Posts Tagged ‘Property Manager’

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Foreclosure-Out of the Frying Pan (and Into The Fire)

Wednesday, September 1st, 2010

It’s Friday evening and I am just about to wind down when the phone rings from one of our tenants.  Apparently, the Sheriff has just posted a notice on their door with several documents.  The tenant understands one part…the word “foreclosure”.  Immediately I realize that our owner has not been making mortgage payments and now the lives of their tenant is about to be turned upside down.

I understand every foreclosure has its own unique reasons.  It still seems wrong to take a tenant’s rent money and not make sure the obligations concerning the mortgage are kept current.  In fact, over a year ago we added language to our management contract to specifically address mortgage payment default as a term of cancellation.  Within this term of the agreement, the owner permits us to immediately locate a new home for the tenant.  I understand the foreclosure process well enough to not want to gamble with how long a tenant may be able to live in a property when this legal action has been taken.

What about the owner though?  I wonder if the owner has considered the cost of foreclosure?  For that matter, the cost of a short sale?  This is a complicated tax matter, better left to be addressed considering each person’s individual circumstances, but the IRS is likely to still demand payment of taxes on the recapture of depreciation deduction (approximately 25% of the amount previously depreciated), capital gains (state and federal), and the cancellation of debt (assuming the court does not provide the lender a judgement to pursue the owner for a deficiency).  Please note the Mortgage Forgiveness Debt Relief Act does not apply to investors renting a property.  An investor might be able to take advantage of some of the protections of this law if they can prove they actually lived in the home for two of the past five years.  Again, these are matters for your tax professional.  If you do not have one, now is the time to get one on your team. 

In addition to the potential tax hits, a foreclosure will destroy your credit.  I have read certain people think that somehow when the housing market recovers lenders are going to look at this period of time with more lattitude given to those who experienced a foreclosure.  I find that hard to believe, particularly when every event in the credit market has made it harder to get any kind of financing.  Assume that you will be excluded from the traditional housing finance market for 5-7 years.  This also is just the affect on borrowing for housing.  Expect issues with car loans, credit cards, and any other situation requiring a credit report. 

Lets return to the property where the tenant was making their rent payments on time.  In this case I learned the owner had a monthly deficiency of $250 (rent was not covering his payment).  Additionally, he did not wish to make some needed repairs to the structure based on an estimated drop in value.  Yet, assuming a forgiveness of the debt and depreciation recapture, he was going to assume a new obligation with Uncle Sam that exceeded the next two years of rent deficiency!  Nobody had discussed the tax side of the foreclosure coin with him.  He just knew that he did not want to keep losing money every month.

Losing money every month or having the IRS breathing down your throat for their taxes?  It is your decision to make.  I just want our clients to understand the potential ramifications if they decide to “let their property go.”

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Posted in Best Practices, Responsibilities | No Comments »

Help Us!

Friday, July 30th, 2010

Yesterday, one of our clients called her property manager with a complex question regarding something she was seeing in her reports in our owner portal.  The property manager, who always answers his cell phone, was on his way to a lease showing.  He was driving and could not write down a reminder..at least safely (that is what I wanted to hear!).  Our Property Managers are also not accountants and the complexity of the question sounded a little like a foreign language to him.

When he contacted me to say xyz owner has a question about her owner statement, he could not really elaborate.  He knew it had to do with funds advanced by the owner but did not understand the exact nature of the question…partly I assume because he was driving a car when cornered with the unfamiliar question.  I subsequently offered to contact the owner and try and get some elaboration.

I chose to send my question to the owner with email.  A lot of people are still not comfortable with writing down questions, or communicating in this manner.  I suspect that just speaking is easier for most people. At the same time, writing allows one to re-read and make sure the communication is accurate.  It also provides an archive for future reference.  I also find that written communications involving issues, like a bookkeeping question for instance, provides an excellent tool for future training.

