Well I am on Z and covered all topics related to Property Management through the alphabet and then some.  Hope you have found the topics timely and of interest. 

Zero Sum Gain (break even), Zap Your Energy, Zombie, Zen, Zest for Life

Zero-Sum-Gain – break even is at least where you want to be with your investment property and well on your way to positive cash flow.  We all have negatives at time with rental properties but it shouldn’t be a long term condition.  Even with write-offs you don’t want to be losing money indefinitely. 

Zap Your Energy – Yes, property management can do this.  I even have my days.  However, if you have systems in place, follow the procedures you have set and keep on top of accounting and maintenance, work to build a good relationship with your tenant you should rarely be in a state of feeling Zapped or Zombie like.

Zombie – this is how you might feel after doing a large turn over, or remodel.  This isn’t how you should feel managing your rental.  You don’t want to be in a place where you are going through the motions.  If you are then you aren’t minding the store and treating the rental as a business which if you have been reading my entries you now know this is a constant theme with me.  Your rental IS a Business.  If you are feeling like a Zombie – then hire a good property management company to take over for you. 

Zen – This is where you want to be headed with your rentals.  Yes, I live in Santa Cruz, CA and this term is probably better understood than elsewhere.  You want to be managing your properties in a way that it fits into your life, is a balanced part of your life, it shouldn’t become your life because that is when people get fed up and just sell.  People forget their longterm goal for their investment and business and often just call it quits.  Again, by following the tips and advice in this blog you will be able to manage rental properties and hopefully have a balanced relationship with your rentals.  Getting you as close to Zen as possible.

Zest for Life – remember when you inherited the property or bought your first rental?  I do.  I was so excited.  It was my first big investment, my first step into diversifying my investments away from Mutual funds and adding real estate into my portfolio, it was my first step towards my retirement planning.  My first rental was also real, physical, something you could touch and actively participate in.  I was so excited about remodeling, painting, making it mine and honoring my husband’s 96 year old grandma who had lived in the home most of her life and had passed away with no one in the family wanting to purchase the house it became my first real estate purchase.

You want your rentals to be part of an overall plan and something that should still get you excited about your goals and future.  I still have a tangible sense of responsibility for taking care of my properties.  I feel responsible to my tenants to provide a nice place to live.  I feel responsible to myself to manage my investment well.  My goal in buying my real estate was to keep it for the long term and have them as part of my retirement plan.  It was never to buy and flip.

In the past 20 years I have remodeled over 12 homes, and loved it.  I got into property management because of my business background, organizational abilities and exceptional communication skills.  I finally listened to friends and family who kept saying, “why don’t you do property management as a business”?  I took their advice, tested the field, and found I loved it.  I have been blessed to be able to buy a 20 year old business from someone who was retiring and over the past 5 years I have been able to add my own touch to it, go out on my own, build my portfolio and staff and create amazing relationships with my clients, tenants, vendors, employees and the community at large along with finding a career that is challenging every day.  I truly learn something new daily.

I have found my Zest in Life and love to share my experience and best business practices.  I teach at Cabrillo Community College, and at other Real Estate related events.  Hope to see you in the future at some of these workshops.   Look for future postings of classes and workshops.

Please check out my website at www.PortolaRentals.com if you are interested in properties in Santa Cruz or have rentals in Santa Cruz, CA.

Kathleen Richards

Yearly Planning, Year-End Planning

Yearly Planning – this should be done before the new year begins.  It should also be reviewed quarterly.  Again, this is your business, your investment.  What should be part of your yearly-planning?  Any turnovers coming up, what maintenance needs to be done this year?  Have a budget?  Taxes, Insurance, Mortgage, Utilities – what are your fixed expenses and how much are they going to be? If you have a vacancy do you have the reserves set aside for turnover, and the return of the security deposit?  Review insurance, mortgage to see if you need to make adjustments.  You’d hate to find out after a fire that you didn’t have enough insurance. Review the lease to see if there are any new legal addendums that need to be included with the lease, are there any changes to occupants – birth of a child, new roommate etc.?  Compare your new year budget with actual budget from prior year?  Were you on track, over budget, under budget etc?

