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WITH THIS AGREEMENT, I DO PARTNER WITH THEE

By brioproperties,

We’ve all seen the writing on the wall: Partnerships are a great way to scale your portfolio quickly.  It makes sense. At its most basic description, a partnership helps you bring to the table what you lack.  Where you are deficient you can bring someone in who offsets that deficit.  It doesn’t matter if the deficiency is intangible (a personality trait) or tangible (credit score, money) a partnership can help in both areas.  Yet how do you create a partnership that will solve these issues AND not blow up in your face?

Partnerships are a marriage. 

Entering into a partnership on a real estate deal is like entering into a marriage contract, especially in the cases of buy and hold rentals.  In these instances, you are likely forming an LLC with the person so you are entering into a formal long-term arrangement recognized by a government entity.  So take it seriously.  Just like you (hopefully) wouldn’t tie the knot with someone after meeting them over a weekend, don’t do the same thing with partnerships.  

Partnerships are always best done with people you know on a fairly deep level.  Not necessarily their hopes, dreams, and fears in general but it requires knowing them beyond a casual acquaintance at a networking event. You want to know how they operate their lives, the working style, the demands on the time they have.  Will this mesh with what your vision is for a partnership in real estate?  If someone has a demanding job (60 hours a week) and they travel a lot for that job, does that affect your feelings about entering into a partnership?  If they like to work hard during the week including evenings but rip the town open on Friday and Saturday, are you able to work with that person? I’m not saying any of these particular situations are ones you should avoid.  It’s important to understand if these situations fit into your ideal partner or partnership. 

 

Deciding Roles.

It makes any partnership more efficient and less complicated if there is a clear division of roles and responsibilities.  It avoids duplication, overlap, and in some instances having too many cooks in a kitchen.  There will be some aspects you work jointly on or have equal say in but some areas for the sake of efficiency should belong to one person.  You should always have an equal say in which deals are purchased.  It’s not equally important that you have the same amount of control over flooring decisions.  Having minor items that you are both responsible for ensures that you can work through decisions twice as fast and it gives you the opportunity to “delegate” tasks that don’t feed to your talents.  

Here are some ideas of items that can be divided amongst the partners:  bookkeeping, deal finding, design aesthetics, contractor coordination, day-to-day tenant operations, etc.  There are also a few key items you want to have equal say in property purchases, funding decisions, and changes in purchase criteria.  These are areas I believe partners should always come to agreements on, including each compromising at various points.  Not one partner should control the agenda with these items. 

 

Making It Formal

Whether you do an operating agreement or partnership agreement will likely matter on what type of entity (if any) that you use.  An operating agreement is usually reserved for LLCs.  A partnership could be used in the event you own the real estate in your personal names (which I don’t recommend at all). It’s very rare to enter into a real estate deal with someone and use a limited liability partnership. The most common method is creating an LLC with that partner. 

Obviously, this can become cumbersome if you plan on doing additional investing by yourself or with other partners. You would need another LLC for each of those instances. Having an additional LLC means having more bank accounts, tax ID numbers, and more papers to file with your tax return. 

The Operating Agreement as the Prenup

Once you’ve decided on who does what and what you have equal say in, it’s time to get that in writing. I like to look at this ad the prenuptial agreement in a partnership. It’s where you outline who is responsible for what, what happens if one person wants to leave, and who brought what to the table. (It also should cover in the event of a partner’s death for good measure.)

In the Operating Agreement, you want to include who brought what to the deal. This is mostly used for the purpose of recording in the partnership unequal contributions to down-payment, rehab costs, etc. Mostly the tangible items of a specific monetary value. You may also include if one partner was mostly responsible for securing the financing, especially in the case of traditional funding. (Now you might be thinking, “what if we do multiple transactions and that changes.” Hang on Jose, we’ll get there.) 

You will also include a general description of who does what. You don’t need to go into detail but it should be all-encompassing. Let’s take two partners Henry and Catherine. Henry is responsible for finding the deals, tenant management, and arranging contractors. Catherine is in charge of business bookkeeping (not tenant rent collection), setting up financing for deals, and because Henry hates doing showings Catherine takes care of leasing. The italic items above are what be entered into the roles and responsibilities section of an operating agreement.  This section should include what the partners have equal say in. As mentioned above you want protection from a partner making unilateral decisions on matters with high consequences for the partnership. Here is where you include that both partners have to consent to a property purchase and the funding terms/method. Tip: if you have one partner who is on the mortgage but another is not, it should be included here that refinancing cannot take place for any reason without both partners’ consent. 

It’s also important for documentation purposes that partners are allowed to participate in real estate outside of the LLC but they must never put LLC property up as collateral or use equity for individual purposes. (Any equity in the properties is best left to be used for activities in the LLC. It can become really tricky if you allow otherwise. Especially because the property would be considered collateral on any equity loan.)

Be clear on expectations and goals.

When entering into a partnership it’s important to be clear on what you expect out of your partner and your real estate journey. Potential target markets should be agreed on or certain ones disqualified if a partner feels strongly. What strategy may be employed is an important discussion.  BRRR or turnkey, or both? Are you both looking at the same ultimate goal in real estate? Henry and Catherine may both want 46 units by maybe Henry wants all small multi-family while Catherine wants to get into medium-sized multi-family. 

If you find yourself disagreeing on the ultimate goal, a few markets, or even whether to do other investing it doesn’t mean the partnership isn’t viable. You and your partner must go into it understanding that one or both of you may do some investing on the side or that this is a limited-time event (meaning limited years, not months). 