My point?  We prefer to use email to serve you better and more efficiently.  We also understand that some matters need to be communicated verbally.  Emergencies for one.  Yet, the majority of the communication we do with owners can best be handled in writing.  The bookkeeping question was easily answered when I discovered that a term was being used by the owner that we call something else.   It was obvious when written.  Not so obvious when a Manager, not a trained accountant, answers your call while driving to rent your property.

I always add….we do not want any of our clients to feel we are not available.  So phone away!  Maybe this will help you understand our reasons for prefering the written word as we serve you in many of our functions as your property manager.

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Posted in Best Practices, Owners, Procedures, Property Manager, Reports | No Comments »

Family Dinner Time, Your Phone Rings..Do You Take The Call?

Friday, July 23rd, 2010

After months of getting your investment property prepared, the first call comes right as you sit down with your family for dinner.  You are not sure who is calling, but from now on every unrecognized number may be a tenant…a source of revenue to offset the payment and expenses you have incurred.

You ask your family to excuse you as you slip off into another room.  Sure enough, it is somebody calling to find out about the three bedroom home for rent.  As your heart skips a beat, you describe all the personal touches, along with the not so personal touches.  All the fresh paint, and efficient windows, and the extra storage.  The caller sounds nice enough and now they ask if they can see the property!

“This is going to be easy” that little voice in your head tells you.  The caller says they are free after work tomorrow.  You say great, forgetting for the moment that tomorrow is Jimmy’s playoff soccer game.  Remember, you need to get this home rented.   After confirming the time, you hang up and realize that you do not have the caller’s number.  Maybe it is on caller ID…but no…they must have used a blocked number.  You return to dinner as the table is being cleared.

That night your wife reminds you about Jimmy’s soccer game tomorrow night.  Immediately, you realize the conflict and wonder how you can find these callers to reschedule.  That fails, so you hope your best buddy can show it to them tomorrow.  He has plans.  So, you are stuck.  Maybe a quick showing and race across town and still catch the second half.  

The thought hits you, maybe you really should have budgeted for help with this hobby.

The showing time arrives.  You bring two rental applications found on line..just in case.  Not sure how you will get the background checks or credit pulled but you  will figure that out once you have the applications completed. 

 At the agreed time…no prospective tenant.  Fifteen minutes late, they pull up in a 20 year old van falling apart and very dirty.  It is exhuming exhaust.  The prospects both grind out their cigarettes on the driveway as they get out.   Both possible tenants begin to unload children from the rear.  First one, then two, then three and finally four and five.  Lets see, 7 occupants in a 3 bedroom 1000 square foot home.   Your heart sinks a little.

You show off your pride and joy and learn that there are some mysterious circumstances about where these people currently live.  A reference to how nice it will be to actually live in a home instead of the van by one of the kids catches your attention.  At that moment, you decide to ask what they do for a living.   One is unemployed..the other just got a job after months of unemployment.  The job involves selling magazines and appears to not really be as an employee but as a contractor.

Of course, they love the house and request the applications.  You hand them out and ask them to fax or email them back as you really need to run.  They do not have fax or email and want to fill them out now.  You are screwed.  Jimmy scores the winning goal..you miss it.  You waste an hour with a family that you are not even sure how to screen to officially reject.

Why is it again that you are doing this yourself?

Mistakes you learn by and the next time you will be smarter.  No answering the phone during dinner…but what if?  More pre-screening on the phone…but what if they call during dinner and you are in a hurry?  At least get a phone number…that one you can do every time!  How many more summer evenings meeting tenants before you find one?  Then, won’t it be fun to increase the return on this hobby by being there to service the leaky faucets and the oven that does not work on Thanksgiving?  Oh, and collect late fees when rent is late.

Leasing and property management sure sounds like fun when you have a life and a career..doesn’t it?  Most people actually have to enjoy experiences like this to decide that they understand why management and leasing companies exist. 

Save yourself the headaches.