Year-End Planning – this is where you gather all your files, prepare for tax time, review the budget and see how you did.  What changes were anticipated and unanticipated?  This will help with the new year planning.  Set up new accounting spreadsheets, and new file system for the coming year.  I have set files, and I pull out all the docs in the files and put them in a large envelop with the property address on it and then I print my spreadsheet for the entire year of my accounting and staple it to the front of the envelope.  Then I give the envelope to my accountant.  I now have empty files and folders ready for the new year.  I go to my computer files and create new ones for the new year.

This planning is vital and so important to do.  If you just hate it then hire a bookkeeper to do this for you.  It is well worth the money to have someone organize this accounting.  Remember this is your business.  Get help where needed.  Just like I don’t expect all owners to be able to do plumbing, electrical or general contracting work you shouldn’t expect that you can do the accounting if it isn’t your thing.  You can write off the expense for taxes and this way you get all your due write offs.

I can’t stress the importance of doing your year-end and new year planning.  If you don’t do this crucial part of property management then you might end up like my next and last topic of property management:  Z for zombie, have your energy zapped and lose your zest for life by being burdened with your rental property.

Please check out my website at www.PortolaRentals.com if you are interested in properties in Santa Cruz or have rentals in Santa Cruz, CA.

Kathleen Richards

Xerox and  X-check

Xerox – copy documents, keep copies of all communication whether on your computer or printed and put into the file.  The main point here to document, document and document.  Have a filing system for your documents so you can find what you are looking for later.  Copies can always be sent to the tenant, referenced in communication and shows you are organized.  Less chance for you to get sued.  Keep copies also includes photos before and after move in, repairs etc.

X-Check (cross-check) – you want to cross check all references, everything on an application and do your due diligience with referencing the web and books about property management so you are educated and can answer and speak to any concerns or questions your tenants may have.  Cross-checking your facts keeps your risk down from possible law suits.  It is ok to not always have the answer.  Just tell the tenant, let me check into your question and I will get back to you by…and give a specific date.  Otherwise, it will be viewed as a stall technique.  Then get back to tenant with your answer and the location of your information if they want to check it out for themselves.

Please check out my website at www.PortolaRentals.com if you are interested in properties in Santa Cruz or have rentals in Santa Cruz, CA.

Kathleen Richards

Wealth, Waste (time & money), Wear & Tear, Web

Wealth – Owning investment property is an excellent way to build long term wealth.  As long as you manage your property as an investment and business your chances of building wealth will be good.  Many people don’t treat their rentals as an investment and therefore actually lose money – by not maintaining the property, having rent too low, paying for all utilities, not collecting rent on time, etc.  Investment properties cost money and it is worth having a good CPA on your side to advise you on what you can and cannot write off on your taxes.  Investment properties are like any part of your investment strategy such as stocks, bonds, 401k etc.  Real estate is more hands on unless you have a management company handling everything.  Building wealth takes work but has a huge payoff. 

Waste – Time & Money.  Again, manage your rental like a business so you don’t waste your time.  Have systems in place.  Manage the showing, vacancy process and when maintenance gets done.  Handle your accounting in a systematic way again to save you time.  Your time is worth something.  Trying putting a dollar amount to an hour of your time.  You might be shocked.  All the time you spend at the property is costing you money.  Don’t be cheap with vendors – they save you time and yes they cost but you get to write all this off on taxes. 

Did you know that as an owner you cannot write off your time when you do a maintenance repair?  You can write off the materials but not the time.  So, then, why do it yourself?  If you are doing a full remodel ok you will save alot of money but if you have a plumbing repair – just call a plumber.  I have one client that when a toilet needs to be switched out on the rental will go buy the toilet and have the plumber put it in.  I am sorry but that is a waste of time and money!  First, how long did it take to go find a toilet, purchase it and take it to the property.  Then the plumber comes out and puts it in but now there is no warranty for the toilet.  You still paid the plumber their service charge so are you really saving anything???

