Think big! Accumulate hundreds or even thousands of units. Use economies of scale. Syndicate. Benefit from maximum leverage. In other words: Go big or go home.
Aren’t these the messages we hear so often here on BiggerPockets? Aren’t the biggest and the best the ones with the most cash flow, the most flips, and the most rental units?
Well, I’m here to tell you that bigger is not always better. In fact, in this article and my new book, The Small and Mighty Real Estate Investor, I plan to show you that smaller and simpler is actually better for many of you.
I’m trying to start a new movement. I hope some of you will join me. The motto is “go small or go home.” And the hero is called the small and mighty real estate investor.
Big Isn’t Bad
Life is too complex to say big is bad and small is good. We all have different motivations, don’t we? You aren’t wrong if you have big, large-scale real estate aspirations.
I would say it’s only wrong if you think big is the only way to live a rich, amazing life. There are other, simpler investing options that don’t get enough publicity because, well, they’re too simple.
You don’t have to get big to accomplish incredible financial and life goals. Small-scale real estate investing with even a few properties can do that, too. These mini-real estate models can give you plenty of money, plenty of free time, and plenty of flexibility. And they can help you avoid a lot of hassle and risk that comes with growing a big business. Isn’t that what most of us wanted in the first place?
Unfortunately, smaller real estate investing does have its downsides. You may not get famous with a best-selling book. And I’m sorry to tell you that you probably won’t get an HGTV show contract. But as a consolation prize, you CAN get a life of financial security, simplicity, and freedom that most people only dream of.
To begin exploring my point, let’s look at an interesting story of three BiggerPockets investors.**
A Story of Three Real Estate Investors
One summer, three real estate investing couples travel together to Europe. These investors originally met as beginner investors on the BiggerPockets Forums. They liked each other and helped each other grow. Along the way, they became friends.
Fifteen years later, they each have experienced success with their real estate, and they want to enjoy the fruits of their efforts. They spend 14 days visiting the Mediterranean coast. First, they explore ancient sites in Italy while enjoying amazing food and wine. Then, they continue with a high-quality, Mediterranean cruise to explore stops in Croatia, Greece, and even BiggerPockets author Erion Shehaj’s beautiful native country of Albania.
Could these investors afford a nice trip like this?
The Financial Scoreboard
Couple No. 1, Liz and Tom, are in their 50s. They live, invest in, and self-manage their properties in Missouri. Over the last 15 years, they’ve bought 10 single-family houses, one by one, in good neighborhoods.
Liz and Tom searched hard to buy these houses as fixer-uppers below value, and they used the BRRRR technique to recoup most of their cash on each deal. Then they used the debt snowball technique to pay off their mortgages early. Their houses now produce $7,000 per month, or $84,000 per year, in positive cash flow.
Couple No. 2, Tiffany and Darius, are in their early 40s. They live in New York, and they invest in North Carolina using a property manager. Fifteen years after starting, they now own one 50-unit apartment building.
Tiffany and Darius began with smaller properties and then used 1031 tax-free exchanges to trade up to bigger units until they had enough equity for a down payment on the 50-unit building. They have a solid, fixed-interest, 25-year mortgage on the building, and the property produces $10,000 per month, or $120,000 per year, in positive cash flow.
Couple No. 3, Mike and Lauren, are in their late 40s. They live in Nevada and own properties all over the country. Fifteen years after starting, they now own 500 units!
Mike and Lauren began with their own rentals, but because of their ability to put together great deals, they also began syndicating deals by pooling money from others. As the general partner, they have become multimillionaires, and their portion of the rental income equals $60,000 per month, or over $700,000 per year! Their portfolio produces the most money out of the three couples.
It’s clear to see that all three couples can easily afford to pay for this nice European vacation. This is exactly why all of them began investing in the first place.
But the story gets a little more interesting as they approach the end of the trip.
Let’s Extend the Trip!
By the end of this trip, all three couples have had a fabulous time. It’s been so great, in fact, that couple No. 1 (Liz and Tom) propose that they all stay a few weeks longer to explore more.
Liz and Tom’s rentals are all full of self-reliant tenants who automatically deposit their rent each month. The tenants can email or leave a voicemail with any maintenance emergencies, but this rarely happens. And with no debt or immediate plans to buy more properties, their business schedule is amazingly flexible.
Couple No. 2 (Tiffany and Darius) check their calendars. They have a few community and church functions, but those could be put off. Their property manager is competent and in control of day-to-day issues at the 50-unit apartment building. And because no major financing or remodel projects are looming, they happily agree to stay on as well.
However, couple No. 3 (Mike and Lauren) has challenges. They want to stay and can easily afford the expense of extending the trip. But there are projects looming back at home.