CategoriesLong Term Rentals Real Estate Investing

Screening Criteria: The Best Line of Defense

By brioproperties,

Screening criteria is always important.  You should always be following your screening criteria every time you process an application or talk to a prospect. But nowadays I find myself pontificating more and more about screening criteria on investor forums. Why? Because in the midst of these eviction moratoriums and other restrictions, our screening criteria now is our most important line of defense.

One of the things that has fundamentally changed for us is how much weight and significance we place on our screening process.  In a way we have tightened our screening criteria. Now this isn’t to say it was loose and wild before, because it certainly wasn’t.  We’ve made small tweaks that have made the difference in what applications are accepted and what ones are not.

I’m not going to go into specifics in our screening criteria because what is permissible for us here in Wisconsin can be vastly different than what you can do in other states.  Even your county or city can have a say in what is legal for screening criteria.  This is more to get you thinking about your own screening criteria and pondering how you can make it more ironclad to get the tenant you want for you unit. 

I should stop and say that of course with a more stringent screening criteria you may face a slightly longer vacancy BUT would you rather have it sit an extra 3 weeks for a highly vetted tenant versus roll the dice and possibly get stuck with a tenant who can’t pay in a city where judges aren’t giving evictions of any form the light of day?

#1 Consider Adjusting Your Credit Score Parameters

Our screening criteria uses credit score as one of the main determining factors.  One of the ways you can help reinforce your first line of defense right now is shore up your credit score requirements.   Increase your minimum score requirement. What class of property you are renting out will play into how much you might want to adjust the bottom score.   Consider a tiered credit score system where a credit score in this range is X% of deposit more.  Tier systems usually have the denial score, 2 middle tiers with additional deposit, and the top tier which is standard accept.

#2 Collect First, Last, and Security Deposit

This is something I have personally never done yet it is a practice that is used a lot by large complexes or bigger rental owners sometimes.  You may have heard the term “first and last month’s rent” from a renter when they are inquiring about  move-in terms.  That is different.  (I also could go on a separate rant about why this turn of phrase is horrible.)  In this equation we are collecting the first month, the last month as well as the standard deposit.  (CAUTION: Check your state statutes on how you are permitted to record this.  Some states won’t allow you hold future rent payments so you may have to refer to it as a security deposit in your records and possibly your ad as well.)

Now if you think this is crazy because “the economy is rough and people don’t have savings”.  Numerous banks are pointing to a record high of savings in their bank accounts. Also, when the economy is rough that is when you want to protect your investment the most. 

#3 Get Those Employer References

I prefer employer references over rental verifications any day of the week.  A landlord or management company may have a vested interest in embellishing the facts to get rid of their not so great tenant. Employer references rarely have anything at stake in their report on an employee in a screening process. Throw in a question like “Is there any reason this person may not be employed by the company in ____ months?”  Place more weight on the employer’s reference than a stellar rental verification.  

#4 Stick Your Criteria Like Glue

Now is not the time to make exceptions to your screening criteria.  You set those parameters for a reason. They are meant to help you locate the ideal tenant for your property. Why during uncertain times would you suddenly view the document as guidelines?  During tough times is when you should look at your screening criteria as iron clad.  It’s what you created to bring you the tenant you wanted to rent to in the first place.  Don’t get desperate and lessen that criteria.  (Not to mention getting flexible with your criteria may cause Fair Housing issues.)

CategoriesLong Term Rentals Real Estate Investing

COVID-19 & Tenants: We’re Not Done Yet

By brioproperties,

Tenant Communications during Covid-19

By Kim Schmitt

Operations are still changing by the minute. Landlords and Property Managers have had to make quick business decisions and establish a clear plan for communication with tenants.

First and foremost, Landlords and Property Managers need to collect and properly disseminate all available contact information for your staff and tenants. Have alternative communication methods established (website, app, text), in case physical contact gets disrupted again as Covid-19 mandates change. 

Remember that Covid-19, social distancing, and isolation will affect everyone differently.  You will have tenants that lose jobs, that get sick, that may lose loved ones, are forced to homeschool their kids, or become extremely depressed.  With this said, it is important to realize that these are not “normal” times and understanding this will make you a better Landlord or PM.

Your tenants will continue to have many concerns, so sending reminders via email can help ensure that scheduled appointments are kept and rent payments are under control. Do not look at this as “babysitting”.  Look at this as protecting your interests, being proactive and showing that you have a good understanding of where we are today as a whole. 

As you communicate with your tenants, think about the following questions:

Have you communicated changes in operating hours, available services, scheduling maintenance repairs, communication channels to the Property Manager, and safety protocols to tenants?

Have you communicated protocols for when maintenance goes into your tenant’s homes and during workorder scheduling? Are you asking if anyone has been sick or are currently sick in the home? Are you asking outside contractors what their protocols are during Covid-19 so that you can relay this to the tenant during scheduling?

If a Tenant or Staff Member Gets Sick

If tenants or staff members are diagnosed with COVID-19, your obligation to notify tenants will vary according to lease terms, public health mandates, state regulations and industry standards. 

Rent Payments

Your online services are a keystone of keeping up with rent payments as the world reacts to the coronavirus. Instruct tenants to use web-based services, apps, and portals to make rent payments whenever possible. 

Rental owners and managers are STILL facing the reality that many residents will not be able to make their rent payments – likely through no fault of their own as businesses are closing once again across the nation. Your tenant communications plan should include instructions for tenants with economic hardships to contact you to discuss options.

Effective September 4, 2020 through December 31, 2020, there was a federal moratorium on residential evictions due to failure to pay rent put into place because of the impacts COVID-19 for tenants that meet certain criteria.  I would not be surprised if this gets extended well into 2021. 

