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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If you found this content useful, please do us a favor and leave a comment below. It really helps!
Written by: Nathan Miller
Real estate can be one of the most profitable investments, but it’s also one of the most costly and complicated. Not only is a lot of money involved, but real estate tends to move in trends, for better or worse. When you decide to invest in real estate, you want to ensure that you choose a property that will pay off in the long run.
As an experienced investor, I’ve learned quite a bit along my journey. Friends and colleagues often approach me when considering investing in their first rental property.
In this article, I’m sharing the most common questions new real estate investors ask me.
Question #1: Is Now a Good Time to Invest?
Real estate is a tricky business. Knowing what’s in store for the market is extremely difficult, but there are a few key indicators to pay attention to that will give you an idea of which way the market is heading.
Those indicators are:
- Interest rates
- Tax rates
- Local market trends
In short, the answer is always yes. Now is a good time to invest.
As long as you are thinking long term, any market fluctuations occurring today will typically not impact an investment property down the line. Looking at the last few decades of housing prices, you would see that home prices have consistently trended upwards.
The exception to the rule is if you are looking for a short-term real estate investment or if there is a catastrophic change to the market in one way or another. It’s impossible to predict the future, but events like regulatory changes, war, or financial busts can all dramatically and suddenly impact the real estate market.
Question #2: How Can I Get My Finances in Order?
Before purchasing any property, do the math and make sure it’s something you can afford.
You should be looking at potential profit margins, mortgage rates, and the average rental rates for the market you’re investing in. Regularly monitor your credit score and work on actively improving it if necessary. Estimate maintenance and management costs, and see how they fit in with your expenses and income.
Lastly, you should always plan for the unexpected. Build an emergency fund that you can dip into in case of property or personal emergencies that will keep you covered without rocking the financial boat.
Question #3: Should I Invest Out of State?
If your local market isn’t offering the investment opportunities you want, you might consider buying a property outside of where you live. This strategy can be lucrative, but there are hurdles to watch for.
Landlord-tenant laws vary from state to state and constantly change. You’ll also need to assemble a team to help you manage your property if you don’t plan on traveling regularly. That being said, looking for investment properties in what may be a more accessible market can provide fewer barriers to entry and help you diversify your portfolio.
So, it’s up to you to figure out if it makes sense.
Question #4: Should I Invest in Multiple Properties?
You might consider adding multiple properties to your real estate portfolio to generate income faster with larger profit margins. In addition to providing multiple streams of income, a larger real estate portfolio diversifies your risk and offers more tax benefits.
I recommend you consider paying down debt substantially on your first property before you jump into a second, third, fourth, or more. While this is a more conservative approach, it will protect you in case of a downward turn in the market. If you are confident you’ll bring in more profits than the interest on your current mortgage and ancillary expenses, you might be able to skip this step.
Treat every new property as if it’s your only source of revenue. Research your options for securing additional financing, which will vary from conventional mortgages to private loans based on your financial situation.
Question #5: Should I Invest With a Partner?
Coming up with the initial capital to cover a down payment, realtor fees, closing costs, property taxes, home maintenance, and the like can be challenging. To save on costs, many people choose to invest with a partner who can share the finances and responsibilities of owning an investment property.
If this is a path you’re considering, create a contract or written agreement before taking any official steps. Lay out clear expectations for each partner’s roles and responsibilities, break down each partner’s finances and outline how assets will be protected.
Look for a partner who complements your skill set. If you excel on the administrative side, look for someone who thrives on repairs, renovations, and maintenance.
Question #6: Is Turnkey the Way to Go?
“Turnkey” generally refers to a property for sale already in move-in condition. Tenants might already occupy it, or it is ready for occupancy without requiring any updates or renovations. A turnkey property can be an excellent investment, as it usually provides quick cash flow without any upfront costs.
I would recommend this, especially for new investors. While purchasing a fixer-upper can be a great way to save money on the purchase price, vacancies can quickly destroy your profit margins.
Question #7: Should I Buy Properties with Tenants Already?
Sometimes the best rental properties are already rental properties.
If you’re looking to invest in a property that has tenants, don’t make any final decisions until you understand the vetting process the current property owner went through. Please don’t assume that because tenants are living in the building, they are the right tenants for the property. Ask the current owner for as much information and documentation on the current tenants as possible.
Ask what criteria they used to qualify the renters? What has their rent payment history been like? Are there any existing agreements in place that you need to know about?
Final Thoughts
Good investments require analysis. Setting unrealistic rates of return on real estate is one of the main reasons new investors lose money. Put in the work to understand the different types of rental properties and the different opportunities in your market. You might decide that one successful investment property is all you need, or you might find yourself searching for the next investment.
Nathan Miller is a landlord, real estate investor and the founder of Rentec Direct, a property management software company.
So, you own a rental property and keep hearing about how maybe you should put your ownership in an LLC. From liability protection and anonymity to more secure for group ownership, an LLC is certainly something to consider creating. This blog will answer your questions about the pros and cons of holding your rental property in an LLC and much more.
What is an LLC?
A Limited Liability Company (LLC) is a business structure you can create by yourself, with a partner, or with a group. Owners of LLC’s are “members” of the LLC. Each state has their own regulations and price structure when it comes to creating and maintaining LLC’s. As we note in nearly every blog we write, please take the time to research the specific laws and information for the state where the rental property is located. Most Secretary of State offices will offer this information.
You’ll be surprised to learn that there’s more benefits than just protection of liability and more headaches than cost and management when creating an LLC.
PRO’s and CON’S
Pro’s of Holding Your Rental Property in an LLC
1.Your Personal Liability is Limited
Should you find yourself in a legal battle, there are protections an LLC provides that holding in your personal name do not. Only the property (or properties) held in that LLC are at risk. If you own a personal residence and your rental properties in your personal name only, then ALL assets under your personal name would be at stake. This is the primary reason rental property owners hold their property in an LLC.
2. Pass Through Taxation
During a recent call with our CPA, we discovered the benefit of pass-through taxation which is allowed for individually owned businesses. Typically, the profits earned by a corporation must be taxed AND then taxed again when the owners draw income. With an LLC you get the benefit of passing the company’s net income through and only paying taxes (and tax prep) once.
3. Ability to Separate Rental Properties Into Their Own LLC’s
It is advisable to create an LLC for each rental property owned. This will limit the liability to that property in the event of a legal battle. Should you own several rental properties under one LLC, ALL those properties are at risk if you must pay a financial award to someone who gets injured (or worse) on your property. Separating the ownership limits the liability to that one property and protects the others.
4. No Comingling of Personal and Business Funds
An LLC will have their own bank account and accounting of income and expenses is separate, making it much cleaner and easier to track. This function will make claiming expenses against income clear and concise. You will have no worries of comingling of funds (primarily security deposits) or questions of using business funds for personal use.