Remodeling contractors are waiting for their guidance on recent value-add apartment purchases. A new property manager needs to be found to replace an underperforming one. Their corporate bookkeeper and administrator need help. And some of their equity investors want to meet with them to discuss some past and future projects.
As a result, Mike and Lauren regretfully need to decline the vacation extension.
The Myth of the Passive Big Business
Mike and Lauren do not have a bad business. In fact, it is financially the most successful business of the three investors. But here are the questions I always ask the Mikes and Laurens of the world:
Did your investment business meet your true goals?
Are you spending your time doing what’s most important to you?
Would alternative approaches have met your goals just as well, with less hassle and risk along the way?
It’s possible that Mike and Lauren are happy with their current situation. If so, I’m happy for them. But my experience has shown that many people in their situation are less than happy. Their extra money has come at a cost.
And I’m sure I’ll get examples in the comments about Shark Tank hosts, famous entrepreneurs, and BP Podcast guests who’ve built big businesses that also check all the goals off the list. It’s fine to provide successful examples.
But the bottom line is, what are your goals? And what’s the best way to achieve them? Are you a Shark Tank host, or are you a regular person trying to free yourself from the 9-to-5 grind so that you can live an extraordinary life?
I know a lot of entrepreneurs and real estate investors. The ones with the most money have big businesses. If that’s your No.1 metric, go for it. But the ones I know with the most free time, the most flexibility, and the least stress have smaller, simpler businesses and portfolios. And interestingly, I don’t see these smaller investors worrying that they have a smaller net worth than the big investors. It seems they’re too busy enjoying life!
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So far, it might seem that I’ve beaten up on the big real estate investing model. But I’ll readily admit that it’s not impossible for you, as the owner of a bigger business, to have it all. You can create systems and teams of people that both produce a lot of money AND allow you to be relatively passive and flexible. It does happen.
But very importantly, it’s a lot harder and more time-intensive to manage a bigger, more complicated business. There are more people involved, more moving parts, and more things to pay attention to.
I think of it like Frankenstein’s monster. Without extreme focus, a business can become a scary, out-of-control creature that takes on a life of its own. And yes, it can even get hungry and eat your money, your free time, and your life!
The Frankenstein business monster becomes the most scary during the business’s growth spurts. Look at this graph of a business life cycle, for example:
The Danger Zones are where business “Frankenstein monsters” attack.
The growth spurts of this graph are the steep inclines. These are the danger zones. This is when you, the business owner, are most susceptible to cash crunches, dramatic market changes (i.e, the 2008-2010 Great Recession), personnel problems, and even personal burnout.
These danger zones are where the Frankenstein monster rears his ugly head. You can win against the monster. But just be prepared for a battle.
Finding Your Business and Investing Sweet Spot
You, as an entrepreneur, have to decide where on the business lifecycle graph you want to end up. You have a virtually endless choice of plateaus that you could aim for. The sky is the limit in our economic system. But again, your choice will depend on your personal financial goals.
And your choice will also depend on your willingness to take on the risk and hassle of the perilous climb up to higher economic ground. The reward at the top better is worth the sacrifice of the climb (and the fights with the Frankenstein monster)! Unfortunately, plenty of people have arrived at the top of the financial mountain to realize they lost everything they really wanted along the way.
The key is to find your personal business sweet spot. As you’ll see in the graph below, I’ve marked two different sweet spots. One is smaller (fewer assets, fewer employees/team members, less money), and the other is bigger (more assets, more employees/team members, more money).
Smaller or bigger business sweet spot? It’s your choice.
Both sweet spots are beautiful, level plateaus where you’ve increased income while also gaining efficiency that frees up your personal time and reduces hassle. The bigger sweet spot has more money earned. But nothing comes without a cost. You must make the choice if bigger is worth it for you.
And that choice may come down to the concept of “enough.”
The Fulfillment Curve & a Place Called “Enough”
One of my favorite personal finance books is Your Money or Your Life by Vicki Robin and Joe Dominguez. In the book, they share a graph called the fulfillment curve. Here’s my drawing of what that looks like:
While the authors shared this as a personal finance concept, it also applies to the real estate investing business. As you move up the curve, you pass milestones like survival, comfort, and even small luxuries that make life sweeter. But you finally arrive at a place called “enough,” the peak of the fulfillment curve.In terms of happiness, it doesn’t get much better than this.
But as you continue moving past the peak of the curve, each subsequent amount of money you earn and spend has diminishing returns on your personal happiness. This occurs because the extra you earn, spend, and accumulate carries with it clutter, complexity, stress, and hassle.
The place called “enough” is different for each one of us. But it’s vitally important as a real estate investor to learn what it is for you. The main point here is that smaller, simpler businesses can take many of us to this place called “enough.” And going past the peak of the fulfillment curve by getting bigger and more complex just clutters our lives.
“But I Enjoy Growing and Staying Busy!”