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Posted in Best Practices, Owners, Qualifications, Rent Preparation, Responsibilities, Screening, Selecting A Manager, Tenants, Uncategorized | No Comments »

Defining Damages To Deduct From The Security Deposit

Monday, July 12th, 2010

Traditionally, security deposits are funds reserved for repairs beyond “normal wear and tear”.  This common language is defined by our own perspectives in the way we keep our personal homes, versus what courts of law are going to typically find worthy of a security deposit deduction.  So, sometimes what an owner finds to be a security deposit deduction item is based on personal standards that in a court of law would be found to be actual normal wear and tear.

Security deposit funds are reserved for damages caused by a tenant, whether accidental or intentional.  The fine line is the one between normal wear and tear that even the most careful tenant could incur on a property, and that which would be considered excessive.  The degree of soiling and wear on floor coverings often comes to mind.  Carpets, in particular, show the degree of wear when the furniture that was sitting on top of them are removed.  If a normal carpet cleaning brings the carpets back to life, this would be considered normal wear and tear.  If a large stain takes a $100 extra charge to be removed, or can’t be removed at all, this would be considered excessive and worthy of a deduction to the security deposit to pay for the eventual repair.

A couple of other common areas of confusion.  Paint will incur scuffs and dings in normal living.  Small holes for wall hangings are also to be expected.  Excessive amounts of either (drywall damage or large mollys pounded into the drywall every five feet) would likely be considered damage.

As I have stated in other posts, we mitigate the relative amount of change to a unit with a before and after walk-through to include pictures.  This allows us the greatest leverage if a security deposit deduction is required.  For more information, here is a link to a table posted at WilmothGroup.com with more examples of Wear and Tear versus Damages.

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Posted in Best Practices, Owners, Security Deposits, Tenants | No Comments »

What Happens To The Security Deposit When Changing Property Managers?

Wednesday, July 7th, 2010

Recently, one of our owners lost their investment property (that we were managing) to foreclosure.  In the new day we currently live in, this change in ownership (from individual to bank) will mean little to the tenant.  Unlike just two years ago, the banks are honoring leases under the Protecting Tenants In Foreclosure law passed in 2009. 

Where a bank is not traditionally handling property management, they have had to go out and find companies to handle this task for them.  Unfortunately, the banks have chosen to handle tenants and management the same way they handle property services…wholesale.  The banks are hiring large companies to serve the property management function.  These “wholesalers” are providing nothing more than a back room and a local person with little or no property management experience.  Without going into too much more depth as to the ramifications of this approach, having an inexperienced field person working the transition of a property to a new manager created some issues when it came to the handling of the security deposit.

This issue is relevant to both a tenant and owner.  We hold every dollar of deposits in state regulated escrow accounts.  This money belongs to the tenant unless they violate their lease in a way that creates a need to reimburse the owner.  So, just because Wells Fargo is knocking at the door demanding we hand over the security deposit, we don’t just write a check.

Likewise, if you, as an owner, are transferring property managers, we expect all parties to handle their fiduciary responsibilities as to the security deposit in a manner that honors the tenant’s interests.  Tenants have the right to be made aware that a property manager is changing.  The correct way to handle a change in managers is to:

Utilize a letter explaining the transition.  This letter should be generated by the new property manager and ideally also signed by the owner and tenant.

Issue a check for the security deposit to both the tenant and the new property manager. 

We will usually take this check to the tenant for endorsement with the letter.  In this way we are able to introduce ourselves as the new manager, answer any questions, and have a written record of receipt of the transfer letter and endorsement of the security deposit funds into our escrow account.

Needless to say, the field person hired by the wholesale property management company hired by the bank had no connection to any procedures like this.  Basically, stating that they had the full power of the US government supporting their actions, they insisted that we hand over our lease and write them a check for the security deposit.  The resulting conflict took a few days and a call with the wholesale property manager.  We gave them a check made payable to the wholesale manager and the tenant.  I wonder what happened after that?