Con’s of Creating an LLC
1 .A lot of Red Tape
The paperwork to create an LLC can be daunting. You should have a rental property business plan in place to which you would need to add an Operating Agreement. This agreement outlines the rights and responsibilities of each member. The legal jargon that should be included in the Operating Agreement can be overwhelming, so you may want to consult a real estate attorney to draw it up and make sure all members are protected in the event of a legal battle.
The members may also have to conduct an annual meeting with notes to show they are actively involved in operations of the rental property business.
2. Getting a Mortgage Is Much More Difficult
If you create an LLC prior to owning the property, when the time comes to purchase said rental property, you might find the mortgage process tougher. You would be applying for the loan in the company name and corporate loans generally include a higher interest rate.
3. Transferring a Personal Loan into An LLC May Not Be Permitted
Let’s say you bought the property in your personal name and now you want to transfer that rental property into the LLC name. Many conventional loan or banking institutions will not allow you to transfer ownership into an LLC. You may want to inquire prior to applying as there are a few companies that allow it for a fee. Many will call the loan (cancel it) and force you to apply for a new loan at a higher interest rate. If they do allow the transfer into the existing loan, usually they will charge assumption fees or have other costly conditions.
Additionally, you may incur a Title Transfer Tax to move from your personal name into an LLC.
4. Operating LLC’s Can Be Expensive
Many states require annual tax filing fees to keep the LLC in good standing. In California, this fee is $800 annually but some states have no annual fee at all. Additionally, California requires a $20 fee every other year to update your statement of filing information. This is the paperwork that states who the members are, where they live, the address of the company, as well as the who the registered agent for process is.
In addition to the state’s annual fees, to create the LLC you’ll have to pay to register the LLC, publish a note of intent, create an operating agreement (lawyer fees), and pay a filing fee. The cost can be well over $1000.
When Is the Best Time To Create An LLC?
If you are unsure as to when the best time to create the LLC is, before or after purchasing a rental property, then here is some information for you to consider.
Creating an LLC and then purchasing the property allows you to buy the property under the LLC ownership. Putting the deed in the name of the LLC immediately removes liability from your personal assets and avoids a Title Transfer Tax that you would pay after the fact.
Additionally, by buying the property under the LLC, you begin the leases and tenancy under the LLC name. This alone saves you (or your property manager) the hassle of creating all new leases and managing the change of to whom the rent payments are paid to.
Lastly, you avoid the chance of your mortgage company forcing a loan cancelation down the line. If your mortgage company forces you to close the loan and reapply, you will be charged closing fees all over again.
As you can see creating an LLC prior to ownership certainly has its perks.
LLC’s For Out of State Properties, Where to Create an LLC?
If you live in one state but your rental property is in another, you will create the LLC in the state of the rental property, not where you reside. Why? The laws will follow the property. If you reside in California but own property in Indiana, you’ll find the landlord-tenant laws are much different in California and tend to be more tenant friendly. Whereas the laws in Indiana are more landlord friendly so you would want to have those laws protect your LLC. California laws are not applicable in Indiana, so you want to create the LLC in the state the property is located to avoid legal issues.
Additionally, the fees to operate an LLC in California are among the highest in the US ($800) and are due annually. That’s a pretty big chunk our of your bottom line, especially if you own multiple properties, each operated under their own LLC. Most other states have more reasonable fees with some being a one-time creation fee and not renewable each year.
One issue you may run into is double taxation depending on the state where you reside. As the member of the LLC, you may have to pay personal taxes in the state realized (out of state property location) AND the state you reside in. This varies and is again, why you should research if an LLC is best for your rental property.
Does an Umbrella Policy Give the Same Liability Coverage?
Bottom line, no. Having an umbrella insurance policy does add coverage to the existing standard policy and cushions the protection but, still has its limits. If the lawsuit exceeds the amount of both the standard and the umbrella policies, then your personal assets are at risk.
Most umbrella policies do not exceed the value of the asset being covered. Let’s say your rental property is worth $350,000. Your personal policy has coverage for $500,000 and the judgement against you is $1 million dollars. If you have an umbrella policy of $350,000 then your personal assets are at risk for $150,000. If you do not have the cash on hand or the equity in your personal home, you likely will have to sell one of your assets to cover the additional amount owed.
Holding the property in an LLC may result in the same outcome, however, your personal assets wouldn’t be at risk or considered as part of the lawsuit.
Additionally, personal insurance policies contain exclusions that may leave a rental property owner unprotected and exposed to significant risks. Even with an umbrella policy in place, these exclusions may create a situation where the lawsuit exceeds the amount of the umbrella policy, again, leaving personal assets at risk. For more information on this, please read our blog: Make Sure Your Rental Property has Proper Insurance.
Final Thoughts
This is all a lot of information to digest. Do we hold our properties in an LLC? Yes. Our personal assets are too great to chance losing in a legal battle from a tenant or guest of one of our rentals. Should you? If The Pro’s and Con’s of Holding Your Rental in an LLC listed above do not clearly identify that answer, have a conversation with your CPA and/or lawyer. They know your risk best and can define liability, the expense, the process, and the benefits (or not) for your specific situation.
You got this landlords!
Please leave us a comment letting us know what you think of our blogs! Questions? Contact us at Stacie@YourLandlordResource.com OR Kevin@YourLandlordResource.com.
Check out our other blogs to guide you on your self-management journey as a landlord:
Why Landlord Inspections Are Essential
The What and Why of Move-In/Move-Out Inspections For Rental Properties
How Landlords Can Help Tenants Stay Cool In A Heatwave
Meet Stacie & Kevin, Your Landlord Resource
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Looking for a community of DIY landlords you can ask questions and bounce ideas off? Join the Your Landlord Resource Facebook Group, a discussion group for support, tips, and guidance to help create successful landlord-tenant relationships.
Written By: J Scott, Bigger Pockets
There’s a lot of uncertainty surrounding the economy, real estate market, and the role of inflation in the economic environment.
When it comes to inflation, it’s important to identify how we got here. By here, I mean on the verge of an economic downturn with near record high inflation.
The Cyclical Nature of the Economy
Our economy is cyclical. It goes up. It goes down. And repeats. If you’re familiar with historical economic cycles in the United States, it should be no surprise that after a nine-year bull run, things were poised to peak back in 2019 and 2020. That nine-year run was historically long and, in many ways, driven by the fact that inflation was low for most of the decade.
Typically, a cycle results in a downturn after economic growth leads to inflation, triggering the Federal Reserve to raise interest rates. A rise in interest rates makes it more costly to borrow and more beneficial to save, so people stop spending, start saving, and the economy slows down, which alleviates inflation.
But we weren’t seeing much inflation, so interest rates stayed relatively steady for much of the decade, and things kept chugging along. Who knows for how long they might have kept going. Then the pandemic happened.
The economy came to a screeching halt, and it looked like we were on the verge of an economic depression. So the Fed stepped in again.
The Fed controls interest rates and the money supply. They use these two things to manipulate the economy in an attempt to avoid large swings or catastrophic events. At least that’s the goal.