By this point, I’m sure some of you are with me, and others are completely turned off. That’s what I expected. But some of you may still be on the fence. Perhaps you know you’ve got enough financially, but you’re thinking something like this:
But I like working. I enjoy being busy. If I weren’t continually buying more deals and building a bigger business, I don’t know what I’d do with myself. I’d rather stick with a pattern that satisfies me than risk an unknown void in my life. What if I get bored?
I feel your pain. I’m a model member of the club for the recovering Type-A, job-identifying, workaholics anonymous.
The truth is that, of course, work is fulfilling. It really can provide a wonderful sense of purpose, growth, and challenge. I personally enjoy it, too. And there’s no reason to give up that outlet in your life if you like it.
But would your “work” projects be different if you knew you had enough financially? Would that allow you to negotiate a different approach to work, your investing, and your schedule? You could even keep doing the same basic activities, but you’d do it completely on your terms.
Sometimes this leap requires a little bit of imagination.
What Do You Want to Be When You Grow Up?
You’ve been hard at work for years. Even if you just graduated from college, you’ve still been through years of schooling, which conditions you to constantly perform and check off endless to-do lists.
I’ve found for myself that this hardworking, 9-to-5 grind for many years causes me to lose something. That something is the creativity and imagination of a child. It’s that inner force that caused you to stare off into space as a kid and say, “I want to do [insert your passion] when I grow up!” Adulthood has a way of squashing dreams with the hammer of practicality (under the disguise of money).
In 2009, my wife and I took a sabbatical trip for four months to Spain and South America. During the trip, I finally got a glimpse into my own forgotten imagination. Six weeks in, my uptight, ambitious self finally let go a little bit. It happened after spending several magical hours just sitting with my wife and watching the bay of a Mediterranean fishing village in Cadaques, Spain.
We first watched a sunset, then the arrival of a beautiful star-filled sky, and finally the biggest shooting star we’d ever seen streaking in green across half the sky! During the entire experience, I could physically feel myself relax as a big knot untied itself in my chest.
There weren’t any specific epiphanies at that moment. But I was stunned as I realized how one-tracked and focused my life was. Without that trip, that space, and that slowing down, I may have talked myself into thinking I needed to continue growing and pushing for another couple of decades. It was like I had woken up to brand new, child-like possibilities.
Go Small, and Do What Matters in Your Life
The story I just shared was my specific experience. But I’m convinced that we all can regain our own unique imaginations if we just give ourselves the space. And to create that kind of space, it helps to have a particular kind of real estate investment business. It’s big enough to give you enough financially. But it’s also small enough to give you free time and space to think, to explore, and to do what matters in your life.
What matters. That’s an interesting concept.
On my personal website, I wrote something called the “Money-Life Manifesto” that talks about what really matters to me. Everyone’s life priorities are different, but perhaps this excerpt from my manifesto will resonate with you:
Sleep more. Relax in the morning. Sit in a rocking chair.
Learn something new. Be impractical. Explore.
Visit amazing places. Go on adventures. Hike trails. Ride a bike again.
Unplug from the matrix. Do work you love. Buck the system. Say “shove it” to the man.
Raise your own kids. Play silly games. Help with homework. Spoil your grandchildren.
Plant a garden. Grow your own food. Eat healthy. Exercise.
Slow down.
BREATHE.
Pursue your passions. Volunteer. Listen to people. Make an impact.
Advance your cause. Create your art. Write your story.
Get OFF the 9-5 treadmill.
STOP selling out!
DO what matters!
Henry David Thoreau once wrote one must “live deliberately.” Our businesses should work the same way—because real estate investing isn’t just about real estate, is it? It’s about what matters to you.
I wish you the best of luck in your real estate journey to discover what’s enough financially, to find your investing sweet spot, and to start doing more of what matters, whatever that means for you.
*I heard a variation of the “three real estate investor” story at a seminar at least 10 years ago. I think it was the late Jack Miller who told it. If someone knows differently, please help me give the correct credit.
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Landlords may not realize that, without a proper settlement document over tenant disputes and payments, they may cause headaches for themselves down the road.
The landlord/tenant arrangement is no different than any other contractual relationship.
Disputes often arise with accusations that one party is not living up to their obligations under the contract or applicable laws. Whether, for example, the tenant alleges their toilet wasn’t fixed quick enough or that the landlord unlawfully entered the premises without notice, money often changes hands as a result. The goal of this is obvious: pay money, make the problem go away. Many landlords mistakenly pay their tenants when a dispute arises, doing so through simply cutting a check and, at best, a “thank you” from their tenant. These landlords do not realize that, without a proper settlement document, they may have only caused more headaches for themselves down the road.
Payment of monies to a tenant without an agreement in place as to “why” and “for what” rests on several faulty assumptions: First, that the tenant agrees that they have been fully compensated for that claim or issue; second, that the tenant has no other claims or issues they feel need compensation; and third, that they won’t bring those claims later seeking further compensation.
