Not the freeway closed today, but you get the feeling.

flickr credit:  daBinsi

The news article states that the government will not be compensating the landlord for the loss of her property, but that it is still an open matter for the insurance company.  We're certainly interested in hearing the outcome.

 

Not the real house, but you get the feeling.

flickr credit:  dvs

This highlights a problem in rental property management.  While a property owner might do everything possible to check the background of a tenant, they may not find anything.  In this case, the tenant had been accused of a few burglaries.  Without a conviction, they would not show up on a record.  The property owner probably would have noticed an issue if they had conducted regular maintenance inspections of the property.  These aren't required by law, though.  They are generally used to be sure that the rental property is kept in good condition for the tenant.

 

Not the real bomb, but...

flickr credit:  Nevada Tumbleweed

Those in rental property management know that we must respect the tenant's right to quiet enjoyment of the property.  That was surely happening in this case until the gardener was accidentally injured after triggering a bomb on the property.

For those in rental property management, this story can certainly serve as a good reminder to get out there and check out your properties!

The first step is to be aware of the dynamic in play.  Our assumption is that tenants would pay if they could and that part of the job is to figure out what the root cause of the problem is - there be another way than eviction. We have found that treating people with respect comes first and can help to avoid larger issues if the eviction process has to start.

The second step is to have an active process in place. Many rental property owners want to work with tenants by giving them another week or two. Many times that’s fine. At other times a week or two can stretch into a month or two. Our recommendation is to identify ahead of time how you will deal with a late paying tenant. 

 

 

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This is typical of most home property management companies. The legal proceedings can always be stopped if a suitable agreement is made or, even better, the rent is paid. The time cannot be recouped if the proceeding is never started.

 

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What are the legal proceedings? Assuming that a lease is in place, the first step in Massachusetts is for the residential property management company to send a 14 day pay or quit letter to the tenant. Most professional property management companies use a lawyer for this notification. While it may be more expensive, it is more expedient in the end as the lawyer can control and take responsibility for the process should the matter go to housing court. A letter from a lawyer is generally  viewed as much stronger than yet another notification from the home property management company.

 

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If payment or a satisfactory agreement are not made within 14 days then the matter is moved to court.  Depending on jurisdictions such as Boston, this may be housing court.  In other cities, it may be the general court.  A hearing is scheduled and both the property manager and the tenant's points are raised.  It is common for a payment plan to be established as a last effort for the tenant to correct things.  If this payment plan is not followed, then another hearing is scheduled and eviction can be ordered.

A few important points:

1. We see many rental property owners do this on their own with mixed results.  Many times I get the sense that this is to avoid legal fees.  If you have the time, legal mindset, and can afford the potential cost of having to wait another month, then it will certainly be a learning experience.
2. If you intend to evict a tenant, make sure that your property meets all applicable laws and regulations.  This is an easy place to get hung up.  Unanswered accusations of mice and bedbugs, missing screens, and missing smoke/carbon monoxide detectors are common inspection failure reasons.  It is not difficult for a tenant to claim that the rental property was not kept up to standard and either buy time for correction or settle for a partial abatement of the rent.
3. Seriously consider the impact of evicting a tenant.  This can cause morale problems in your building among other good paying tenants.  We generally try to be understanding and work out a payment plan and choose eviction as the last resort after all other methods have failed.  Try the other methods quickly, though.

1. What is the focus of the realty property management company? Identify how closely they match your niche – do they serve the residential rental market, homeowners or condominium associations, and/or commercial rentals? Do they also participate in real estate transactions as the broker or agent of buyers and sellers? A prospective rental property owner needs to decide how comfortable they are with a company that caters to a breadth of niches as opposed to focusing on one.
   
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2. What property management services does the company offer? Can the property management company conduct market analyses, market, show, and fill vacancies or do they depend on the support of a real estate agent network such as MLS? What are the maintenance capabilities of the property management company? What is the rent collection process including eviction and collections? A professional property management company should be able to address all of these confidently.
   
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3. How does communication happen with the property management company? Do they actively email? Is 24/7 phone support in place? Does the company provide online access to statements and other reports?
   
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4. How does the property management company track work orders, rents, and prospective tenant inquiries? It’s important to understand the technology that is used. Many property managers are okay with spreadsheets up to a certain number of units, but a system is necessary to get beyond 20-25 units. There are great property management software reviews at Software Advice’s web site.
5. Most importantly, what are other owners’ experiences with the property management company? Checking referrals is a must to be sure that your unit is an appropriate fit to the property management portfolio in terms of size, location, and target market.

How do you decide if you have professional property management for your rental property?

 

 

flickr credit:  Steve Snodgrass

1. Is the unit priced correctly?  Rent prices fluctuate regularly with the availability of units in the area.  It is important to take a regular comparison of what others are advertising.  Check apartment complexes as well; challenges can be greater if they are offering free months of rent or HDTVs.  Having a pricing strategy at the start is critical so pricing adjustment decisions later are easier as they've already been decided.

 

2. Is the unit advertised correctly?  Many times an owner will tell us that they have a four bedroom unit if the dining room is counted or a three bedroom unit by counting a very small bedroom.  One of the most common objections we face in the rental real estate industry is that the apartment isn't large enough for the prospective tenant's furniture.  It's difficult for any realty property management professional to position a rental home as something that it isn't.

 

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3.  Does the rental have curb appeal? The same principles apply to renting a condo or home that apply to selling it.  When you pull up in front, do you want to live there?  How does the landscaping look?  Is the foyer clean?  Has the unit been cleaned thoroughly by a professional cleaning service?  One key trend these days is that consumers are seeking value - it's pretty apparent if they'll receive it just by looking at the material condition of a rental.