The federal moratorium order offers five reasons evictions can move forward: criminal activity, threats to other residents, damage to property, violation of building codes or violation of any other aspect of a lease.  With this said, use caution and pick your battles wisely. Make sure that you fully understand what this moratorium means as a Landlord or Property Manager.

As a side note, have you reviewed your property insurance coverage so that you understand specifically what types of incidents are covered? (What will happen, for example, if a tenant receives a positive COVID-19 test and the virus spreads? Could you be held liable and if so, how can you prevent it?)

CategoriesLong Term Rentals Real Estate Investing

The Beast Of Exterior Paint

By brioproperties,

EXTERIOR PAINT

Painting the exterior of your rental is a very daunting task.  No matter if it’s one color or 3 colors it’s a big commitment of time and or money.  It’s something you hope to not have to repeat within a few years. I’ve recently delved head first back into the realm of exterior paint.  I made the decision to paint a porch on my Victorian rental, which meant selecting colors that would eventually be carried through to the exterior of the home.  During the time I became reacquainted with the tips and tricks of painting as well as learning some new information that I find highly useful.  Regardless of whether you plan on doing the work yourself or hiring out it’s a good idea to have a base level of knowledge so you can properly evaluate contractors and their plans.

Tip #1 Pick Your Colors First

This is especially true with exterior painting.  Before you do any surface prep, before you get bids, pick your colors.  If you tend to be color indecisive (my hand is raised) getting your wood prep done first may leave your colors vulnerable to further decay from Mother Nature.  If it takes  you 2 weeks to commit to colors, that’s 2 weeks that your porch is unprotected to elements that use and weather throw at it.  Second, if you are hiring out, the colors (and how many colors) you use may impact the final price of the work.  (There are a lot of intricacies to this topic so we can’t go into it here.)

Tip #2 For every hour you spend painting you should spend 2 hours prepping

This was something I learned as a child working on my parents rentals.  Before I learned to write cursive, I knew how to hold a paintbrush and paint a porch spindle.  One of the lessons I learned from my parents was the importance of preparing wood properly.  I believe the tip about a 2:1 ratio of time came from my other Grandfather who wasn’t an investor but an avid woodworker and restorer.  

Most people spend little time on the prep because they hurry to the finish line of getting the color on.  How you apply the color only has about a 30% effect on the way the paint wears.  The other 70% is everything you do beforehand. Don’t be the person who sprints to the end.  Spend your time carefully preparing the wood surface so that your hard work will pay off and stick around.

Tip #3  Scraping & Sanding Is King

Before you put down the primer, take a scrapper and remove as much of the chipping and peeling that you can.  How much of this you have, depends on how old the paint is.  The goal is to remove any paint that isn’t properly adhering to the surface anymore. 

Once you’ve scraped the surface then you need to sand the surface.  Sanding the surface does a few key things.  For surfaces that are exposed wood it removes the top layer of sediments and other elements that may prevent the primer from properly adhering.  This includes mold and mildew.  Sanding the surface also provides a little grip to the exposed wood, giving the prime something to stick to.  If you ever have been able to peel paint off a surface like sunburnt skin, then you know it is important to have a finely roughed up surface.  When you are sanding, if you arent going down to bare wood everywhere (a debate for a later time) you will at least want to accomplish 2 things when sanding.  First, smoothing the edges of the paint “splotches”.  Creating a slightly neater finish than leaving the rough edges created by chipping paint.  Second, removing the very faintest top layer of color thus roughing up the surface so the primer can stick easier.  You know you will have achieved this level of roughing up when you have seen a slightly color change in the sanded area.  

Tip #4 Don’t Forget To Wipe

Okay, sorry for the crude statement but it got your attention.  After you’ve finished sanding the surfaces, wipe them down with a slightly damp cloth.  You don’t want to soak the wood or get it any discernible level of wetness with the cloth.  It’s just barely on the side of damp so that it can easily collect dust and debris off the surface.  Give the surface about 5-10 minutes to air dry before priming.  

You also should repeat the above if you’ve left the surface primed or painted for more than 4 hours and are doing another coat.  If that’s confusing, try this: If you apply primer, let it dry overnight then come and do a first coat of color, wipe before you paint.  If you paint in the morning and come back 6 hours later to do another coat, wipe it down quickly. It’s a good rule of thumb to wipe down the surface again if you can graze your hand along the surface and not disturb the paint.   Of course we are gently wiping. 

Tip #5 Earth Tones Don’t Fade As Quick

This was news to me.  When I went to get quart samples of my colors (more on that next) the paint tech told me that when painting exterior surfaces consider using earth tones for as much of the surface as possible regardless of color trends.  Why? Because earth tones are made using naturally occurring elements rather than highly synthesized elements of lighter colors.  God, the Intelligent Designer, Allah, whoever you believe in created things to stand up to..well..nature.  So it goes that paints made with naturally derived elements will hold up against nature a little better.  How much better is hard to say.  But earth tones fade less quickly when exposed to sun and rain than lighter synthetic colors do.  Now if you get your paint from the dollar store, disregard this tip.  Nothing is going to change how freaking quick your paint will fade.  

Tip #6 Sample The Milk Before You Buy The Cow

Before you commit to gallons of your paint colors, buy quart samples.  Most people buy gallons of their colors and the paint all of color one, all of color 2, etc only to realize they don’t like color 2, or 3 doesn’t go with two 2 well, etc.  

Use your quart samples in a small area where you can get a reasonable indication of how the colors will look together on the surface.   But don’t don’t judge until you’ve done all the steps.  Properly prep your paint surface,  prime it, apply one coat of color, and your second coat before you judge the color scheme.  Do this in a nearby area for all your colors, remember a small area.  Then once its fully dried, take a step back and judge the colors then.  If you don’t like something it’s easy to make color adjustments at this stage when the worst you will have to do is prime a small area back to neutral.  