In essence, the landlord assumes that their payment fully contracts their problems away entirely. If/when their tenant files suit alleging those claims, the landlord is usually shocked to learn that their money was handed out almost for nothing, as litigation costs usually dwarf that initial payment. What should happen, along with that exchange of that money, is the execution of a settlement agreement releasing any claims that may exist.
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The necessity of a document evidencing the agreement is found in principles of contract law. Settlement agreements are contracts, subject to the basic rules of contract law. If you have reviewed a written settlement agreement, they usually contain waivers and releases dealing with any/all claims that exist as of the date of that agreement. As you can imagine, broad waivers and releases (which would protect the landlord) are usually not something non-lawyers discuss during conversations related to compensation. Even if those discussions arguably took place, in my experience, they would likely be denied/rejected by the tenant and disregarded by the court due to the lack of a document evidencing the same. Thus, verbal agreements are rarely enforceable and therefore not recommended.
A basic component of contract law is that the parties’ intent controls. For any release to be valid, there must be both knowledge of the existence of a claim and an intention to relinquish it, in the absence of a specific promise to release liability for unanticipated claims. Without a document evidencing such an intention, there is no evidence that the payment covers/releases every claim available. The court likely won’t save the landlord from the new claims filed by the tenant, barring unusual circumstances, leaving the landlord footing the bill for a fight they likely thought they had resolved.
While it’s easy to throw money at a problem, it’s important to make that money work.
If you have a dispute with a tenant in need of resolution, settlement documents related to these discussions are common. If a tenant refuses to sign any documents addressing the compensation provided, you may want to reconsider that payment until they are ready to properly document the understanding of the parties. At a minimum, you should document your efforts to settle the matter in writing, so that if the issue escalates, it can be helpful in the future.
Without these things in mind, you may be throwing your money down the drain.
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Around 45 million households rent from apartment complexes to single-family units to converted Airbnb investment properties. Of those renters, pet ownership is extremely common. This is because the joy of coming home to a four-legged friend who couldn’t be happier to get a pat on the back and a treat from the kitchen is a fantastic feeling.
The challenge becomes allowing these renters into your properties. That photo of the American classic golden retriever in their application may look harmless at first, but when it comes time for the family to move on, you could be facing urine stains and destruction due to pet boredom. Implementing a pet screening process into your application stages is crucial to avoiding such issues.
This ensures you are targeting the right kind of renters, protecting your investment from unwanted damage, and keeping everything transparent to build trust between you and your potential tenants.
In this article, let’s review a guide to balancing the harmonious living environment your tenants require and safeguarding your property from Fido’s activities.
Creating a Pet Screening Application
Think of pet screening as a background check for the cats, dogs, or other animals you allow into your rental property. You aren’t trying to prevent animals in general. It is more that you’re trying to “guarantee” they will be a good fit for your property and community.
A basic pet screening application should include key components to give you peace of mind that you’ve made the right decision. That can include:
Pet Resume
A detailed pet profile that includes the size, breed, temperament, and age of the animal.
Pet Interview
Your chance to witness the pet’s behaviors in person so they are compatible with the property environment.
Veterinary Documentation
This typically verifies vaccinations, spay/neuter status, chip ID, and general health records.
Pet Insurance
In some rare cases, you can verify the homeowner/renter’s insurance of your applicant concerning specific pets due to their breed or size.
As you design the actual application, keep in mind these components. You want a comprehensive view of what to expect without scaring off your applicants.
You want to mitigate the potential risk of damage to your property or surrounding community, starting with proper pet screening.
Conducting Pet Screenings
Any landlord or property manager knows restricting pets from your properties will place an undesirable limit on the potential applicants you receive.
While every process will vary depending on the property owner, in general, the pet screening steps include:
Step 1: Application Review
Read through all the details provided by the applicant so you can better understand the role, behavior, and makeup of their pets. For example, if they have a therapy animal versus a stray picked up on the side of the road a couple of days ago.
Step 2: Pet Interviews
Yes, you should conduct a pet interview. If you have two applicants left to decide between, and one owns a pet, but the other doesn’t – do yourself a favor and meet the animals. They could be the sweetest dog in the world on paper but a menace in real life. Give your applicants the benefit of the doubt and trust your instincts.
Step 3: Questionnaire
You can include a questionnaire that reviews specific concerns, environmental issues, or size requirements of potential animals in your rental property. Asking things like “Is the pet house trained?” or “Do you understand local leash laws?” helps you avoid uncomfortable conversations down the road.
Throughout this pet screening process, be on the lookout for red flags. If the pet has excessive barking for no reason, endless scratching at their ears, signs of aggression, or obvious health issues, bring those items up with the owner. Any time they cannot respond satisfactorily, you may want to consider other applicants.