The biggets piece of advice I can give property owners is to do annual preventative maintenance checks or have a contractor or handyman do it for you.  We do this annually in the business and we find all kinds of little things that tenants always says to us, “it is small I didn’t want to bother you with it”  Well, they are afraid of the rent increasing if they complain.  The reality is that the small drip can turn into something large and very expensive.  It is also when I get to tell tenants to put the batteries back into the smoke detectors and if there is a fire they will be held liable.  If the place looks like a dump then I let them know they have to clean it up – health and safety is at hand and their lease states the property has to be kept clean.  Not only will these checks allow you to save money but time in the long run.  It will help determine if you want to renew the lease with the tenant, how many people are actually living in the residence and the overall care being taken with your investment.

I had one owner that refused the annual inspections.  He called them “fault finding missions”.  It took me years to convice him of the benefit to doing them.

I like the old sayings, “A stitch in time saves nine” and “Don’t be a penny wise and a pound foolish”

Please don’t waste your valueable time and money micromanaging or ignoring your investment properties.  Get help if you need it. On your death bed are you going to be saying, “I wish I spent that Saturday snaking the plumbing at the rental”…God, I hope not, I hope you are thinking of how glad you are that you spent your free time with family, friends, and doing the things you love.  What a better way to spend your time and money.

Wear & Tear – Hard to define but I am a common sense person and property manager.  Here are some examples of what I consider wear and tear.  Walls have some marks from furniture, a few nail holes a hole behind the door from the knob.  Crayon or pen painting on the kids walls or holes of any kind in closet doors, or in walls (large holes) is not normal wear and tear.  Carpet once professionally cleaned looks good.  If less than 5 years it should looks almost new maybe a few small discolorations.  Not ruined. Blinds shouldn’t be bent.  House should be clean at move out.  Dirty is NOT wear and tear.  Find out what manufacturer warranty and time frame for the product is. 

Web – when advertising on Craig’s list keep in mind you can’t use words that discrimminate such as (family home, kids welcome, perfect for seniors etc.)  Can’t say NO Section 8 either. – Post good photos that show the property clean.

Be very careful of scams.  Delete any inquiry from someone out of the country wanting to rent sight unseen.  My policy is you have to see the property before you can apply.  Another scam is people take your photos and description on Craig’s list and change the add and offer the same property for substantially less rent.  You may get calls from people who are angry thinking you are trying to do a bait and switch.  You can water mark the photos so it is harder to copy and paste.  Make sure to check on your property. There have been situations where people send money ahead of time, meet someone at the property and get a key and come to find out the person runs off with the money and the owners find out the house is rented to someone they have never dealt with.

Use caution with people on the web.  This is another reason to use a property management company for placement services.  They have heard it all and know the scams.

Please check out my website at www.PortolaRentals.com if you are interested in properties in Santa Cruz or have rentals in Santa Cruz, CA.

Kathleen Richards

Vendors & Vacancies

Vendors – Build strong relationships with vendors and have them on your phone list long before you need them.  Always use the same vendor so you can not only build a relationship with them they will come to your aid when you need them most.  I am very good to  my vendors.  I give bonuses to them in December.  In the slow months I make sure to pay them immediately not 30 days out.  I also do an annual appreciate event – catered at a restaurant with rewards, certificate of appreciation, gift certificates (gas cards are a real hit with vendors). I go check the work that the vendor does (painting, carpet, vinyl, cleaner etc) and I give them kudos for a job well done.  Keep in mind often these vendors are working in vacant units or meeting a very unhappy tenant so they don’t get positive feedback or recognition.  If you treat them right they will make your calls a priority.  Remember the 11pm plumbing emergency call you got on Sunday night on a holiday weekend???

Vacancies – Keep them to a minimum.  Advertise and show the property while the tenant is still in the unit – as long as it is clean.  If the unit is really dirty or you need to do some real turn over cleaning then wait til tenant vacates – clean the unit and do what is needed to show the property and start showing.  Never show a property that isn’t clean and ready to rent that day.  Walls should be clean or freshly painted, bathrooms and kitchen sparkling, carpets clean, windows clean, yard mowed etc.  First impressions count. 

List the rental price slightly below market value.  You will get more qualified applicants than listing for max and having 30-60 day vacancy.  You can’t make up the money you have lost.  I advertise a property and if I am not getting the calls I expect within 3 days I lower the price immediately and I lower by $50-$100.00  Make the reduction real.  Or, if the rent is a good price but the time of year is wrong (Nov, Dec) then offer discounted rent in the 6th and 12th month.