CategoriesLong Term Rentals Real Estate Investing

Reasons Why You’re Tenants Are Moving

By brioproperties,

Reasons Tenants Move Out of Their Apartments

By Kim Schmitt, Managing Broker

As a Landlord or Property Manager our goal is to minimize unit turnover rates to insure a steady passive income. Unfortunately, turnovers happen, and they occur due to a multitude of reasons. Let us look at the most common reasons that tenants move out.

  1. The Tenant Cannot Afford the Rent
  2. Apartment Size
  3. Job or Relationship Status Change
  4. Neighbor Issues
  5. Maintenance Issues

Throughout my years in this industry I have found the above reasons for tenants moving out to be the most common. As a Property Manager when I received a notice that a tenant was vacating, I would not just mark it on a calendar and call it a day.  I would follow up with the tenant to get a good idea of the reason why they want to leave as they do not always disclose that information in the letter. More times than not I have been able to keep the tenant by offering an alternative idea. With this said, there are instances where both the tenant and manager have no choices and the tenant ends up moving out.  However, it is always worth the time to look at the big picture and see what can be done to keep a good tenant. 

What can we do to keep these Tenants?

The Tenant Cannot Afford the Rent

Reasons that cause tenants to no longer be able to afford rent are usually completely out of our control and often out of the tenant’s control. So, what can we do if we really want to keep the tenant? We have two choices; both may be worthy of consideration. The first is that we could offer to relocate the tenants to one of our lower priced vacancies if one is available. The second would be that we could reduce the rent in order to keep them. If you choose this option, you will want to compare the rent decrease to the cost of preparing a turnover and the time the unit could sit vacant. Say you can keep the tenant by reducing the rent by $50 per month, this comes to a loss of $600 over a 12-month lease. I guarantee that the preparation for the turnover usually costs more than that, plus the loss goes up if the unit sits vacant over an extended period. 

Apartment Size

This reason comes up when the size of the family changes which causes the tenant to need either a larger or smaller living space. Empty nesters, having babies, new couples or a tenant is becoming single tend to move due to apartment size. Here is what we can do in this scenario to keep the tenant. Offer the tenant a smaller or larger unit if one is available. This would be our first and best option. If this is not possible, offer an incentive such as upgrading their apartment by repainting or new carpet, give them a garage at a discounted rent or for free for one year, or lastly offering a reduction in rent to keep them.  This is where we can get creative to keep the tenant!

Job or Relationship Status Change

This is a tough one but not impossible. There is little we can do if a tenant needs to relocate for a job but what if the job change is only financial? Say they are going to have a decrease or increase in salary. In both cases, once again our choice would be to offer them another available unit that would fall within their new price range. This works for increases in salary as well. Maybe they want something bigger and newer. If we have a vacancy that fits their desire, we should offer it to them at this time. Relationships changes such as separation, divorce or marriage could be the reason. If this is the case, then offer any available rentals you may have so that the tenant has the option of staying. 

Neighbor Issues

While we cannot always control the next-door neighbors, we can control the type of tenant we move onto the property by utilizing good tenant screening procedures. It is so important to put quality tenants in your rentals. One bad tenant could quickly cause good tenants to move out of your property. In issues such as this it is always a good idea to try and get the tenants to talk out their issues, if they cannot do it on their own then you may need to mediate the situation. If this fails, you can offer a unit transfer to one of the tenants.

Maintenance Issues

Maintenance issues can cause a tenant to move. Tenant’s can quickly become tired of dealing with ongoing maintenance issues such as leaky roofs, pest problems, mold, clogged drains, etc. This is the one issue that we have complete control over by providing an easy way for tenants to report maintenance issues, quick response time and doing periodic maintenance upkeep.  

Summary

The takeaway from this post is to follow up on notices to vacate, you may be surprised at how your turnover rate drops if you think outside the box of ways to keep your tenants. We at Brio Properties are always looking at the big picture! Visit us often for more tips and tricks of the trade to ensure the success of your rental property investments. 

CategoriesUncategorized

Real Estate Tech Trends You Need To Know

By brioproperties,

It’s always fun to hear about trends that cutting-edge company or people are using in real estate.  While most of it seems like crazy ideas you may not have to deal with it, everything piece of technology we’ve adapted to started out as someone being trendsetting in this industry.  Online rent payment,  online listings, video footage, etc.  All of these started as trends, but have now become the norm.  By looking at trends, we can get a heads up on what might become the next norm in our industry.  The first 3 are ones you may currently know about or utilize but chances are the last two are completely new to you. 

Online Appointment Scheduling

In today’s world where Millenials and the Generation Z prefer completing tasks without human interaction, the ability to schedule apartment viewings without having to call or send a series of emails is a necessity. The internet is filled with online scheduling software that can be utilized. (Calendly, 10to8, etc.) Most are not tailored to any specific industry and are general appointment schedulers for anyone from hair stylists to personal trainers to business coaches.  They can even be used for real estate. The features that come with free programs vary.  I.e. email or text confirmation, multiple appointments at one time, etc.  If you chose to use a scheduler simply copy and paste the public URL for your calendar into your ad, directing people there to book a showing. 