Using a pet screening process helps identify any red flags so you can expand that applicant pool without harming your property.
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Handling Service Animals and Emotional Support Animals
On any rental agreement or application, clearly differentiate regular pets, service animals, and emotional support animals (ESAs). This is crucial for your potential tenants and provides you with some legal protection.
Pets are just that – pets. They have had no specific training and are there to be enjoyable family members. Service animals are incredibly different. Traditionally, these dogs have been carefully trained to signal the owner’s health issues or guide them through their day.
ESAs are a bit more unique. They may not have specific training but are there to provide emotional support for the owners who have challenges that become easier to manage due to the pet’s presence.
According to current HUD guidelines, you must accommodate ESAs and service animals with proper documentation as a landlord or property management team. These are legally protected situations that you do not want to get in the middle of litigating.
A good way to nip this situation in the bud so you are more aware of what could happen is to provide clear guidance on your pet screen application that verifies the authenticity of the service animal documentation. As long as you have that information, you cannot deny the applicant based on the breed or size restrictions that apply to pets.
The ESA verification process should include a HUD-compliant verification. Otherwise, your application can be called into question, so it is a bit of a balancing act you’ll want to spend time clarifying first.
Bottom Line
Whatever your reason for implementing an effective pet screening process, the result is to ensure the safety of your property and its occupants and cultivate a harmonious living environment for everyone involved.
The guidelines and tips presented in this article are a fantastic first step to getting your pet screening process under control for better results – even when extra ESA verification is required.
If you want an easy solution, our team at OurPetPolicy provides free reliability reviews for up to three ESA letters. This will help landlords and property managers, just like you, maintain a positive living environment for your tenants while opening up the application pool to ESA pet owners.
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You know the phrase happy wife, happy life? Well, we couldn’t think of something snappy like that, but the same concept rings true for landlords and tenants. Keep your tenants happy and your experience as a landlord will be much easier and enjoyable. The long and short of it is, tenant goodwill enhances property management.
This podcast episode is all about concepts and things you can do to enhance your tenants experience while living in your rental property.
We discuss communication, maintenance, gifts, upgrades, offering amenities, and technology.
You’d be amazed at what implementing tenant goodwill and just a few of these concepts can do to boost the landlord-tenant relationship and contribute to successful property management!
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As a property management professional, it’s vital to strike a balance between maintaining a safe, orderly community and ensuring compliance with fair housing laws, especially concerning rules that might impact children. This article provides valuable insights into navigating these complex issues.
Supervision Rules and Technology Access
When formulating supervision rules for facilities like pools or gyms, consider factors beyond just age, such as maturity and skill level. For instance, pool rules might be based on swimming proficiency rather than a strict age cutoff. Similarly, access to areas like the Business Center should reflect today’s tech-savvy youth. Rather than imposing an age limit, focus on responsible behavior and proper usage. These considerations ensure that rules are not only fair and inclusive but also adapt to the evolving digital landscape and diverse capabilities of younger residents.
Safety Versus Discrimination in Common Spaces
Distinguishing between safety measures and potential discrimination is crucial in rule-making. While banning activities like skateboarding for safety is generally acceptable, such policies should apply to all residents to avoid age-based discrimination. Additionally, rules restricting children from playing outside within complex gates warrant reconsideration. A more balanced approach might involve designated play areas that allow children to enjoy common spaces without causing disturbances. This strategy not only addresses safety concerns but also respects the rights of children to use shared facilities.
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When it comes to public areas of your property, it is important to ensure that equal access is granted with fair enforcement to avoid a fair housing violation. For example, the disparity in pool hours for adults and children could be seen as discriminatory. Instead, consider implementing family swim times or assessing the hours based on safety and usage patterns rather than age. Moreover, the enforcement of quiet hours should be uniformly applied to all residents. A fair and consistent approach in applying these rules is essential to avoid any perception of age-based bias and to maintain a harmonious living environment.
Regular consultation with fair housing attorneys ensures compliance with evolving laws. Additionally, actively seeking feedback from residents, especially families with children, can guide the development of rules that are both practical and respectful of everyone’s needs. This engagement not only helps in tailoring policies that are community-centric but also fosters a sense of belonging among all residents.
Documentation, Transparency, and Regular Reviews
Clearly documenting the reasons behind specific rules, especially those regarding supervision, is vital for transparency and can be crucial in case of legal scrutiny. Furthermore, the societal and legal landscape is constantly changing. Regularly reviewing and updating community rules to reflect these changes is essential in maintaining a legally compliant and inclusive environment.
Additionally, actively seeking feedback from residents, especially families with children, can guide the development of rules that are both practical and respectful of everyone’s needs. This engagement not only helps in tailoring policies that are community-centric but also fosters a sense of belonging among all residents.