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Posted in Best Practices, Owners, Procedures, Property Manager, Responsibilities, Security Deposits, Tenants | No Comments »

Information To Manage Your Returns

Wednesday, June 23rd, 2010

Wilmoth Property Services Owner Reports

 

I wanted to share a screenshot of what it looks like for our owners who log in to their management portal and click on reports.  A plethora of information is available for each property.  An owner with multiple properties or units can also combine information to see a total snapshot of their portfolio.  To see the screen shot in full, click on the image and then just use your browser back button to return to this post.

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Posted in Management, Owners, Reports, Software | No Comments »

Working With The Past Due Tenant

Tuesday, June 1st, 2010

Throughout the years, most owners I have worked with understood that a tenant can run into hard times.  Lately, we have seen more of those than in the past.  When this happens, and the tenant falls behind paying rent, there is a list of questions to consider before deciding to give a “Pay or Leave” letter (leading to eviction) or creating a workout plan for the past due balance.

1. What is the condition of the property as compared to when the tenant began their occupancy?  I feel like this is a indicator of not only the possibility of further deterioration without the correct compensation for rent, but also often an indicator of personal problems.  I am not talking holes in the wall, dogs using the carpet condition.  Even minor things like dirty conditions and any pride of residency (fresh flowers or cut lawns) can provide an indicator that this delinquency could become expensive.

2. How easy will it be to re-lease the property?  What is the market like?  What is the history of how long it takes to rent the subject property?

3. What is the tenant’s issue with paying on time?  Do they earn enough money?  Is the situation temporary or long term?

4. Is the tenant communicating and discussing openly their challenges and requesting assistance?

5. If it is determined that we wish to try and work with the tenant, the next issue is how much can they pay and how long will it take to get caught up?  Can they get caught up prior to the end of the lease?

If a decision is made to work with the tenant, then the payment workout plan needs to be documented.  We have a Agreement that is executed by the tenant and basically states if the payments are not made on time as agreed, then the entire past due amount is immediately due or eviction will proceed.  Payments need to be scheduled to match the tenant’s scheduled pay day so that the agreement is paid before other choices are made for their money.   The required payments also need to be in an amount that makes sense as a percentage of the tenant’s income. 

If a tenant will not agree to a workout schedule in writing..I think the owner has the answer they need to move forward.  I have rarely ever seen much good result from a situation where an owner allows a tenant to stay and make payments “when they can”.  Those situations usually find the tenant falling further and further behind , the property falling into more disrepair and the increased potential for an eviction argument (“the owner told me he would work with me”) from the tenant to the court.

Determine if you want to work with the tenant and if so..document it.  Then enforce the document.  That is what your Property Manager is hired to do.  Use their expertise and experience to navigate through these events.

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Posted in Best Practices, Late Rent, Owners | No Comments »

Personal Property Questions Associated With Death of the Tenant (cont.)

Monday, May 24th, 2010

A couple of weeks ago a post I wrote addressed a new Addendum we have created to add to a lease allowing a tenant to designate a party to be authorized to remove personal property of the tenant when they are not able to due to death or incarceration.   Several questions have arisen since that post and I will do my best to address them here.  I will also be the first to say no policy or procedure can take into account every possible situation…particuarly when dealing with a topic this sensitive.  I am a big believer though that you do what you can to create a path to guide you through situations.  From that path, you may find hurdles or needs to detour..but at least the path shows you the way to the destination or goal.

The first question that I was asked is what happens if the designated party can’t be found or located?  I actually anticipated this.   I thought well maybe we add a back up name but to some extent that seems like overkill and might lead to a dispute.  The fact is that this form will be updated with each lease renewal.  Almost all of our leases are for one year.  This is not like a will where somebody names a beneficiary and then the issue has to be addressed 20 years later.  The contact information should be sufficient in a one year period.  Otherwise, I would submit to a court to provide direction for disposal.  The problem there is the desire to quickly release the property.  My solution will be to first request permission to store the items while a court decides who to release them to. 