Remote Keyless Entry/Locbox Entry

Taking the above discussion of less human contact a little but further, imagine not having to leave to do a showing. What if your prospects could give themselves a tour without having you drop your project to meet them? Systems like remote lockboxes with expiring codes are making this a realty.  To schedule the showing a person must validate their identity (the form this takes varies across providers).  When it is one hour before the scheduled appointment, they are texted a unique lockbox code that works for 30-45 minutes from the start time of the showing.  If someone has a 2pm showing they are texted the code at 1pm, but the code doesn’t work until 2pm and is valid until about 3 (depending on the provider).   Most of these services can be streamlined into an automated showing calendar.  

In case you are wondering, there are triggers in place where if a key isn’t returned within a time frame a person on the account is contacted by the lockbox provider letting them know.  That way you can go investigate what’s going on.  

Online Lease Signing

Online lease signing has gained popularity in recent months because of the COVID lockdown we all went through, but also because it frees up a lot of time for self-managing investors. Dochub is one of the services you can utilize to do online lease signing. Simply upload your PDF lease and highlight the sections that require initials or signature then download it to your computer and send it off to the tenant in an email with instructions on how to use Dochub themselves.   

The cherry on the sundae is tenants love doing it this way too! Pair it with a Zoom chat to go over the terms and they will be extremely grateful because it makes it easy for them.  They can do the Zoom call at home or maybe even during lunch from work.  Families love it because they can pop a video on in the other room and be on the Zoom call doing their lease. 

To make it the most convenient, investors with more than 5 properties should consider purchasing a paid plan for DocHub.  A paid plan will not only allow you to send the signature directly from Dochub to the tenant but it also would allow you to sign unlimited documents (you are limited to 5 in the free plan).

Augmented Reality

You are probably wondering…what the heck is augmented reality.   Augmented reality is a concept where someone can take reality and adjust it in a computer program and allow for customization. It’s main purpose is to give customers/clients an idea of if their furniture will fit, how it will look against the flooring, etc. 

Augmented reality photos of an apartment that is uploaded to the program with corresponding room measurements. It creates a to scale model of the property where users can then click and drop furniture in.   Basic items like couches, beds, dresser, dining room tables are all preloaded options that can be added to the rooms. A user can put in their own furniture dimensions for the items rather than using the preloaded “average” dimensions.  The user can also select color options of the furniture. 

Your augmented reality is assigned a web address which can be provided to prospects who want to verify their furniture will fit in a room, or their couch won’t clash with the wall color.  As the product purchaser you have control over how much customization a user (in this case a prospect) can have.  Furniture measurements, color customization, change window dressings, etc.  Whatever you will allow them to change and what you think may help sell the unit. 

They could also layout their entire unit before moving day and be able to download a 2D view of the rooms and where they want items. Making it easier for them to instruct professional movers…or their friends who may have already had a complimentary beer or two when loading up the truck at the old place.   

Virtual Reality

VR has been used in real estate for a few years now, mostly among high end brokerages serving out of state or out of country clients. With the changes in smartphone technology that have made most cell phones capable of VR some trendsetting realty companies have started doing VR tours of units.  The VR companies turn 360° photos of the unit into a VR experience. You are then provided a link or app code that can be placed in your ad allowing the viewer to do the Virtual Reality tour on their own.  Pretty cool!

Now some of these may be pie in the sky ideas regarding your portfolio.  But it’s always fun to hear about the jaw dropping technology that is out there and revolutionizing some of the basic ways we do things. 

CategoriesLong Term Rentals Real Estate Investing

Navigating Security Deposits

By brioproperties,

By Kim Schmitt, Managing Broker

As a Landlord or Property Manager one of the most important processes we do is collecting and reconciling security deposits.  The purpose of this blog post is to provide direction to help you successfully navigate the security deposit process and to avoid possible pitfalls.

The Purpose and Collection of a Security Deposit

As a landlord or manager, we are entrusting a property to the care of a tenant, and many things can and do go wrong. Obtaining a security deposit is one of the most important things we can do before renting out a property.  A summary of reasons to always collect security deposits include financial protection against tenant damage to the property, early termination of a lease, non-payment of rent and unpaid utilities upon move-out.  It is advisable to confirm with your state, city and county of any laws that you must follow. Before a landlord can collect a security deposit from a tenant in the state of Wisconsin, he or she must provide a few disclosures to the tenant as well as a written receipt upon receiving the tenant’s security deposit.  It is strongly recommended not to allow a security deposit to be used as the last month’s rent.  That’s the same thing as returning the deposit early in which case the funds will no longer be available to use should the unit have damage upon move-out inspection. 

Determining the Amount of Security Deposit to Charge

The characteristics of the property itself often determines how much a landlord or manager should collect as a security deposit. For instance, a single-family property may have added amenities like a hot tub or expensive landscaping which would warrant a higher deposit than, say, a standard studio apartment in a multifamily building.  Most often, the security deposit is equal to the first month’s rent. 

Storing a Tenant’s Security Deposit

In the state of Wisconsin, there are no specific requirements about how a landlord must store a tenant’s security deposit. The security deposit does not have to be placed in a separate account or earn interest.  With that said, please confirm with your state, county and city as their laws on the storing of security deposits may differ. 

What Can Be Withheld from A Security Deposit?

The general rule is that a landlord or manager can only withhold security deposit monies for actual damages, material or financial. Meaning, you can deduct money if they owe you past due rent and fees or caused damages beyond normal wear-and-tear. Normal wear and tear are the expected decline in the condition of a property due to normal everyday use. It is deterioration that occurs while living in a property. It is not caused by abuse or neglect. In the state of Wisconsin, a landlord can keep all or a portion of a tenant’s security deposit for the following reasons:

• Damage in Excess of Normal Wear and Tear

• Unpaid Rent 

• Unpaid Utilities

• Money Owed for Violating Nonstandard Rental Provisions (fees, etc.)