In conclusion, this article underscores the necessity of formulating community rules with fairness, safety, and legal compliance in mind. It highlights the importance of adaptable supervision policies, appropriate technology access for youth, and uniform application of safety measures to avoid discrimination. Balancing children’s play rights with communal order, ensuring equitable policy enforcement, and actively engaging with residents are key. Regular training, transparent rule documentation, and staying current with legal developments are essential for maintaining an inclusive, compliant, and harmonious community environment. This approach not only aligns with fair housing laws but also promotes resident satisfaction and overall community well-being.
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Of the 320 new Illinois laws on the books starting in 2024, several affect landlords throughout the state.
One of the measures taking effect in 2024 is House Bill 1541, which will prevent utility company shutoffs when the weather is warmer than 85 degrees rather than 95.
Senate Bill 1741 is the Security Deposit Return Act, which requires landlords to provide tenants with itemized bills.
Another law going into effect has to do electronic payments, according to Paul Arena with the Illinois Rental Property Owners Association.
“What it says is that a landlord can not require a tenant to pay electronically,” Arena said. “I use electronic payments in my business and encourage my tenants to use it, but the reality is some older tenants are sometimes not tech savvy and don’t feel comfortable conducting business online.”
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One of the measures taking effect on Jan. 1. is House Bill 2562, which requires landlords to keep the temperature of all common areas between 67 and 73 degrees.
“That bill affects the utility companies, so Nicor or ComEd can not shut off someone’s power or gas supply for air conditioning when the temperature is extremely hot,” Arenas told The Center Square, “It’s so you do not have people die of heat stroke in high rise buildings.”
Senate Bill 40 was approved earlier this year, and starting Jan. 1, the law requires single-family homes and newly constructed residential buildings with parking spaces to provide a conduit allowing EV charging if needed.
“It will increase the construction cost but not to the point where we felt it would be a deterrent,” Arena said. “Our concern was mostly around renovation and what activities the tenants were permitted to do.”
The measures go into effect starting Jan. 1.
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Building a successful property management business means becoming well-versed in various scenarios that non-landlords rarely have to consider. For example, most people assume that tenants always move out once their lease expires – but that’s not always the case.
Enter: the holdover tenant.
What is a Holdover Tenant?
A holdover tenant is a renter who remains in a unit after the expiration of the lease. If you elect to keep accepting rent payments, the holdover tenant can continue to legally occupy your rental property, and federal and state laws will determine the length of that tenant’s new rental term. In some cases, the original lease will convert to month-to-month tenancy.
However, it may not work for you to have the tenant stay. In that case, do not accept any monthly rent payments. Per Investopedia, “if the landlord does not accept further rent payments, the tenant is considered to be trespassing, and if they do not promptly move out, an eviction may be necessary.”
We’ve discussed the eviction process before, but let’s walk through what you would need to do if you suspect holdover tenancy is imminent.
Pro Tip:
Squatters and holdover tenants are easy to confuse, but there are some key differences between the terms. “Squatters” are typically strangers who never had a relationship with the property owner, nor any arrangement to live in the unit.
On the other hand, holdover tenants once had a signed lease with the landlord. While not all holdover tenants become squatters, it is possible – so read on to figure out what you need to do to keep your rental property safe.
Setting Up Eviction Proceedings: A Crash Course
Before the end of the lease, your tenant should have either elected to sign a new rental agreement or provided a notice of termination to end their relationship with you. Most states require either the landlord or the tenant to provide a minimum amount of notice regarding their plans post-contract. If your state doesn’t outline a minimum notice, we recommend touching base with your tenant at least 90 days before your written lease expires.
If the lease agreement ends and you don’t know your tenant’s next move, reach out to them. Are they planning to vacate the property on your established date, or are they interested in renewing their lease?
Let’s say your tenant doesn’t respond to your reach-out attempts or doesn’t have an answer about when they’ll leave; your next step is to serve them with a notice of termination yourself.
Typically, a notice of termination will detail:
The reason for the termination
The date that the renter must move
The consequences if the tenant doesn’t comply by the date listed (usually legal action)
The requirements for this notice vary state by state, so seek out legal advice as needed.
Once you’ve provided written notice to terminate your rental agreement, your locallandlord–tenant laws will dictate when you can initiate holdover proceedings. Investopedia says a holdover proceeding is “an eviction case that is not based on missed rent payments. This is a process that is usually handled in eviction or small claims courts.”
The notice itself may be enough to prompt your tenant to act. If it isn’t and you experience nonpayment of rent, either reach out to a real estate attorney or contact your local eviction court for more information about setting up a court date. Once you have a court date established, the eviction proceedings can begin. But be warned – it can be a costly experience.
Holdover Tenant Rights
Despite the fact that you may want the tenant out immediately, you can’t take any action to evict them outside of the allowable, legal means outlined in your state and local eviction laws. In other words, aself-help eviction is never the way to go in these situations, as even holdover tenants have rights.