Unfortunately, when it comes to avoiding economic risk, the Fed historically over-corrects. They move too much or too quickly. That’s exactly what happened here. COVID-19 caused panic over what could become an economic catastrophe, and the Fed reacted by over-correcting.
They lowered rates excessively and quickly, released a bunch of new money into the system, loosened banking regulations, and more.
Those actions stimulated economic growth, which led to inflation, which drove the fed to raise interest rates, which is now (likely) leading us into the downturn.
A recession at this point should surprise nobody. I’m surprised we didn’t see it sooner. But again, we weren’t seeing huge inflation levels prior to last year, so the cycle got stretched out.
Why is Inflation as High as It is Now?
We came dangerously close to a severe economic catastrophe in 2008. Back then, the Fed also released a bunch of new money into the system and lowered interest rates, but we didn’t see sky-high inflation.
What’s the difference between then and now? Why was inflation at 2% for much of the decade after the Great Recession and now at 8% a year after this latest round of interest rate drops and money printing?
Inflation is all about supply and demand, so there are really two sides to inflation. The supply side—when supply is low, prices go up. And the demand side—when demand is high, prices go up.
This time around, we’re seeing inflationary pressure from both sides. On the supply side, thanks to global shutdowns, many small businesses going bankrupt, raw material and transportation pipelines getting sent into a tailspin, and a host of other things, supply chains have been a global mess for two years now.
You might be looking around and saying that the pandemic is over and things are back to normal, so there shouldn’t be any more supply chain issues. But, the U.S. is a very consumer-centric nation, not a producer-centric nation. We import stuff. We don’t produce stuff.
It doesn’t matter what you see when you look around the country regarding shutdowns and businesses operating. What matters is what you see in those countries where we get most of our products. There are still lockdowns, war, and political unrest in those countries.
Shipping logistics are upside down, energy prices are in the sky, chip manufacturing is slowed, there are global labor shortages, and while we don’t talk much about the trade war anymore, that 20-year-old battle is still an issue.
Long story short, supply is still constrained, which will naturally drive prices up.
The even bigger issue is on the demand side, though. Where’s the demand coming from? It’s coming from people, companies, and institutions spending the $9T that was created over the last several years.
Why is Inflation Higher Now Than It Was After the Great Recession?
In 2008, the Fed and the Treasury infused a lot of liquidity/money into the economy. But they did it indirectly. They mostly gave it to the banks, allowing them to open up their lending to businesses and consumers. That allowed all the extra money to trickle into the economy slowly.
This time around, after the pandemic began, we did things differently. Instead of putting money into the banking system and allowing it to trickle into the economy over time, the Fed decided that they needed to get the money out there much more quickly.
The Fed pumped a lot of that $9T into equities directly, companies through PPP loans, and sending checks to all Americans.
Injecting directly into the economy’s bloodstream was effective for its intended purpose. People had direct access to cash and didn’t have to work through banks. But, the aftershock is what we’re dealing with now. Off the rails inflation, making day-to-day life for the average American more and more difficult.
Long story short, the injection of cash directly into the economy served its purpose. It effectively stimulated everything to the point that there was no economic collapse. But, as usual, the Fed overcorrected, didn’t let off the gas soon enough, and here we are.
Of course, there is a solution, but it’s not pretty. We must manually contract the economy by raising interest rates, which has already begun.
It’s hard to imagine a rental property owner who does not do beginning and final walkthrough inspections, but you’d be surprised how many do not care to take the time to do these tasks. Maybe they are unaware of how these walkthroughs create positive tenant relationships and cover their business when trying to keep a security deposit. The following paragraphs will explain move-in/move-out inspections for your rental property and why they are essential to your real estate investment business.
Move-In Inspections
Let’s assume that you, as a landlord, have gotten your unit all prettied up for the new tenant. Fresh paint, new carpets, all the doors, cabinets, appliances, and electrical and plumbing are in good working order, plus the whole place has been cleaned top to bottom. Finally, it’s ready for the tenant to move in and take possession.
At this point, it doesn’t seem like there would be much to inspect. Not so much for the landlord. Where the move-in inspection would appear to be more for the tenant’s sake, it benefits both parties. Walkthroughs help landlords track damages and wear and tear throughout a tenancy. They also help tenants by allowing them to notate damage found upon move-in. For instance, a dent in the dishwasher door.
However, before the tenant moves in, the landlord should go around the unit and check all the plumbing, electrical, smoke detectors, appliances, windows & blinds, door locks, etc., to ensure they all work correctly. Take photos of EVERY corner of the unit so that the tenant can’t come back and say there was a dent in the dishwasher if there wasn’t.
Tip: Do not do video walk-throughs. They are rarely admissible in small claims court should a legal battle ensue.
If possible, we like to do the walkthrough with the tenant on move-in day. For example, we have them sign off that the stovetop turns on, the hot water works, the windows/blinds open easily (in case of fire), the smoke detectors beep, the door locks lock, and the cabinet door hinges are tight and close properly, etc.
If meeting them in person is not an option, then the tenant should be allowed 10-14 days to live in the unit and have ample time to experience “all the things” before signing off. Then, have a form on the counter ready for them to complete, a stamped addressed envelope, and a notation of the date it needs to be completed and returned.
The move-in walkthrough is for the tenant to notate if there is a hole in the window screen, a stain on the carpet, or a loose bathroom towel bar. Why is this important? When you do your periodic inspection and find the kitchen cabinet door in the hall closet with the hinges missing, you can rightfully charge them to repair it if they do not do it themselves before move-out. You have proof that there was nothing wrong when they moved in, and if you did the walkthrough with them, they would have signed the form agreeing to the acceptable condition of the property. Are you seeing how move-in/move-out inspections for rental properties are important?
It’s sad to say, but there are few cases where a landlord will win a “he said/she said” case. A landlord must have proof, and the move-in walkthrough starts with that. It shows the tenant you run your rental property business professionally. It shows that you respect your property and expect the tenant to do the same. A tenant is less likely to challenge a landlord if they know they have signed off on the condition of a property.
What’s Wear and Tear?
Wear and tear are tough to define, and the level of acceptable damage varies by state. As we have stated in nearly every blog, know your local and state laws regarding rental property and landlord-tenant relationships. Acceptable wear and tear would happen regardless of who lives in a space. For example, minor stains on carpets, scuffs on walls, and a scratched appliance constitute normal wear and tear whereas broken light fixtures, pet stains on flooring or chips and cracks in countertops would be not.
But things happen, and if your kitchen cabinets are on their way out and you are just trying to get through one more tenancy with them, then be reasonable. If the window screens haven’t been repaired or replaced in many years, you’ll have difficulty charging the tenant for replacement if they are frayed.
As Apartments.com has posted on their website:
“If you are struggling to spot the difference between normal wear
and tear and property damage; Merriam-Webster defines normal
wear and tear as “normal depreciation. Meaning that if someone
lives in a rental, it will appear lived in by the time they move out.
To paraphrase Georgia law, landlords cannot fix up their rental
property at the cost of the tenant. You must return the tenant’s
security deposit if there is no property damage beyond normal
wear and tear.”
