. Ask your realtor if they know of someone reliable who has done work for them or a client. Then, if all else fails, head to the big box stores at 6 am and hang out around the contractor desk.
Use an Independent Contractors Agreement (Contract)
Ok, here’s why landlords need to use independent contractor agreements. When you finally find that perfect GC, make sure you both sign a contract that states explicitly at a minimum:
- The scope of work to be performed
- The timeframe in which the job is to be completed
- Who is responsible for what tasks? Owner or GC to pull permits, select materials, etc.?
- Compensation schedule (deposit plus following payments to be paid at which points during the project)
- Which subcontractors will be working on the project, and when will they be working?
- Dumpsters needed and placement of those during the project
- Will they use your toilet, or do you want them to order a portable one?
- Cleanliness expected: clean the site every day, or not?
Keep in mind that these agreements protect both you and the general contractor. Often, a GC will have its own legal contract to use, which states the limitations and responsibilities of both the contractor and property owner.
The contract should also include a copy of their valid bond and liability insurance (with your property noted as additionally insured).
This contract is much like a lease. It will keep everyone honest and protect you if the project goes awry. In addition, it gives you the legal right to sue the contractor if work is not performed according to the agreement. Lastly, it will provide the GC with the right to place a lien on your property if you don’t pay.
Hiring A Handyman
Hiring a handyperson to do tasks around your rental property can be tempting. However, be mindful that if that handyperson is not licensed. For example, let’s say they install an appliance for you. Should the installation be completed incorrectly, the warranty on the appliance may not be covered. Often you can find a handyman who is an older contractor, a licensed general contractor who still is young enough to work, just not on large projects or ones that require a lot of lifting or strength. Not to say they are not strong enough, but smart enough to know their limitations and prefer a project that takes a couple of days or weeks, not several months. Again, this handyman should be licensed, insured, and bonded.
Something Else to Consider
Where this blog focuses primarily on persons who physically work on your rental property, the fact that landlords should use independent contractor agreements applies when hiring an independent contractor to work in your business as well. For instance, if you hire someone to do your bookkeeping or cold calls for wholesaling, it is essential to have an agreement that states specifically what the tasks are, their compensation for such tasks, and anything else that is pertinent to the position.
The last word of advice is, NEVER prepay for work performed. Feel free to give a deposit in the event materials are needed and give small amounts as the project progresses but beware of anyone needing full payment in advance.
Check out our other blogs to guide you on your self-management journey as a landlord:
How To Improve Tenant Relations
How The California Deck and Balcony Law Affects Your Property
Security Deposits: 5 Tips Landlords Should Know
Cash Reserves for Rental Properties, How Much is Enough?
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Our Stories:
We have now had TWO instances where we have needed and had to file claims for vacancy insurance!
First, let me tell you a quick story about how we came to know the who, what, when, and why of residential vacancy/unoccupied home insurance. In late 2020, sadly, my brother passed away suddenly. I advised our family’s insurance broker of the news and he asked if the home was going to be unused for 30 days or more. Because we needed time to grieve before removing his many personal belongings, I responded “yes”. He recommended that we add a vacancy endorsement on the policy and boy, am I glad he did! Here is why:
Residential property that remains vacant or unoccupied for longer than 30 days, may not be covered by liability insurance. Why? There is a higher risk of catastrophic damage occurring from fire, vandalism, or injury when there is no one around to call 911 to report a fire, get rid of squatters, or control who steps on your property.
What happened next
Since my brother’s passing had been discovered, the property has experienced several crimes. It has been broken into multiple times, with one occurrence resulting in severe smoke damage. We have had a vehicle and several personal items stolen, as well as vandalization and damage to many parts of the home. Unfortunately, where the vehicle had insurance, the contents of the home were not covered. You see, my brother lived in a rental home of my parents. He did not carry renter’s insurance, therefore, his contents were not insured. This is exactly why we now require our tenants to carry renter’s insurance. Read more about that in our blog Why Landlords Should Require Renter’s Insurance.
Because we added a vacancy endorsement on our policy, we are covered for the broken doors, windows, smoke damage, and vandalism. We would not have been covered without that endorsement. Clearly you can see why we needed residential vacancy insurance! Continue reading to learn about the second time in two years that we needed this policy!
What happened to our sweet 100 year single family rental property
In October of 2021 we had just completed some updating and remodeling to our small single family rental property in Chico, California.
We had installed all new windows, flooring, repaired a dry rotted deck, and had painted the entire inside of the property to get it ready to rent after we had college kids move out.
As the home was vacant, our son decided to take a vacation to go up to the area and stay while he hiked the local trails. When he walked in, he said it sounded like someone was in the shower! As he walked to the bedroom he noticed the floors were wet. When he got to the bathroom found that the water supply line to the toilet had broken and flooded 1/3 of the home!
The floors, baseboards, and several feet up the walls were wet and had to be removed. Thankfully the water penetration was caught within a day or two so mold had not set in…yet.
He shut off the water, removed all the carpets, opened all the windows and began to dry the home out. Meanwhile, we contacted our insurance agent who assured us all was well because we had added the vacancy endorsement to our policy.
Unfortunate Circumstance
The damage from this water intrusion ran us nearly $30,000 in repairs. We had to gut the main bathroom and replace all flooring, baseboards, and sheetrock in several rooms. The tough part of this was because this home is located in an area that experienced the worst wild fire in the country just two years prior. We were unable to find a reliable contractor or subs to start any of the work for nearly 6 months!
Read below for information on who and when a property owner would need to add vacancy insurance on to their policy.
Who, What, When You Need Vacancy Insurance
First, who needs this? Anyone who’s home (rental or personal residences) will be unoccupied or vacant for 30 days or more for any reason. It is a special endorsement for full time inhabited homes. Most second homes or recreational homes have this coverage within the policy already.
Second, what is this coverage? It is an additional insurance rider to cover the increased liability of an unoccupied home. Most home liability coverage has it specified that the policy does not apply if the home is vacant for 30 days or more. Read the fine print of your policy.
Lastly, when should someone should consider getting vacancy coverage?
- A rental or primary home will be unoccupied for 30 days or longer due to prolonged vacancy after a tenant exits.
- A remodel is being done to a property and occupants have moved out.
- A rental vacation property is managed that has long gaps in use. For example, you own a summer rental that is closed up for winter months.
- Someone who goes on an extended vacation for longer than 30 days. Congrats if this is you!
- A new property has been purchased but there will be a delayed move in. For example, you need to place new tenants.
- Someone who lives alone and falls ill or has surgery which requires a stay in a medical or rehab facility for a prolonged period of time (this is for those with elderly parents).
Additional Items To Note
There is a significant increase in cost, up to 50% more, for this coverage. Some companies have an entirely separate policy to take out, others add an endorsement on to the existing policy. They may accept having a caretaker check on the property every few days to avoid needing the vacancy policy. In any event, we hope this has showed you why it is recommended to speak with an insurance broker to see what your current policy covers and if you are someone who should consider a residential vacancy endorsement when your properties are unoccupied.
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Here are some other articles we have written for landlords that you may find helpful as well:
Cash Reserves For Rental Properties, How Much Is Enough?
Marketing Your Rental Property: Get to Know the Neighborhood
Tips For Taking Great Rental Property Photos
Security Deposits: Top 5 Tips Landlords Should Know
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