However, you don’t have to simply accept a holdover tenant forever, particularly since they’re no longer bound to a lease agreement. Instead, holdover tenants engage in tenancy at sufferance, which Cornell Law School defines as being created “when a tenant wrongfully holds over past the end of the durational period of the tenancy (for example, a tenant who stays past the expiration of their lease). In this case, the landlord can hold over the tenant to a new tenancy and collect rent for the period the tenant has held over.”
So, while you’ll need to follow your state’s guidelines for evictions if a proper notice doesn’t encourage your holdover tenant to leave, you could potentially collect (or sue to collect) rent for the holdover period.
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Prevention is the name of the game when it comes to avoiding holdover tenants. We’ll detail the steps you should take both before and after the lease is signed.
Before the Lease is Signed
Clearly detail what will happen when the original lease expires. Landlords usually allow long-term leases to become month-to-month arrangements if a new long-term lease hasn’t been signed before the original contract ends.
Highlight how much notice your tenant will need to give you if they want to renew their lease and how much notice you’ll expect if they choose not to renew their lease. Many states require renters to give 90-120 days notice before the lease ends, so align your request with your local laws.
If your local landlord-tenant laws allow it, outline the consequences of not providing notice to renew or terminate their lease.
If you currently have a tenant under a lease that doesn’t provide this information, consideradding a lease addendum to your existing contract.
After the Lease is Signed
Reach out to your tenants 90, 60, and 30 days before their “decision” date, aka the day by which they either need to tell you they’d like to renew their lease or that they’d like to move out. Remind them that you need to receive their notice by X date, then tell them the best way to share their decision (via email, text, etc.). We recommend getting their notice in writing rather than over the phone or in person, just in case you need the documentation for eviction court.
Once you know their decision, you either need to set a date to inspect the property for the move-out process or send over an updated lease. If your tenant is on the ball and knows what they’ll do 90 days out from their decision date, simply make yourself a note to follow up two to three weeks before they’re due to move out or start their new lease.
Holdover tenants cause stress and anxiety, but you can set yourself up for smooth sailing by preparing your lease (either before it’s signed or through an addendum) and staying in contact with your tenant as your rental agreement comes to a close. Should you find yourself with a renter who doesn’t want to leave, you can choose to evict them or convert your arrangement to be month to month. Whatever you decide to do, TurboTenant’s all-in-one landlord software can help you feel confident about all your property management decisions.
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The process of vetting a prospective tenant is likely one of the most important tasks a landlord has. But learning the art of analyzing credit reports is a huge component of that process.
Think about it. The person you place to live in your unit needs to have personal and financial characteristics that meet your rental criteria.
For us that means they need to have two positive referrals from previous landlords, a credit score of 725 or above, and net income that is at least 2.5 times the rental amount. But that’s just our qualifiers.
Because income is such an important part of the investigation process for this prospective tenant, we spend a lot of time looking at their credit report.
Sure, it’s likely that if they have our required score they will qualify, but we look deeper into the report to look at debt and if after paying that debt, will they have enough money to still pay rent to us?
In this episode we discuss what we look for when analyzing credit reports. We explain how and why it’s a whole lot more than that one little FICO score.
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The new laws taking effect in 2024 are some of the largest changes Minnesota has seen in decades. State lawmakers passed more than a dozen changes in the 2023 legislative session.
Among the top changes, landlords will be required to disclose any fees including administrative, cleaning or moving-in fees as part of the ‘total monthly rent’ on the first page of a lease and in advertisements.
Landlords will also required to maintain the minimum temperature in units at 68 degrees from October to the end of April.
They will also have to give tenants a 14-day written notice before they file for an eviction if the tenant didn’t pay their rent on time.
Landlords will also have to give a minimum of 24 hours’ notice before entering the property for things including maintenance, showings to future tenants or deliveries.
Rachael Sterling, a housing attorney and communications coordinator for HOME Line — a local nonprofit organization that helps tenants navigate Minnesota’s laws — said they’ve been championing these changes for years.
She said she’s hopeful the changes will improve the communication between tenants and landlords to provide a better experience overall for everyone.
“When we talk to tenants, that’s one of the biggest issues is when communication stops or it’s poor,” she said. “That’s when problems arise and that’s when people start calling us. A lot of these are just about clarifying communication and making sure that there’s no assumptions that folks know what they’re getting themselves into.”
Sterling said since 2020, phone calls to the nonprofit for help have skyrocketed and are now on track to set a new record surpassing 20,000 calls this year.
She said the majority of calls the last two years have been about concerns related to evictions. Before 2020, most calls were about repair issues.
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Since the laws passed, leaders at the Minnesota Multi-Housing Authority have been working hard to understand and train their members on the changes coming in the new year.