Move-Out Inspections
This walkthrough may be a requirement and depends on which state your rental is located within. For example, a landlord must offer a pre move-out inspection within two weeks of the tenant’s stated move-out date in California. The purpose of this inspection is to show the tenant ALL the issues that the landlord would take a deduction off of the tenant’s security deposit. Now, I imagine you can see why the move-in/move-out inspection for rental properties is essential to your real estate investment business.
This inspection allows the tenant to repair or replace any issues found by the landlord. For instance, if the landlord has it noted in the lease that the tenant is only allowed four holes per wall, not to be larger than ¼” and during the walkthrough, finds the tenant has a display of 6 snowboards bolted to the wall. The tenant can repair the wall (or hire someone to do so) before they vacate. However, should an unauthorized pet chew and shred the carpet, then the tenant must pay to replace the carpet. Then, during the final walkthrough on move out day or soon thereafter, the landlord can verify all the items noted were repaired. If not, the time and materials needed to complete each task can be deducted from the security deposit.
What We Do
Telling them what needs to be remedied to receive the full deposit back includes being specific about cleaning the unit. For example, we show our tenants (and send a reminder email) that the kitchen cabinets need to be wiped down inside and out, remove the shelves and drawers when cleaning the refrigerator, and wipe down and clean the windows and blinds with a list of other items.
Be as detailed as possible. We also include the amount per item to be deducted from the security deposit should they NOT clean it. For instance, the items usually add up to around a $450 fee should they choose not to clean. Of course, we also send them the name of our cleaning company in case they want to hire them. These notices are a chance to have the tenant return the unit to you in as good of condition it was received at move-in; Thus, lessening your turnover time.
BONUS!
To assist our readers, click here to access a move-in/move-out inspection form to use in your rental property business. It’s best used for up to a 3-bedroom, 2-bathroom unit and includes a separate laundry room and garage. It has signature links for both move-in and move-out by the tenant and the landlord. Always send a photocopy of the form to the tenant after they sign.
These walkthrough inspections are essential to both the landlord and the tenant. It begins the landlord-tenant relationship openly and honestly. The tenant knows the landlord cares enough to ensure the unit is in good order when they take possession. Likewise, the landlord is kept in check should any issues arise.
Please leave us a comment letting us know what you think of our blogs! Questions? Contact us at Stacie@YourLandlordResource.com OR Kevin@YourLandlordResource.com.
Check out our other blogs to guide you on your self-management journey as a landlord:
Why Landlord Inspections Are Essential
Who is Responsible for Which Repairs at Your Rental Property
As spring ends, temperatures begin to rise throughout the states. Laws regarding temperature minimums for rental properties have long been in place, and new regulations for maximum temps during warmer months are now on the table in many states. In other words, you must provide a method for tenants to stay warm in the winter, and soon you may be required to provide air conditioning to your rental properties to cool the inside temperatures during the summer months. Here’s some information on how landlords can help tenants stay cool during a heatwave that you may be better off managing now and not waiting until it gets too hot to handle.
In our neck of the woods of California, the temps near our rental properties are rising, so we reach out to prepare our tenants for the multi-day 109* heatwave that is sure to occur in the coming months.
Regardless of timing, the tips and suggestions below can be used any time during summer for any home (not just for rentals).
How to cope with sweltering weather:
Air Conditioner Tips
For air conditioning units, it is essential to know the greatest AC unit will cool your home about 20 degrees less than the current temperature outside. When the outside temperature is 90 degrees or higher, it is best not to turn up or lower the temp too low as it puts your air conditioner in an uphill fight trying to cool down your unit. Set your thermostat between 75-78 degrees (or higher) and try to cope with a bit of heat. Read below for air conditioning maintenance tips.
When to Open, When to Close Windows and Blinds
Keep blinds closed in all rooms to create an extra layer to keep the heat out. Then, in the late evening, when the weather cools to around the same temp the air conditioner is set at, turn off your AC. Next, open the blinds and windows and, if present, use the breeze outside to cool the rooms. This method works best with cross ventilation, where you have windows opened on both sides of the home so the air can flow through and out of the unit.
Install and turn on ceiling fans to cool the tenants
The circulating air will help by drying perspiration and making one feel cooler. One can tolerate the thermostat setting a little higher when you feel cooler. This is a nice, low cost way to keep tenants cool during a heatwave.
Appliance Use
Do not use appliances OR, if one must, do so early in the day or later at night. The heat from operating an oven, dishwasher, or washer and dryer will significantly contribute to the discomfort in the home.
Maintenance Tip
Replace air filters. The cleaner the filter, the easier the air will circulate through the unit. It also keeps the air conditioning unit itself running better. It won’t have to work as hard and decreases the chance of failure when the filter is clear of dust, etc.
Stay Healthy
Stay hydrated and be aware. Symptoms of heat exhaustion are:
- Feeling faint or dizzy
- Excessive sweating
- Cool, pale, clammy skin
- Muscle cramps
Treat these symptoms by drinking water and cooling your body with a fan or AC or by placing an ice/gel pack on the back of your neck.
Heat Stroke symptoms are more serious such as:
- Throbbing headache
- No sweating
- Red, hot, dry skin
- Rapid, strong pulse
- Loss of consciousness
Experiencing any of these symptoms, one should call 9-1-1 or seek medical attention right away.
Helping your tenants stay cool during a heatwave is good customer service and in your best interest to help them maintain the unit and their health. The more they spend on running the AC each month, the harder it is for them to make rent.
Maintenance Tips for Air Conditioning Units
If your units include window air conditioners, you can increase efficiency by ensuring the seal between the window and the air conditioner is not leaking. Over time moisture can damage the seal, causing it to leak.
Make sure nothing is blocking the unit’s air flow like bushes or fallen leaves (this applies to a full home/independent unit).
If your unit contains a filter, advise your tenant to clean or replace it for increased airflow.
For single-family homes, closing off unused areas (and air vents) during the hottest part of the day will help concentrate the cool air and make the home more enjoyable and efficient.
Ensure maintenance on your air conditioning units is done each spring to maintain maximum efficiency. Hire a specialist to check the unit for refrigerant, evaluate the condensing unit, check the ductwork for leaks, and general age and efficiency of the unit. Air conditioners are like cars; the older they are, the less efficient they become, and sometimes they just need to be replaced.
For homes near the seashore, the salt can corrode the aluminum coils causing the unit to fail when needed most. If you’ve ever tried to contact an air conditioning tech to service a failed unit during a heatwave, then you know you will likely be waiting days, if not weeks, for that maintenance call to arrive.
Want to email these tips to your tenants?
Below we have included the verbiage used when we email our tenants. All our units have central AC, so our email content may differ, but feel free to use ours as a template and personalize it where needed. It’s a nice added touch to let your tenants know you care and that you are interested in keeping them cool during a heatwave.
Click the link below to access a FREE PDF copy of the email we send to our tenants at the beginning of each summer season.