What are the best ways that you fill vacancies quickly?  Let us know so that others can benefit!

flickr credit:  Orin Zebest

Owner Managed Contractors

If an owner is willing to invest their time to find, manage, and pay the contractor, they will usually find the best deal on the market. Savings can be significant because the owner’s time is being used to coordinate repairs in place of the property manager. Contractors can be found on Craigslist, ServiceMagic, and Angie’s List. The best way is by referral.

This comes at a trade-off of the value that the owner places on their time. Finding a reliable vendor that does quality work can be challenging for the best property management company. Ensuring that they have adequate general liability and worker’s compensation insurance place can make this doubly difficult. It is very different to have one work on a personal residence without these safeguards in place than to allow one onto a rental property where they can expose tenants to physical hazards and owners to legal risk.

flickr credit:  Mike Licht

Contractors Managed by Property Management Companies

Some owners do not have the time nor the desire to manage contractors at their properties. It is customary for property management companies to offer maintenance services in these cases. To be clear, this produces revenue for the property management company. Typically a below retail rate is negotiated with the contractor which is passed along to the property owner with a small margin for the property management company that is responsible for coordinating the repair and managing any warranty risk.

Working with a housing assistance program needn’t be confusing. The process is a little more complex than a traditional lease, but the trade off can be a reliably paying tenant for a long term. There are some ways that a property owner can make the process easier:

1. Clarify your requirements. At Real Property Management Boston, we identify the rent range we are willing to accept. This needs to be a clear conversation at the beginning with the prospective tenant and their housing case worker. If the housing program rent will never reach the acceptable range, then the prospective tenant either needs to pay the difference or look for a housing option within their range
2. Be clear on the preparations you will need to make. This includes any safety issues, possibly having to correct any lead issues (depending on the age of the residents), and providing proof of ownership documentation. There is a great top 10 list at http://www.mbhp.org/inspection%20top%2010.pdf
3. Identify which lease/addendums will be used – there are differences in which deposits can be required and how tenancy is handled after the initial lease term. These vary from program to program – read them carefully.

flickr credit:  NobMouse

With government subsidies on the increase coupled with a part of the population earning less and less, assistance programs are part of the reality for some rental owners and should be carefully considered as part of a marketing strategy.  Some easy to follow advice for Massachusetts rentals can be found at massresources.org.

An interesting report was brought to my attention about property management software. Software Advice has done some research on property management software and how it enhances the operation of property management companies. The range of software options is diverse. I Googled property management software earlier this year and came up with 41 vendors that include Buildium, TenantPro, Propertyware, Yardi, and many others.

An associate of mine's company, Placeforce, has developed his own property management software that focuses not only on property management but the communication of project status.

At Real Property Management Boston, we use a SaaS (software as a service) off the shelf product that has been configured for our unique application.  The software is priced according to the number of units under management.  Functionality includes online statement and document presentation to owners and residents and the ability to track communications through entering notes or sending emails via the software as well as the typical building/rent management aspects.  One area that falls short is in lead and sales tracking - we've had to go to other CRM platforms.

Our current software challenge is in document sharing and group calendaring.  We have yet to find an application that meets our needs without requiring the installation of a server.  I'm certainly interested in hearing any ideas!

The Department of Housing and Urban Development has released its third quarter US Market Housing Conditions Report. The regional information for Boston continues the trend of increased vacancies and reduced rents. Another interesting report released at the same time is HUD’s “Eye on Multifamily Finance” which tells a story of rising mortgage delinquencies as multifamily owners feel the impact of vacancies and lower rents. While the report focuses on properties with more than 40 units (20 in CA in AZ), the experience can parallel an owner of a triple decker here in Boston. At Real Property Management Boston, we regularly speak with owners of rental properties that are struggling with the challenge of maintaining curb appeal and habitability while faced with a challenging housing market.

I just read Jeremy Shapiro’s blog on foreclosure data and it reminded me of the importance of understanding if the property you are buying is occupied or not. If it is occupied, who are the occupants? Tenants or the previous owner?

Real Property Management Boston manages some inhabited bank owned properties. We also manage some inhabited properties that investors have bought at auction. One example may help investors to consider how good the deal may be if the property is not vacant.

A customer came to us having just purchased a Malden two family property at auction. She beat out 10 other people and was very satisfied with the deal that she had made. Then she started contacting the tenants in order to make arrangement regarding inspections, rent, and any repairs that were required. The downstairs tenants had been renting for around a year and had no idea that the property had been foreclosed upon. Sadly, this is a fairly typical situation. The upstairs tenants were the previous owners and initially insisted that they still owned the property. The bank that held their mortgage told them that the property had not been sold. It took an additional month and the involvement of lawyers for the previous owners to finally understand that their home had been sold.

The new owner of the property wanted to work with everyone living in the units. She was especially empathetic to the upstairs tenants and wanted to be as charitable as possible while making sure that her new investment was insurable and legally rentable. She hired our company as property managers to help her with the process.

Scheduling the inspection was near impossible as was effecting the repairs (which are still in process). In negotiating the rent for the previous owners, they are insisting on holding back money for repairs done before foreclosure. They claim ownership of appliances in the ground floor unit as well. The new owner offered a rent at 67% of market value simply to work toward a good relationship with the inhabitants. Efforts to date haven’t worked. The new owner is still reluctant to take legal action given her empathy.

If you have bought or are considering buying a foreclosed occupied property, be sure to review the Protecting Tenants at Foreclosure Act - these tenants have specific rights that must be followed.