The organization represents 300,000 rental units or nearly half of the entire rental market in Minnesota.
Cecil Smith is the MMHA’s president and CEO. He said several of the changes were already standard practice for many of the owners and landlords a part of the organization long before they became law.
He said the biggest adjustment for landlords will be giving tenants 24-hours’ notice before entry.
“That’s going to cost,” he said. “That’s going to take a lot of time and energy and organization because there’s maintenance requests that come in, there’s deliveries that come in and saying it has to be at least 24 hours requires more energy and scheduling and coordination and that takes time and energy and money.”
Smith adds there’s also concern that the cost to make all the changes could ultimately trickle down to the tenants.
“It’s already added more costs because we’ve done lots and lots of training with our members and they’re doing in-house costs, and obviously that’s taken staff time and resources already to do that and that’s not free,” he said.
Smith notes another major change happening later in the summer of 2024 where landlords will no longer be able to evict a tenant for committing crimes that happened somewhere other than their property…
Smith said MMHA plans to raise their concerns about the law in the upcoming legislative session.
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Background checks often are critical factors when landlords and employers make rental and employment determinations. The information in the reports can cover a person’s credit history, rental history, employment, salary, professional licenses, criminal arrests and convictions, and driving records. However, as documented in earlier CFPB research on tenant screening, background check reports often contain false or misleading information about individuals.
The new warning has two primary ways it seeks to ensure that the consumer reporting system produces accurate and reliable information and does not keep people from accessing their personal data:
First, an advisory opinion on background check reports highlights that those reports must be complete, accurate, and free of information that is duplicative, outdated, expunged, sealed, or otherwise legally restricted from public access.
Second, an advisory opinion on file disclosure highlights that people are entitled to receive all information contained in their consumer file at the time they request it, along with the source or sources of the information contained within, including both the original and any intermediary or vendor source.
“Background-check and other consumer-reporting companies do not get to create flawed reputational dossiers that are then hidden from consumer view,” said CFPB Director Rohit Chopra in the release. “Background-check reports, and all other consumer reports, must be accurate, up to date, and available to the people that the reports are about.”
Criminal and credit system issues in housing decisions
The CFPB and Federal Trade Commission (FTC) launched a public inquiry in early 2023 and asked for people’s experiences with background checks used to screen potential tenants for rental housing. The CFPB and FTC received more than 600 comments. Most of the comments came from renters. They told the agencies about many problems they encounter, including not receiving adverse-action notices and finding inaccuracies and errors that are difficult to correct and that have a decades-long impact on housing opportunities.
Many described biases in criminal and credit systems transferring into housing decisions.
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The CFPB issued the advisory opinion on background screening to highlight that consumer reporting companies, covered by the Fair Credit Reporting Act, must maintain reasonable procedures to avoid producing reports with false or misleading information. Specifically, the procedures should:
Prevent the reporting of public-record information that has been expunged, sealed, or otherwise legally restricted from public access.
Ensure disposition information is reported for any arrests, criminal charges, eviction proceedings, or other court filings that are included in background check reports.
Prevent the reporting of duplicative information.
In addition, the advisory opinion on background screening reminds consumer reporting companies that they may not report outdated negative information—and that each negative item of information is subject to its own reporting period, the timing of which depends on the date of the negative item itself. For example, a criminal charge that does not result in a conviction generally cannot be reported by a consumer reporting company beyond the seven-year period that starts at the time of the charge.
Credit File Disclosure
People have the right to know what information consumer reporting companies keep about them as well as where the information originates. Disclosure of a person’s complete file, upon their request, is a critical component of a person’s right to dispute false or misleading information. Consumers must be provided with all sources for the information contained in their file, including both the originating sources and any intermediary or vendor sources, so they can correct any misinformation.
As explained in the advisory opinion on file disclosure, individuals requesting their files:
Only need to make a request for their report and provide proper identification – they do not need to use specific language or industry jargon to be provided their complete file.
Must be provided their complete file with clear and accurate information that is presented in a way an average person could understand.
Must be provided the information in a format that will assist them in identifying inaccuracies, exercising their rights to dispute any incomplete or inaccurate information, and understanding when they are being affected by adverse information.
Must be provided with the sources of the information in their file, including both the original and any intermediary or vendor source or sources.
In a January 2023 report, the CFPB noted improvements and continued challenges for the nationwide consumer-reporting companies. The CFPB has highlighted other consumer reporting problems and has reminded consumer-reporting companies of their obligations to consumers under the Fair Credit Reporting Act. For example, the CFPB issued guidance on permissible purposes for accessing consumer reports, identifying and eliminating obviously false and junk data, and resolving consumer disputes. Additionally, the CFPB has taken action against consumer-reporting companies when they have broken the law, as well as affirmed the ability of states to police credit reporting markets.
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