Coping With Heat Wave Email Template
We hope these tips have helped you create a way to communicate with your tenant in a caring manner.
Wishing you all cooler days ahead with zero maintenance calls for air conditioning units!
Please leave us a comment letting us know what you think of our blogs! Questions? Contact us at Stacie@YourLandlordResource.com OR Kevin@YourLandlordResource.com.
Check out our other blogs to guide you on your self-management journey as a landlord:
Why Landlord Inspections Are Essential
Who is Responsible for Which Repairs at Your Rental Property
According to the U.S. Department of Housing and Urban Development, more than 2 million instances of housing discrimination occur each year in the U.S. Housing discrimination takes place when landlords, home sellers and lenders treat some consumers differently than they do others. When discrimination takes place, it is a violation of the Civil Rights Act of 1968. The act was aggressively updated in 1988 and protects particular classes of people against housing discrimination.
Housing discrimination is more commonplace than one might think. It happens everywhere in the U.S., including here in Las Cruces. Irrespective of where violations occur, breaking fair housing laws is easy for the uninformed to do and can result in big-time trouble for violators. The bottom line is that these laws carry heavy penalties and should be taken seriously.
Federal law flatly prohibits discrimination in the sale, rental and financing of housing — period. The laws also make it illegal to discriminate in any housing-related transaction wherein the consumer falls into one of seven protected classes. The list begins with race, color and natural origin, and goes on to include sex, religion, familial status and physical or mental handicap (disability). New Mexico law protects four additional classes: ancestry, sexual orientation/preference, spousal affiliation and gender identity.
In an effort to keep this column from becoming a technical manual, I thought I’d get the idea across through the use of some real-life examples of how easy it is to discriminate. Take the 1998 case of the Las Cruces area real estate company charged with violating federal fair housing laws after one of its employees discouraged a grandmother and her elementary school-age granddaughter from renting in a mobile home park managed by the company. The violation of “familial status” occurred when the manager tried to dissuade the grandmother from renting so the child wouldn’t disturb the neighbors.
A few years ago, the U.S. Department of Housing and Urban Development charged an Albuquerque landlord with violating the Fair Housing Act by refusing to allow a tenant with disabilities to modify his rental home to enable the tenant to use a wheelchair, even though the tenant agreed to pay all costs associated with making the modifications. The landlord was accused of failing to make “reasonable accommodations.” Administrative law judges who hear such cases have the authority to award tens of thousands of dollars in damages, take steps to deter further discrimination, impose civil penalties and award attorney’s fees.
Also in Albuquerque, a couple living in a 16-unit apartment complex filed for discrimination based on familial status after their lease was terminated when the female tenant became pregnant. The couple was living in the complex on a month-to-month lease with a two-person limit. When the landlord learned of the pregnancy, the couple was given a 30-day notice to leave the apartment based on violation of occupancy standards. The couple contacted HUD and charges were filed against the landlord based on the fact that the landlord did not confirm when the child was expected to be born or offer the couple the chance to move into a two-bedroom unit. The case was settled in January 2009 with awards of compensatory damages and civil penalties.
The Fair Housing Amendment Act requires landlords, condominium associations and other housing providers to make reasonable accommodations for the disabled, including “reasonable accommodations for service animals.” What is a reasonable accommodation? According to HUD, “A reasonable accommodation is a change, exception or adjustment to a rule, policy, practice or service that may be necessary for a person with a disability to have an equal opportunity to use and enjoy a dwelling, including public and common use spaces.”
In 2011, HUD charged the owner of a Grand Rapids, MN (yes, Minnesota) apartment complex that had a “no pet” policy with violating the Fair Housing Act by denying a request from a disabled woman to reside in her apartment with a medically prescribed support animal, even though she had a note from her doctor. The support animal was a cat.
In another instance, a Wisconsin landlord was found to have discriminated on the basis of “sex” and “familial status” when he refused to rent a home to a single mother and her young son because “there would be no man to shovel the snow and help them survive the brutal winters.” The landlord was ordered to pay the mother and her son $15,000 in damages, attend fair housing training and write a letter of apology.
Individuals are not alone when it comes to discrimination. In 1996, the U. S. Department of Justice filed a lawsuit against the Village of Hatch, alleging that the Village engaged in a pattern or practice of discrimination on the basis of “national origin” by making housing unavailable to persons seeking to reside in the village. The lawsuit, which required, among other things, that the village amend its housing ordinances, was settled in 1998. Village trustees admitted to no liability for any wrongdoing and expressly denied the allegations.
The bottom line here is that it is the sole responsibility of individual home sellers, landlords and lenders to know and understand fair housing laws. Ignorance is no excuse. So, before you deny services or accommodations to a hairy guy dressed like one of the Budweiser girls in the infamous super bowl commercials, google “Fair Housing Act” and head for the first “HUD Portal” you see. You may be glad you took the time to educate yourself.
Gary Sandler is a full-time Realtor and president of Gary Sandler Inc., Realtors in Las Cruces. He loves to answer questions and can be reached at 575-642-2292 or Gary@GarySandler.com.
Landlords have the privilege and challenge of renting their properties to a range of niche demographics that offer unique benefits and drawbacks.
College students are one of the largest niche rental demographics. Though the market is large, it still begs the question:
Should I rent to college students?
As a landlord, it’s essential to protect both your income and your property by renting to tenants that are most likely to respect the property and pay rent on time.
On paper, it might seem like college students don’t fit the bill. However, that’s not actually the case. If done right, renting to college students can be a massively profitable and low-risk venture.
This guide explores everything you need to know about renting to college students and getting the most out of the experience.
- Pros of Renting to College Students
- Cons of Renting to College Students
- How to Minimize the Risks of Renting to College Students
- Can You Refuse to Rent to College Students?
- What are College Students Looking for in an Apartment?
- Final Thoughts
Pros of Renting to College Students
Whether you’re a property manager or a landlord, if you have a college or university in the vicinity of your rental units, it’s likely that you’ll receive at least one rental application from a student.
When considering a student rental application, it’s crucial to consider the benefits and drawbacks of renting to a student. Here’s a breakdown of the pros of renting to students.
High Demand
Renting in a college town offers the unique benefit of having a consistent demand of tenants. With each new year, there are tons of students looking for housing. It’s essential for college students to lock down their living situation early on. So, it’s typical for landlords and property managers to sign new leases a year in advance. Additionally, it’s customary for students to rent post-sophomore year. So, you’ll likely have the same tenants for two years before needing to look for more tenants.
Simple Marketing
Renting to college students means that you can significantly reduce your marketing budget. Simply list your property and maybe draw up some flyers to post around campus. Students need housing, so if your property offers close proximity to campus and additional necessities like groceries, you’ll likely find yourself inundated with applications.
Additionally, you may find yourself benefiting from the “student advantage” when your current student tenants recommend your property to their friends. In many cases, students will pass the lease down to friends from year to year.
Higher Rent Payments
On average, rents in college towns are higher than those of other markets. Typically, rent pricing in college towns is fixed to the college’s room and board rate, which is what students are used to paying after two years on campus.