Please check out my website at www.PortolaRentals.com if you are interested in properties in Santa Cruz or have rentals in Santa Cruz, CA.

Kathleen Richards

Utilities

Utilities can be tricky if the tenant doesn’t pay all.  Many multi-family properties have shared meters.  The dilema for property owners is if you include utilities in the rent tenants tend to abuse them and leave the heater going 24/7 – they aren’t seeing the bills so they don’t know the expense.  I am a firm believer in tenants paying their utilities.  There are a couple ways of doing this.

1.  Prorate the utilities by number of occupants, or by square footage if one unit is very large and the other is small.

2.  Owner pays up to a certain limit and anything over that the tenant pays.

3.  Add second PGE (Pacific Gas & Electric) meter to other units and bill per the meter.  You can do the same thing with water but it is extremely expensive to put in a separate water meter – I have looked into this several times and it doesn’t make financial sense for me but check it out anyway.

4.  I pay water for my tenants with their rent on my duplex but if the bill gets higher than normal I send a copy of the bill to the tenants showing them the increase along with a letter asking for conservation or I will start charging and then they are good about it and the following bill is usually lower or back to the normal usage.

5.  Some cities put all utilities on one bill including garbage.  However, I have found that garbage, water and gas/electric are usually separately line itemed on the bill.  If you want to include the water or gas/electric you can still charge for garbage service and this is usually easy to see and calculate.  In my business we have many multi-family where tenant pays gas/electric and owner pays water – can’t separate bill out by tenant, but we do charge for the garbage.

If you are going to include utilities with the rent make the rent high enough to cover the bill.  This method works best for small studios or cottages – it doesn’t work well for units of different sizes or duplexes.

When looking for investment properties to buy ask if the utilities are separately metered.  Call the utility company to find out average bill for the year for the property and then you can add this to the entire aspect of facts as to if you should buy the property or not.

Please check out my website at www.PortolaRentals.com if you are interested in properties in Santa Cruz or have rentals in Santa Cruz, CA.

Kathleen Richards

Taxes, Turnovers, Time Management

Taxes -  due Nov 10th and Feb 10th but most pay in Dec and April before the deadline.  April taxes are tough because personal taxes are due as well.  The most important thing to remember with taxes is to make sure to build up the reserve monthly.  When property values drop as we have seen over the past few years you can go to your county assessors office and have your home revalued and if the value has dropped significantly you can get your taxes lowered.

Turnovers – keep in mind that documentation and photos are your friend.  You want to document the vacancy so you can accurately determine the deposit to be returned and to have new photos and notes in place for the new tenant.  Again have your system in place and this will make turnovers a lot easier.

Time Management – the saying goes, Time is Money, and that is no more true than with real estate and property management.  Your time is valuable so plan it well.  Do your rental accounting monthly, put it on the calendar.  Do your showings with groups of people at one time.  Plan maintenance checks to do a couple things at one time.  Have all your files organized so you don’t spend time looking for things.  Tax time will be a breeze if you are organized about your rentals saving you tons of time and stress.

Please check out my website at www.PortolaRentals.com if you are interested in properties in Santa Cruz or have rentals in Santa Cruz, CA.

Kathleen Richards

Security Deposits, Screening Applicants, Showings, Systems

Security Deposits – this is always tricky.  I was just speaking with someone yesterday that was having a problem with the parent of a student they rent to and I asked how much was the security deposit – there was none!  I also recently picked up a 4-plex to rent and 1 of the units had never paid a security deposit.  The law states you can collect 2 times the rent for an unfurnished property and 3 times the rent for a furnished property.  In my business our standard is 1.5 times the rent.  If you accept pets you will want to collect extra towards the total security deposit.  Don’t call the money for the pet a pet deposit because that is all you will have available to you in the event of damages.  If you put the extra amount for the pet toward the total deposit then you have the total deposit available to  you if there are damages.

If there are roommates and one moves out I do not get involved in partial return of security deposits.  I rent a house not rooms.  I only return the total deposit when everyone moves out.  Remaining roommates are responsible for partial disposition of deposits.