The next question was what would we do if the designee showed up the same day as the determination that (how do I say this) the tenant was not going to be making any more rent payments?  I may not have been clear on this but we won’t be releasing anything, or giving access to the unit until the police authorize it.  Every situation like this that I have been involved in, if they involve death, there is usually a period the property is sealed off.  We will get authorization before entering or allowing anybody else to enter.

Who pays the rent during this period?  I guess I am not expecting anybody to pay the rent but it is also limited to a ten day period.  If the designated party wants more time than ten days, at that time we would negotiate a lease payment for the period requested.

Finally, we will require a copy of a photo ID to confirm the party who is reporting to remove items is the party authorized to do so.  We will get a copy of this photo ID to avoid future disputes.

No policy can address every issue.  I continue to think this new Addendum gives us a direction to handle this unusual process.

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Posted in Personal Property, Tenants | No Comments »

Keys And The Tenant

Thursday, May 20th, 2010

I have just made revisions to our Management Agreement regarding the Owners responsibility for providing a re-key to a recently vacated property.  The previous version of the agreement was vague on this point.  For safety and liability reasons, we would recommend, and Owners would almost always agree, that a property needed to be re-keyed after a tenant leaves and no later than prior to a new tenant occupying the property.  The fact this was not stated as a given obligation and agreement, seemed like it needed clarification.  Hopefully by making it a part of the language in the management agreement, we can eliminate any confusion on this point. 

Under the General Responsibility and Authority Section, the new clause simply says:

OWNER agrees to pay or reimburse MANAGER for a complete re-key of the Property upon move out of a tenant. 

We have also added language to the lease addressing the fact that tenants are not permitted, without approval, to re-key a property.  Basically documenting what has always been our policies, but a good idea to make it clear in writing.

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Posted in Agreement, Best Practices, Liability, Owners, Property Manager | No Comments »

When Is The Right Time To Change Property Managers?

Monday, May 17th, 2010

This is a post about time.  Not the “how do you know your existing property manager is just not going to cut it anymore” time.  But, literally what time of the month is best to cut off one property manager and contract to start with a new manager.

Until a couple of years ago I would answer this question that the end of the month is a great time to terminate and start a new manager.  This actually works pretty well but sometimes can cause some problems.  At the end of the month an owner is about to receive a new rental payment.  There is very little time to let a tenant know to change where and how to make payment.  If payments are automated electronically, it is impossible to get that change made in time.  So, an owner has their freshly terminated manager collecting rent and still settling out accounts while the new owner takes over. 

In a cooperative, professional world…this transition can be accomplished without too may headaches.  Most of the time, it worked but the confusion due to the rent payments being collected often caused issues with tenants as well as the owners.   In addition, most property management contracts are based on rental payments so the collection by the old manager meant the new manager did not have payment for services in the first full month of transition..unless special arrangements are agreed to. 

We had an owner who wanted to terminate their existing manager and bring us on board at month’s end.  Normal logic as to this timing but I made a suggestion.  What would happen if we transition after the date the rent is due?  We will handle the management for the balance of the month with no charge and expect the terminated manager to assist us in the transition based on the collection of their management fee for that month. This included the receipt of keys and termination of their contract.   Most importantly, it provided us time to provide the tenant new payment instructions prior to the following months rent being due.  In particular, with electronic rent payments, banks often need a week to implement a change in payment receipient.

The owner agreed.  We tried the mid-month transfer (this lease had a 10th of the month late date) and the transition was the smoothest ever.  Since then, unless there is an emergency or other extenuating circumstances, we always suggest the change over of property managers after the late rent date in the month and prior to the last week of the month.   If you have other experiences, I would be interested to hear about them.

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Posted in Best Practices, Owners, Selecting A Manager | 1 Comment »

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