In most cases, landlords can expect to charge upwards of 30% more based on the proximity to campus alone. However, additional amenities such as in-unit laundry, a backyard space, or storage can drive your rates even higher.
Lower Expectations
Students aren’t exactly known for their high standards. They’ll typically have much lower expectations than other more experienced renters, so you can save a significant amount of time and effort on upgrades that you would have to make to stay competitive in other markets.
Your property will likely be a student’s first time away from home and they’ll be happy with the bare necessities. They don’t want frills — they usually just want to have a space of their own that’s far away from their parents!
Safer Bet
While on the surface, renting to students may seem like a risk, that’s not usually the case. In fact, most parents pay for their student’s rent payments. Parents or another third-party will act as co-signers to help make it easier for their student to get housing accommodations.
Additionally, you’ll likely be renting your property to multiple tenants. That greatly reduces the chances that you’ll ever receive a zero-percent rent payment. For example, if your lease covers five tenants and one tenant can’t pay, you’ll still be receiving 80% of that month’s rent revenue.
Roommates Can Reduce Financial Risk
College students are likely to have roommates to split costs and enjoy social interaction. Plus, it’s also a win for landlords. When roommates are splitting costs and lowering their individual rent burden, they’re more likely to pay the rent and do it on time. There’s also the potential for positive peer pressure in a roommate situation. The majority of the roommates paying rent are likely to pressure the one who isn’t to act financially responsible or replace them altogether.
Could Reduce Spending on Property Upgrades
Landlords feel less pressure to spend money on upgrades when renting to college students. After all, students aren’t known for being picky or having high standards for an apartment, especially when they’re in a class all day and want to enjoy the nightlife. Their options for a reasonably priced apartment are likely limited and their lease length typically only extends throughout the school year.
Cons of Renting to College Students
Although there are strong benefits, make sure you have a solid understanding of the drawbacks of renting to college students.
Limited Credit or Rental History
There are some cons to renting to college students, including limited credit or a nonexistent renters credit report. Many college students get their first credit card in college and have zero credit score, making it difficult to judge how they’ll handle rent payments and whether or not they’re financially responsible.
It’s not uncommon for college students to arrive on campus and have never rented an apartment or room before. They may have little to no personal or professional references to help vet their responsibility and reputation. The lack of rental history is a blank slate, and landlords can’t always assess if the renter is worth the risk or not.
Inexperienced Renters
Students are young adults, meaning that they are prone to making mistakes that are typical of people their age. They may experience growing pains and act irresponsibly. That can result in headaches for property managers and landlords alike, in the form of property damage, noise complaints, and more.
In short, all issues that are consistent with college life.
Most college students are inexperienced renters, new to paying bills, budgeting, and organizing their lives. Even if they’re financially responsible who will eventually make payments, that doesn’t mean they’ll always make them on time. It’s also possible their landlords will remind them about rent every month. Charging a late fee or sending out auto email and text reminders may also help.
May not understand how to file a maintenance request
Inexperienced renters may mean more administrative work on your end with a lack of understanding of how to address issues. They may not understand how to file a maintenance request or attempt to send the landlord receipts for the supplies they brought to do it themselves. Landlords should make sure anything related to requests is outlined properly in a lease, and information is left in the apartment for quick reference.
Noise complaints are also a potential issue, whether renting to college students or not. Landlords should outline how to address noise issues, from encouraging the tenant to resolve the issue to the process of filing a complaint. Of course, college students are known for loud music and parties. Landlords should manage expectations from the start on what level of noise is appropriate, quiet hours, and consequences for violating the rules outlined in the lease.
May Be Rowdy
College students have a reputation for partying for a reason. They’re prone to having large gatherings or coming home late at night and creating noise for surrounding neighbors. College students are also known to indulge in illegal drinking, which could result in a visit from the police and disturb other tenants.
Fewer Vetting Resources
For the most part, college students haven’t built up a rental history, employment history, or credit history. In short, they offer little to no valuable information that can help you vet them as applicants.
High Tenant Turnover
It would be nice to have long-term tenants that offer a consistent revenue stream and responsible renting. However, that’s not the nature of college student rentals. You’ll experience high tenant turnover between academic years.
The good thing is this problem is balanced by high demand. However, the end result is still a higher turnover percentage then you’d experience with traditional renters.
Local Regulations
Renting to students is highly regulated with standards that vary based on the market. Generally, investors are mandated to submit applications to their local county offices. Those will determine whether they are allowed to rent to students.
How to Minimize the Risks of Renting to College Students
If you’re considering renting to college students, you’ll need to be proactive when it comes to mitigating risks and avoiding problems before they happen. Not only do these methods protect you and your property, but they also protect your renters. Here are some of the best ways to minimize risks when renting to college students.
- Upgrade Your Lease Agreement
Not only should you create a new rental agreement that is specifically tailored to college students, but you should also be sure to include terms that make your expectations clear.
- Co-signer Requirement
As student renters can be a risky investment, be sure to require a cosigner in your lease agreement.
- Clauses on Noise
Students are known for raucous parties. So, implementing rules regarding noise can make it difficult for students to throw these parties.
- Maximum Occupancy and Visitors
Another way to reduce the chances of your property becoming party central is to ensure that you place limits on the maximum occupancy of the home. You can do this by limiting the number of guests each tenant is allowed to have and how long they can stay. This can help you avoid guests who become tenants.
- Damages and Repairs
Be clear about who’s responsible for repairs in your lease agreement. However, make sure you’re knowledgeable about your state and local laws. Some states don’t permit landlords to charge tenants for repairs unless they directly caused them.
- Rent “By the Bed”
Unfortunately, there may be cases in which you have to terminate a lease agreement. Renting “by the bed” ensures that even if one tenant is not adhering to the rules, the other tenants can stay.
- Be Specific
College students can do a lot of questionable things in the name of fun. However, it’s important that none of these activities promote damage to your property. That’s why it’s essential for your lease agreement to stipulate specific rules that may include prohibiting weapons (even BB guns), limiting fire hazards by banning candle burning, bonfires, and fireworks, and barring roof access.
- Charge for Utilities
High tenant turnover and multiple tenants aren’t conducive to routine utility payments. You don’t want to end up in a situation where you’re forced to cover utility payments that were in your tenant’s name. To avoid this, keep utilities in your name and add these payments to the rent rate.
- Increase Your Security Deposit
Students may be likely to cause damage despite your best efforts. If your local laws permit it, increase your security deposit. This will reduce the chances that you end up paying for repairs out of pocket.
- Conduct Inspections
Apartment inspections should be conducted regularly upon move-in, move-out, and routinely throughout the year. This allows you to get an idea of the state your tenants keep the apartment in and to determine the extent (if any) of damage that was caused during their stay.
Can You Refuse to Rent to College Students?
A: No, that would come under the heading of discrimination.
This is generally considered age discrimination under the Fair Housing Act, which protects renters against different forms of discrimination that would inhibit their ability to find housing. You should also be cognizant of any state-level laws regarding discrimination.