In Wisconsin, a landlord can include additional reasons he or she can make deductions from a tenant’s security deposit. These additional reasons must be included as a separate written statement called Nonstandard Rental Provisions. The landlord must show and explain these provisions to the tenant before entering into a lease agreement with the tenant. The tenant must sign this provision. Note It is illegal to deduct for routine carpet cleaning from the security deposit even if the tenant signed a lease that states that they must pay for carpet cleaning. The exception is if they damaged the carpet beyond “normal wear and tear.

Defining Damage That Can Be Deducted from Security Deposits 

Damage is not naturally occurring. It is harm that affects the value, usefulness or normal function of property. This damage can be committed on purpose or through neglect.  

Examples of damage might include:

• A smashed bathroom mirror

• A broken toilet seat

• A hole in the middle of a door

• Damaged or missing door handles/locks

• Carpet soaked with pet urine, rips from pets/furniture, multiple stains and cigarette burns

Is a Walk-Through Inspection with the Tenant Required?

No. A walk-through inspection with the tenant is not required in the state of Wisconsin when a tenant moves out. A tenant can request that a landlord do a move-out inspection, but it is not required by law.

When Must a Landlord Return the Deposit?

Each state may have a different timeframe to follow. In Wisconsin, the landlord has 21 days after the lease ends to send the full security deposit and/or an itemized list of deductions.  

Who Should the Deposit be Returned to?

The landlord should return it to whoever the tenants told the landlord in writing to make the check out to, or whoever the landlord chooses to return it to if there were no written instructions. The regulations no longer tell the landlord they must put everyone’s names on the check, so tenants who rent together should think carefully about who they want the check going to and getting cashed by. It is easier to have it be just one person, but there is more accountability if everyone has to sign it.

Can a Landlord be Sued in Small Claims Court Over Security Deposit Deductions?

Absolutely yes, in the State of Wisconsin if the landlord does not return the security deposit and/or list of deductions within the required 21 days, or if the landlord took out money for things the tenant disagrees with, the tenant can end up suing the landlord for double the amount wrongfully withheld, plus court costs and reasonable attorney’s fees.  If the landlord returns the money before the tenant files in court, the tenant can no longer sue since now they are not owed any money. Double damages only apply if the case goes to court.

Summary

In my experience, I have seen cases where Landlords have charged items against security deposits that would have never made it past a judge had the tenant taken them to court.  It is extremely important that as Property Managers and Landlords we fully understand security deposit state laws, requirements and the definitions of normal wear and tear to avoid legal action.  Visit Brio Properties regularly to learn how to successfully manage your properties. 

CategoriesEntrepreneurship

Get It Done: Productivity Tips That Worked For Me

By brioproperties,

Let’s chat productivity. It makes sense because even if we may be getting towards the end of lockouts and safer at homes, life will still be different. Now is still the time to make new habits. When life is less busy its easier to make new habits. So while is still a little less demanding because less is going on, now’s the time to try out new productivity tips.  I’ve compiled a few of my favorite tips that I’ve used over the years.  

Pomodoro Method

A few years ago I discovered the Pomodoro method for productivity. I love using this method for projects. 

The Pomodoro method is a 2 hour block of time where you work consistently for 25 minutes then take a 4 minute break. You cut out all distractions and focus solely on the task at hand. Your phone is silenced (if possible) and you don’t deviate from the task.

During the 4 minute break you can respond to messages, stretch, get a drink, whatever. Then repeat. 

I love this for projects. If I’m working on writing a presentation, or creating a marketing campaign, or anything that is more than a simple task. I found it causes me to focus better than if I sat down and said “I have 90 minutes to do this.” My mind might drift easily or I might slug around because I think on how I’m going to be doing this for 80, 70, 60 more minutes anyway.  With the Pomodoro I focus for the full 25 minutes on the task and leave the distractions to the 4 minute break.

I’m fortunate to work from home almost every day of the month, so I do have less people distractions but if you work in an office I encourage you to give this a try. If you have an office door, close it. If you don’t, just pause your timer and quickly inform the person who needs something from you, that you are in a workflow and ask if you can discuss it later. 

If you are planning on using two Pomodoro blocks back to back (2- two hour blocks) it is recommended that you take a 25-30 minute break in between. Not a break to work on other things but a break to rest your mind and get some good body fuel. 

Saving The Errands

I used to run errands 3-4 times a week. I’d schedule grocery shopping on Tuesday, bank and post office on Wednesday, Menards on Thursday, and fit in that miscellaneous stuff pretty much when I felt like it. 

I eventually began to realize how much time I was wasting by driving the same route usually multiple days to accomplish different errands. I figured I was losing about 120 minutes a week due to “duplicate driving” I call it. Plus I didn’t necessarily have 1 day where I just focused on working without being obligated to leave the home.  I honestly thought I was breaking up the monotony of working at home, but I was actually breaking up my ability to be highly productive. 

As part of a weekly block schedule I instituted “errand days”. Every week (when not in Quarantine) Friday is my errand day. Its when I go to the bank, post office, Menards, do small grocery runs (if you remember from a previous blog I’m a huge advocate for grocery delivery), etc. 

If I have to make appointments for outside the home I leave those for Thursdays. Medical appointments in the morning, others in the afternoon. (Medical appointments in the afternoon are a huge time sucker. (Doctors could have fallen 25 minutes behind easily by the time afternoon appointments roll around.)

On days when I have monthly networking events, I might allow myself two hours of errand time before traveling to the event. On average I have 3 networking events outside the home per month. If it makes geographical sense, I’ll switch up my errand schedule to get some or all of it done before the networking event. This way I’ll Friday morning to do more highly productive work. 