Screening Applicants – do your due diligence and verify everything on the rental application including prior landlord not just current one.  Same with employers.  Check credit, pay stubs, bank accounts everything.  When screening ask open ended questions such as:  “how do you know this person?’  Ask lots of questions.  If they are vague keep probing they aren’t lying they just aren’t telling you everything so ask and listen.  Listen closely to answers from the references. What are they not saying?  If students who don’t have credit or much in the way of references ask to see school transcripts – what is their GPA (grade point average) are they a good student or not?  Ask for teachers or coaches as references.  Ask for a resume so to speak.  Interview their parents to find out if they paid rent while at home etc.  If seniors who often pay with cash check bank accounts and social security benefits.  Bottom-line, you have to spend time checking all the info that is on the application or getting more supporting info to satisfy that they will be responsible paying tenants.

Showings – screen over the phone first, ask if they did a drive-by, ask them to view photos on line.  Once you have screened over the phone set a time for a showing.  You set the time, don’t let them jerk you all over the place.  If they are serious they will make the time you set.  I got tired of no shows and 1 hour of time wasted waiting.  So, now I tell everyone THEY need to call 1 hour prior to the showing to RECONFIRM that they will be at the property otherwise I don’t show up.  This has worked really well for me. 

For safety reasons - never show once it is dark outside.  Never go into the property with the person behind you.  Get to the property early, turn on lights, open blinds and be inside waiting for the person.  If the property is remote never show alone.  Always take someone with you.  I don’t do open houses.  I show a property for 15-20 minutes by appointment only.  That is all the time that is necessary for someone to decide if they want to apply.  If the person that shows asks right off the bat if you will take less – I always say NO.  They need to apply and if a strong applicant you might consider it. 

Better yet just say you are the property manager don’t say you are the owner.  When I show properties I never say I am the owner of the business.  I don’t even say I am the property manager I have my name badge and that is it.  For all they know I am the receptionist. This allows me to observe them, their behavior such as do they take their shoes off before entering the house, do the kids run screaming through the house slamming doors and the parents are oblivious?

Systems – I have talked about this before.  You want to have your procedures and systems in place.  Your filing system, banking system, maintenance system, tenant communication system.  If you have a system in place then when things come up you know how to handle them without getting stressed and agitated at the tenant.

Please check out my website at www.PortolaRentals.com if you are interested in properties in Santa Cruz or have rentals in Santa Cruz, CA.

Kathleen Richards

Reserves, Roommates, Rental Rate, Red Flags, Relationship

Reserves – this is very important for investors, and property owners.  You never know when the roof will leak, the water heater will go out or some other unexpected maintenance item will pop up.  I keep saying this again and again but you need to treat your rentals as a business and you need to protect your business and investment by having reserves to cover unexpected expenses which may include no rent for an extended period of time.  I like to have at least 5,000-10,000 in reserves.  If you are in positive cash flow then maybe at minimum a couple thousand since you will get rents to cover the rest.  In my business all properties must have $500 in reserves at all times to cover maintenance costs that come up after we have given owners their money for the month.  Your reserves should include the tenant security deposit, a couple months of unpaid rent, taxes, insurance and probably a couple thousand to cover higher expenses that may pop up.  Even if you put this on credit card you will still need to pay the bill when it comes due.  By having reserves you immediately lower your stress level when something does happen that is unexpected.

Roommates – if you rent to roommates you want to make sure that each qualifies and passes your screening test independantly of eachother.  The monthly rent check should be one check collected by you not individual checks.  You rent a house not rooms in a house.  Make one roommate the point person that you will communicate with regarding the property.  You want to list all roommates on the lease.  If they are students you want to get parents to co-sign that they guarantee the rent and make sure they are aware that they are responsible for all roommates not just their child in the case of late rent or damages.  This often will cause parents to think twice about co-signing and it should.