For example, the state of California bans arbitrary discrimination on factors such as student status. If you are found to have discriminated against a potential tenant, you can face consequences that range from fines to having to take classes.
Like with all rules, there is an exception. If your property is considered Section 8 federally subsidized housing, then you are not legally allowed to rent to students.
What are College Students Looking for in an Apartment?
Don’t take it for granted that students may not have high expectations when it comes to renting. They will still have needs and standards that your unit will need to meet to stay competitive. If you want to increase your chances of consistently landing student tenants, take these factors into account:
- Proximity to Campus
- Walkability & Access to University Transport
- Affordability
- Safety
- Laundry Access
- WiFi
- Outside Spaces
- Proximity to Grocery Stores
- Parking – both assigned and off-street
Final Thoughts
Renting to any demographic is a roll of the dice. However, that doesn’t mean that the odds aren’t in your favor when it comes to renting to college students. In fact, with preparation and proactive steps, it can be easy to turn your college rental situation into a lucrative and low-risk investment.
Be sure to read up on your state and local laws before delving into the student rental industry. Not only will this help you avoid any sticky situations with the law, but it’ll also enable you to structure your lease agreement in compliance with regulations.
Source: Apartment List
We are here to tell you that there is no right or wrong way to approach this; there is only YOUR way. Do what is best for you and your rental property business. Of course, this can differ depending on the type of property. We will discuss the pros and cons to help you decide who is responsible for which repairs at your rental property.
Repairs and Maintenance
Depending on a few factors, the responsibility for repairs and maintenance (R&M) can vary. For instance, a single-family home or duplex likely has different needs than a 4-plex. Often R&M on single-family homes is left to the tenant. For example, maintaining landscaping and replacing air filters often fall to the tenant’s responsibility, while for a multi-unit, it would be that of the owner.
How you write your lease is also a factor. Many states have laws stating who is responsible for what, so if using state-approved leases, it may already note who needs to take care of what on a rental property. For example, heating, electrical, and plumbing are prime areas where states require the landlord to ensure these areas are functioning, maintained, and repaired timely.
Common Repairs and Maintenance and Who Is Typically Responsible
Changing light bulbs are typically the responsibility of the tenant. However, if you have installed retrofitted LED recessed cans, that may not be so simple for the tenant to replace. Brands differ by light output and color. The cost commonly associated with replacing a light bulb is much less expensive than a recessed retrofit. This task would need to be explicitly stated within the lease to define its responsibility depending on the type of lighting product installed.
Landscaping
Often in single-family homes, the property owner will place the responsibility of keeping up landscaping on the tenant. They can mow the lawn, trim trees, and keep the garden bed full of flowers themselves or hire someone to handle that at their own expense. The owner often cares for duplexes’ front yard(s), and the tenants tend to their back yards. For larger multifamily, the owner typically is responsible for all areas, including along pathways.
Appliances
Refrigerator/Oven/Range
Many states require that a landlord provide a refrigerator and an oven/range at a minimum, so repairs generally fall to the owner. The one exception might be if the fridge comes with an automatic ice maker or water dispenser. Those accessories are not considered necessary, and often, landlords will pass responsibility for repair to the tenant. If you do not want to cover unnecessary add-ons like ice makers, do yourself a favor and add an addendum to your lease defining precisely what is covered.
Dishwasher/Microwave
Appliances such as dishwashers and microwaves are not a necessity and can fall to either the tenant or the landlord, depending on the lease’s details. If not expressed one way or the other, a good landlord should take care of the repair or replacement, especially if they are built-in units. If a previous tenant leaves behind their microwave, and you don’t mind leaving it there for the next tenant to use, add an addendum stating that it is there for their use. Additionally, should the unit fail, the tenant is responsible for replacement if they want to replace it. That new unit would become theirs to take once the lease is over.
Garbage Disposal
Garbage disposals are a big issue when they stop working. If the tenant has done something to cause the disposal to break or jam, then it would fall to the tenant to pay for the repair or replacement. Think artichoke leaves, bottle caps, utensils, and plastic from takeout containers that the blades can’t break down. In each rental unit, we provide a garbage disposal wrench for the tenant to use if the disposal becomes jammed. In addition, we send them this video to have the tenant attempt to resolve the issue themselves before we send our contractor or repairman out.
Often, garbage disposals will rust at the bottom and start leaking. Many contribute this issue to age, but this happens because the disposal is not being put to use often enough! When one rinses dishes, the small tidbits of food, be it a few grains of rice or small pieces of meat or pasta, fall into the cavity of the disposal and sit there. They do not break down and eventually turn to mush, which builds up and keeps the unit wet, and that moisture causes it to rust through and leak under the kitchen sink. So, where technically it would seem this is the tenant’s responsibility, it would fall to the property owner because there is NO WAY you will be able to prove they did or did not run the disposal with every use.
One more tip:
When you or a tenant run the garbage disposal, use cold water, not hot. This is because the hot water makes the disposal motor hotter, causing it to burn out faster. Whereas cold water cools the motor, allowing it to not overheat with every use, thus extending its lifespan.
Smoke and carbon detectors
This one is rather simple. Units = landlord, batteries = tenant. However, we change out our units every five years. The ten-year life units tend to last around 7-8 years, so as preventative maintenance, we replace them at five years to avoid issues. Here are the units we prefer to use: insert photo and link
HVAC
Heating is the responsibility of the landlord. Often states have mandated that a landlord must provide a heat source for the tenant. However, air conditioning is not considered a necessity in many areas and can often fall to the tenant for repair, especially the window-mounted ones. One way to keep the heating and (central AC) units running efficiently is to change the air filters twice a year.
Whose responsibility is this? Usually, the tenant should be changing the filters unless there is no access to the unit. For instance, the heaters are all located in the basement of our multifamily units. This is our private area where we keep our supplies; we do not permit tenants access. For units with central heat and air, often the filter is located in the ceiling or wall inside of the rental unit, aka the air return, making it easy for the tenant to replace it.
Repairs and maintenance fall to the landlord. As heaters already are, AC units are quickly becoming deemed an essential feature for rental properties. For maintenance, we service both every other year. Typically we check heaters in the fall and the AC units in the spring. This task ensures the HVAC units should work fine once the temps cool or heat up, depending on the season.
Ceiling fans
So many landlords call us crazy for providing ceiling fans! Our properties are rated level B to C+, and we find the tenants we place are relatively responsible. We like ceiling fans because it helps our tenants with their electric bill during extreme temperatures. Circulating the air allows the heater and AC units not to work as often. This amenity is often quite appreciated for the low cost of providing it.
Because we install the unit and electricity is involved, landlords should handle all maintenance and repairs. Ensure the lease notes that if damage occurs from misuse, the tenant will have to cover all expenses incurred.
Tip: If not already installed and you want to hang a ceiling fan, make sure you or your contractor install a fan brace or bracket where the old junction box was. This reinforcement ensures the fan (often heavier than a light fixture) will be more stable, and there is a low chance of falling.