Having Monthly Goals

One of the big things I have loved doing the past 2 years is setting monthly project goals. I pick 4 projects I want to work on in the month. I outline the basic steps (usually 4-5) and I prioritize the projects. Usually the projects are pulled off of a “Off Field Advantage” sheet I create twice a year. (This sheet is comprehensive life at how I run my life and my business. It also accounts for sporadic ideas I’ve had that many didn’t get implemented or finished.)

I have blocks of time devoted to my projects in my weekly schedule. I usually have 3 blocks of 2 hour project time in my schedule.  Then if I find myself (somehow) without anything planned or pressing do, I devote more time to monthly projects (as long as its at least 60 minutes).

And I always use the Pomodoro method when working on them. 

Mornings Are For Projects, Afternoons for Reacting

One of the better things I did for my motivation (and sanity) was I created a rule for myself as the paragraph title implies.

What this means is I work on my “want to do” list in the morning. My projects, the things that normally get pushed off as not urgent, OR the things that are urgent for looming deadlines (usually less than 48 hours). I mastered understanding what was urgent and what wasn’t a couple of years ago so I can now put some items in the morning that aren’t my “projects”. 

I also don’t check my email until after 11:30 and I screen phone calls until after lunch. (To be honest I always screen my calls. If you aren’t in my phone book you go to voice-mail. But I’m not a realtor so I have that luxury.) I limit who I talk to in the morning and I make all my return phone calls in a 1.5 hour time frame in the afternoon. 

Doing these 4 things has made a major impact in my overall productivity. I mentioned block scheduling in here but I didn’t go too in depth for the sake of the blog. I’ll be dedicating an entire blog to block scheduling. So stay tuned!

CategoriesUncategorized

Our Kingdom For A Payment Plan

By brioproperties,

Payment plans are something we hope to never use as rental investors.  Yet the reality is that at some point during your career you will have to create one.  Payments plans aren’t something you create on a case by case basis in under 5 minutes. You want a well-thought out payment plan that is easy for the tenant to execute and offers the necessary protections for you both. 

Set A Protocol

Take a few moments to create a “hardship protocol”.  A hardship protocol is what your terms are for accepting a payment plan. 

Under what circumstances are you willing to accept a payment plan?  This isn’t referring to an amount due (yet). Loss of job? Death in the family? Medical emergency?  What types of events can occur in a tenant’s life that you would be willing to create a payment plan in light of it occurring?

Next what kind of documentation do you want? If you are going through the effort of creating this hardship protocol it only makes sense to require documentation from your tenants in support of the circumstance. 

What’s the smallest amount you are willing to make a payment plan for?  Oddly enough I have had people ask to make a payment plan for $55. On the other side of the scale, what amount is too high for a payment plan?  

Write It Down

Believe it or not, payment plans are still sometimes done orally.  This is just bad protocol. For starters in some states it’s not legally binding if it’s not written.  Even if it is legally binding it only becomes a he said she said battle in court. 

You can create a template that you can fill in the blanks when the time comes. Having a template ensures you don’t miss any of the important details when creating the plan with the tenant.  

Clarify Late Fees

Make sure your payment plan covers what happens to late fees during the course of the payment plan.  Are they continued no matter what and included in the payment plan? Are they waived for every month they keep the payment plan current?  Or are they waived (in full or partial) if all payments are made on time? 

I don’t recommend waiving late fees (unless super extraordinary circumstances) because it will only encourage them to make payment plans.  Waiving late fees in full at the end can be cumbersome for your records and also make it confusing for the tenant. This all comes down to your preference however.

Note: Remember to include late fees you know you are keeping when calculating the amount and length of the payment plan. 

Length/Deadline

Every payment plan should have a set length and thus a deadline attached to it. 

If a tenant is paying you back $700, it’s not enough to say “Extra $100 bucks a month until paid off”.  Why? Because you aren’t telling them when it has to be paid. You are assuming that they will interpret it as 7 months but since it’s not expressed explicitly its an expectation on your part that can’t be upheld.

“Jason R. will pay an extra $100 a month for 7 months beginning July 1 until balance is paid off.” Or you could say “Starting July 1, Jason R. will pay an additional $100 per month through January 1.”   

Payment Frequency/Payment Days

Payment frequency is very important in a strong payment plan.  Notice that above we didn’t just say “Jason R. will pay back the $700 owed by January 1.”  If we had worded it that way, it gives Jason the right to take his sweet time and maybe pay you the $700 on December 31st.  We said every month Jason will pay an extra $100.

But let’s take it a step further.  Let’s make an expected payment date for Jason.  Since Jason’s payment frequency is monthly we’d say “Jason R will make payments of $800 on the 1st of every month starting July 1 and ending with January 1 payment.”

Have someone who wants to pay weekly or bi-weekly?  That’s okay too. It requires a little more math on your part.  “Jason R will pay $25 every Friday until January 1 towards his back rent. His monthly rent of $700 is still due on the 1st of the month.” Bi weekly?  “Jason R. will pay $50 every other Friday towards his back rent until January 1. His monthly rent of $700 is still due on the 1st of the month.” Notice that we included the language regarding the future monthly rent payments still being due on 1st?  That is very important language. 

Consequences

Spell out in your payment plan what the consequence is for missing and WHEN it kicks in.  “If Jason R. misses [1, 2…] back balance payments OR fails to pay another month’s rent in full by the 5th [grace period in all] eviction will be filed.”

From My Experience

One of the best things I did in my business was set clear guidelines for myself and my staff about when I wanted certain back balances paid. For instance, a payment plan for between $X-X must be completed in 6 weeks.  A payment plan for $Y-Y must be completed in 10 weeks. With these parameters I am NOT including late fees in the amount that determines the length of the payment plan. The parameters are only figured based on the back rent.   