Rental Rate – how do you determine the fair market value of your property.  Look in the papers and on craig’s list or other online rental websites to see what comparable properties are renting for.  Look on the websites of local property management companies to see what they have for rent and their prices.  Price the property slighly below the market average.  Put your advertisement out there and you should be getting calls immediately if not, then drop the price agressively not by $10 0r $20 but by $50-$100.  You want to get lots of calls so you get lots of applications and lots of good prospects.  The longer your property sits on the market the less traffic you will get and the more money you lose.  You can’t make up one month of lost rent.  If you don’t want to drop rent, drop the security deposit or offer a move in incentive.

Red Flags – if someone offers to pay 6 months rent or 12 months rent in advance, if someone can move in tomorrow, if someone can’t pay the move in funds with a cashiers check or money order – NEVER accept a personal check for move in funds.  Monthly rent is ok but not the initial move in funds (rent, security deposit, pet deposit etc).  Someone tells you their life story, are you prepared to get more stories like this monthly when the rent isn’t paid on time? There are holes in their application.  Where were they living for 6 months??  If their income is high but their credit is bad, why? When showing a property if the prospect asks if you will take less. My standard statement is we don’t negotiate during showings.  Apply and if you are a strong applicant we can discuss the possability – only if you want to consider lower rent.  My feeling is why is someone looking at a property for $2700 and only wants to pay $2000.  They should be looking at $2000 priced properties.

Relationships – start the relationship in a positive way.  Always come from a place of positive intent instead of assuming the tenant is out to screw you.  Try to put yourself in their shoes.  Always be professional, respectful and try to find solutions.  Listen and document.  You aren’t their best friend.  You are their landlord so keep the relationship defined.  It keeps the boundaries clear.  Be friendly and approachable so tenants will want to report maintenance issues and never be accusatory even if you are right.  You always want a win win even if that means you help move the person along.  When people are pushing my buttons I stop and my approach is to: Kill them with Kindness.

Please check out my website at www.PortolaRentals.com if you are interested in properties in Santa Cruz or have rentals in Santa Cruz, CA.

Kathleen Richards

Question & Qualifying Applicant

Question – You as Owner always want to question and get more info not just from tenant when they call with maintenance emergency – ask lots of questions to understand situation but question your insurance agent annually to make sure your investment is property insured.  Be pro-active in staying on top of the laws and maintaining your relationship with your tenant.  Don’t be afraid to ask your tenant how things are going with the unit.  By questioning in a caring way you allow your tenant to feel comfortable coming to you when issues arise.  Questioning allows you to stay informed and educated about being a landlord.  Be open to questions and ask lots of them.

Qualifying an Applicant – you want to know what your criteria for renting will be ahead of time.  How much income compared to rent do they have to make? How long is their employment history, rental history?  You want to ask all the same questions you would find on an application over the phone to pre-qualify them.  Ask their FICO score, how much income do they make, why are they moving, what is their job and how long have they been in it?  Many times you can screen someone out over the phone thus saving you time showing the property.  The way I position my phone screening is that I want to make sure I am not wasting their time since I am sure they are looking at many many potential rentals.  Applicants are always appreciative when you are honest with them but always willing to show the property if they are still interested in seeing it after doing a drive-by.  Keep in mind you CANNOT ask questions about family (you can’t ask if they have children).  I ask how many people are in your party or will be living in the unit?

Ask questions and listen to how they are answered, the tone, the attitude etc.  Are the answers vague?  If so ask for more detail.  Ask them what they are looking for in a unit and be quiet.  Know your criteria and stick to it.  If you apply the same criteria to everyone then you aren’t discrimminating and you will be more confident when questions are asked of you.  I include my 2 page criteria form with my application.  I give everyone the entire packet so everyone knows the criteria so they can determine for themselves if they fit or not.    Ex:  do you accept people who have a bankruptcy that isn’t discharged?  Do you accept someone with debt that is larger than $1,000? If someone is self-employed what financial information do you want to see to help qualify them?

Again, bottom line, have your criteria in place and ask lots of questions over the phone before you even show the property.  Once you get the filled out application you MUST check everything on the application to verify that it is accurate.  Good applicants rise to the top quickly both from paperwork you collect and from referrals of past landlords, and employers.

Please check out my website at www.PortolaRentals.com if you are interested in properties in Santa Cruz or have rentals in Santa Cruz, CA.

Kathleen Richards