Washing Machine/Dryer
Washers and dryers are other amenities not considered essential but are ones tenants seek after. We go by this rule: The landlord should provide repairs and maintenance if the washer and dryer are built into the wall. For instance, in our multifamily, we took the linen closet out and installed built in, stackable washer/dryer units in each unit. Because we deem these OUR washers and dryers, we will maintain and repair them. If there were coin-operated or multiple units available in a common area, that is the landlord’s responsibility.
Many landlords will require the tenant to repair and maintain them for non-built-in units, like ones located side by side in the mud, utility, or laundry room of a single-family home. In this case, the washer and dryer should be considered available for your use, but if they fail, it is up to the tenant to repair or replace them on their own. Of course, when they move out, they would take the units with them if they chose to. The landlord provides the hookups but not the units in this situation. Don’t assume this is the norm. Make sure you notate this on an addendum to the lease.
Garage door openers
You do not see automatic garage door openers in rental properties that often. Many landlords will only supply a manual roll-up door for safety reasons. However, if the landlord provides automatic doors, they are considered a built-in amenity; that responsibility generally falls to the landlord unless otherwise stated in the lease.
Plumbing/Septic
Plumbing issues are where being VERY specific on your lease is essential. Sometimes plumbing backs up due to old pipes collapsing or tree roots penetrating the lines, not allowing sewage to pass through. Of course, these issues, along with dripping faucets, water leaks under sinks, or running toilets, all fall into the landlord’s responsibility.
Clogged toilets from flushing paper towels, baby wipes, toys, kitty litter (YEP!), feminine hygiene products, etc., fall to the tenant ONLY IF THE LEASE SPECIFICALLY STATES such items cannot flush down a toilet.
Clogged water drains due to long hair, grease, lint from laundry, etc., are hard to prove and should fall to the landlord.
Septic systems come with specific instructions and should be included as an addendum to the lease stating who is responsible for maintenance and repairs.
Electrical
For the most part, you will find that the worst problems you should see are breakers and GFI plugs that keep popping. Inspect what they service to make sure they are not overloaded. These two items go out from time to time and need replacement. For the most part, any electrical issue should be inspected and remedied by a professional. There is just too much risk of fire hazards to DIY it.
Gutters and downspouts
These areas come down to the type of rental property you own. For example, you can require single-family and duplex tenants to maintain and clean their gutters each year. Still, you must also understand you are asking someone who possibly lacks the experience to climb a ladder and do maintenance on YOUR property. Should they fall and get injured, it could cost you way more than if you just went out and did it yourself or hired someone.
For multifamily, tri-plex, and up, it is the responsibility of the landlord to clean gutters and make sure the downspouts are clear of debris.
Roof
100% the responsibility of the property owner. Have the roof checked every five years or so by a professional. They can give you an idea of how much life is left. This timeline will help you determine your capital expenditure funds to make sure you are covered when the time comes.
Window screens/coverings
In California, by law, landlords must provide window coverings. Often window blinds are the best choice as they are simple to clean and do not infringe on a tenant’s décor. Regardless, replacement falls to the tenant if window coverings or screens become damaged due to misuse. If the cord on the blinds breaks or the screen rips because it is old and deteriorated, the landlord should be responsible for remedying those issues.
Painting the unit
We are not a fan of allowing tenants to paint their units. We completely understand people want to personalize their space. However, if they paint the wall a dark color, drop paint on the floors, or don’t tape off trim well, you are looking at a mess to clean up when they move out. Can you demand they paint it back to the original color at move-out? You sure can, but if they don’t use proper primer or do a messy job painting, you’re stuck making it all right again.
Painting the unit or one room of the rental unit is one of the items we offer as an incentive with a lease renewal. We generally offer this to those who have been residents for several years, and the unit needs some sprucing up.
Please read our blog for more information on offering incentives to tenants upon lease renewal.
Allowing Tenants to Make Repairs or Do Maintenance
Our policy is not to allow tenants to make repairs or do maintenance on our behalf in exchange for rent discounts. However, we will consider granting permission to a tenant who specializes in a trade, but only if they invoice us and we pay them directly for their time.
You see, deducting a tenant’s expense from your rental amount lowers your rental income. Yes, it reduces your income, but your actual rental rate is off if you decide you want to sell the property. Should you desire to take out a loan or HELOC, your income is inaccurate. Maybe you do this once or twice, but perhaps you own several complexes in a town, and you give a 50% discount on rent to a landscaper to maintain all of the properties each month. That deduction is a big hit to the bottom line.
Additionally, if you allow a tenant to fix something and, down the line, the problem reoccurs, or you find out the quality of workmanship did not match the discount given, you have no recourse.
You can, however, allow the tenant to pay someone to have repairs done and then deduct that invoice amount from the rent AS LONG AS there is an invoice to accompany that deduction. This invoice allows you to deduct the repair as an expense. Also, the work completed comes with a warranty. If there is a problem three months after the tenant moved out, YOU have recourse with that repair person.
Furnished units
Unless otherwise noted, if you provide a furnished unit, you are responsible for the repair or replacement should such furniture fail. For instance, the pulls on a dresser keep falling off, and they can’t get the drawer to open easily. That’s on the landlord. If they have children that bounce up and down on the bed and the bed collapses, then the repair or replacement expense falls to the tenant.
It is common sense, BUT the landlord still needs to explicitly state in an addendum that “damage due to negligence, overuse, or carelessness is cause for repair at the tenant’s expense.” If not, any of the above items become a he said/she said situation, and you’ll have to prove you told them or that they should have known.
Wear and Tear Defined
Normal wear and tear is the expected decline in the condition of a property due to normal everyday use. It is deterioration that occurs in the course of living in a property. The cause does not happen by abuse or neglect.
Normal wear and tear might include minor stains on carpet, scrapes or dings on hardwood floors, dirty grout, or carpet fading due to sunlight.
Wear and tear can be defined further as deterioration that one can reasonably expect to occur. For example, it is normal for some scuffs in the paint after a tenant moves out of the unit.
Damage is not naturally occurring. Instead, it is harm that affects the property’s value, usefulness, or normal function. Tenants can commit damage on purpose or through neglect.
Damage could be carpets destroyed by a pet, a hole in a door, broken cabinet doors, or a cracked window.
The bottom line is if, as a landlord, you provide anything of convenience or necessity to your tenant, and that product needs repair or maintenance, it falls to you to repair and maintain it. UNLESS you specifically state where the responsibility lies within the verbiage of your lease. So, ask yourself, when was the last time you reviewed your lease? It may be time for an update.
Please leave us a comment letting us know what you think of our blogs! Questions? Contact us at Stacie@YourLandlordResource.com OR Kevin@YourLandlordResource.com.
Check out our other blogs to guide you on your self-management journey as a landlord:
Beyond the FICO Score, How to Read an Applicants Credit Report
What’s the Best Time of Year to Market Your Rental Property
Why Landlord Inspections Are Essential
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