CategoriesLong Term Rentals Real Estate Investing

The Do’s and Don’t of Heat

By brioproperties,

It’s the time of year where landlords in colder parts of the United States are talking about furnaces.  We’re entering the throws of the cold weather season and what is historically the harshest parts of our winters.  It’s the time of year that we dread a tenant phone call the most. We’re always panicking (unless you have new furnaces) about if they’ve lost heat.  Then what if it’s more than the wall thermostat and we need a part, how much is that going to be? Even worse…what if it’s dead. Given all of this, it’s a good idea to have a discussion about furnace…etiquette.  

What do I mean by furnace etiquette? It’s not just about maintenance and keeping it in running order, it’s all about protocol of heat settings, and the advent of new technology. Not only are furnaces more complicated in themselves, but everything surrounding them is too.

Etiquette Lesson 1: Furnace Check Ups

Furnace check ups are a great way to shore up your defenses before the storm.  Have your trusted HVAC company come out in August/September and give your furnaces a good ole check up.  They’ll check over all your components and make suggestions on possible repairs ahead of the season. Best part is some companies will waive the service charge for the repair because you did a furnace check up. You are required to do whatever work you want within X days of the service check up to get the savings.  (You can’t just wait until January to get the igniter replaced and expect to get the discount when it was mentioned it in August.)

Etiquette Lesson 2: Smart Thermostats Don’t Give You The Right To Police Their Heat Usage

Smart thermostats are arguably one of the best inventions we’ve seen in a long time.  They help us control our heating and cooling costs by being able to adjust the temperature remotely.  Instead of only using programming we can now control our thermostats from our phone. You can adjust the heating and cooling from the restaurant table as your plans change. For our primary residence it’s an amazing piece of technology. Yet for rentals, its fraught with ethical complications. 

There are landlords out there who want to install smart thermostats not to keep an eye on the temperature when a unit is vacant (the legitimate reason in my book), BUT INSTEAD WHEN IT’S OCCUPIED. This is I have a problem with. Regardless of whether you include heat or not in most circumstances what your tenant sets the temperature at is none of your business.  We’ll chat in the following sections about minium and maximum temperatures. 

An argument could certainly be made (and is appropriate) for making sure the tenant keeps the heat to 55 (the accepted practice to prevent pipes bursting).  Yet I would caution to be sure you can retrieve reading reports from the smart thermostats app for documentation as to why you had to manipulate their settings remotely.  (Note: Some smart thermostats allow you to set a minimum temperature that kicks in regardless of the programming. Making sure it doesn’t slip below 55 would be an acceptable use of this.) 

NOTE: Most smart thermostats require a wifi connection to be remotely controlled or monitored.  Some wireless providers are selling smart thermostats that can work on data when wifi isn’t available (i.e. when its vacant).  But you pay big moola to get that.  Plus there is the continual data usage the thermostat uses whenever you want to check the thermostat. 

Etiquette Lesson 3: If The Tenant Pays The Bill You Can’t Tell Them How To Set It

It seems that at some point landlords got confused and began to believe they have an interest in policing the thermostat programming of an occupied unit even when the tenant pays the utilities.   They “justify” their interest by saying that it’s to avoid excessive wear and tear on the unit. Here’s the holes in that justification.

The tenant is still paying the utilities.  99% of judges will say that when the tenant pays the bill you have no right to police the thermostat settings (with the exception of the 55 setting for heat). Since the burden of the utility expense is on the tenant, there is less justification in your mandating temperatures.  

As for the argument about excessive wear and tear…that’s buckus.  To the furnace and a/c there is no difference between 70 and 75. If you are concerned about the wear and tear on your furnace install an energy saving thermostat that only changes temperatures when it varies more than 3 degrees around the target temperature. This will more adequately protect your furnace without upsetting your tenant.   (Most tenants will like this thermostat as well because it will save on their energy bill.)

Etiquette Lesson 4: Even if you pay the bill a judge will only give you so much leeway on mandating unit temperature. 

If you read the above section thinking you were in the clear because you do pay the gas and electric…you are kind of right but also not. You have a little more interest in what they are keeping their apartment at because you are footing the utility bill BUT you have to keep in mind the tenant still has certain rights, including right to enjoyment without excessive interference from you as the property owner. 

As an owner providing the heat you may be able to get away having a clause in the lease that limits the winter temperature to below 70. Anything less and it’s going to look like an infringement. In the same way you are unlikely to get away with having a clause that says the A/C can only be kicked in if the unit temperature rises above 80.  

Etiquette Lesson 5: Cold snaps wreak havoc on your HVAC system. 

Your furnace will thank you for this next piece of advice.  When temperatures get into the single digits ask your tenants to turn down the heat by 5 degrees and wear an extra layer or use blankets.  

When temperatures dip below 10 degrees any HVAC system will have a hard time keeping up.  Pretty much as soon as it stops going it will need to turn on again (or at least in under 3 minutes).  Give your furnace an extra breather by dropping the thermostat about 5 degrees. (Dropping it somewhere between 5 and 7 degrees is optimal.)  Your furnace will appreciate the extra breather time between when it shuts off and starts up again when its limits are being tested by extreme outside temperatures. 

Hopefully this blog has given you a few ideas or new perspectives on furnaces in rentals.  Keep in mind with the new smart thermostats an argument could be made for invasion of privacy. So it’s best to consult with an attorney before you make a wide change to your thermostats.  Smart thermostats aren’t cheap so if you end up having to replace them it’s going to be a pretty penny sent down the toilet.

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