What is a landlord supposed to do?
The previous article “What is Going on with Rentals”, was an overview of some of the recent changes that are impacting rental properties.
Most tenants are at a stage of life where renting is the best option for them, and genuinely do their best to pay the rent and keep a place in good condition. It is good to keep that in mind if you find that you are struggling with tenants that are not paying rent, or where the landlord-tenant relationship has been strained. We are at a bump in the road for investment properties. This is a big bump, but still just a bump. In a scenario where people are in a struggle to maintain a place to live, emotions can include desperation, hostility, fear, anger, and lead to an adversarial relationship. It will be important for you to keep a cool head. Allowing yourself to be consumed by a bad relationship can escalate into a life ruining altercation as seen here: https://nypost.com/2021/02/23/upstate-ny-landlord-accused-of-kidnapping-tenants/
If you are in a situation with a tenant, here are some Do’s and Do Not's:
- Do treat your tenants respectfully – Allowing your own frustration to invade your communication will only make things worse. Do your best to maintain the goodwill of your tenants.
- Do Not try to find a sneaky way to get rid of your tenants – changing locks, turning off utilities, removing doors, etc. can be considered self-help evictions. Expect yourself to be in trouble with the law if you go down this path.
- Do maintain your property – you may be able to cut back with some expenses like how frequently the yard is cut, painting or non-essential items, but it is important to make sure that essential life items are working well. There needs to be hot water, the furnace needs to work, etc. Also, you don’t want your place turning into a dump.
- Do maintain communication with your tenants – You can discuss the rent with them. You should not be hounding them. If your tenants reach out to you, be responsive.
- Do Not put yourself in danger – If you are being threatened, or harassed, you should not be in your tenant’s face. Involve the police if necessary. If the police refuse to do anything in a situation that you feel they should, ask for a superior. You can also contact the District Attorney’s office if you feel there is a situation where charges should be filed.
- Do contact an attorney for your options. This is especially true if there is a safety or health issue. There may be some options to pursue. You can look into things without the use of an attorney, but currently there are so many ins and outs, and nuances with how to do things, you need a specialist. The cost of a good attorney will be less than the expense of doing something wrong.
If you are getting a weak stomach for the landlord business, you will find a lot of company. Deciding if you want to continue to be a landlord will be something that only you can do. You will need to consider your own risk tolerance and financial scenario. As you do that, consider the following:
- Many investments have periods when they lose money. Look at the investments you are holding in your retirement accounts. If you look at the performance of your mutual funds, you are likely to see that in some years the mutual funds lose money. Losing money on a real estate investment can feel different due to the day-to-day involvement, and the immediate impact on finances though. Many investors have done very well with buying investments when the value falls so low nobody wants them. If the investments recover, the potential for return can be quite good.
- If you are considering selling, talk to your accountant first. You need to know what the tax implications of selling will be. If you have been taking a depreciation expense on the property, you could be in a capital gain scenario with a sale. If that is the case, doing a 1031 exchange might be an option to discuss.
- If you have tenants in the property and decide to sell, it can be quite difficult. Potential buyers will want to tour the property. For financing, an appraiser will probably need to go through the house. Uncooperative tenants can make that cumbersome. If the property is one that your buyers will intend to occupy, you will hit a roadblock if your tenants do not leave to allow that to happen. Financing for the buyer can also fall through if they are not able to take occupancy. This is not the time to use a rookie real estate agent, or your cousin that sells real estate part time. Be prepared with some questions for a seasoned agent that will lead to a productive discussion about potential scenarios and how to approach them. Make a decision about what financing programs you will consider for a buyer. Your agent may want to engage a mortgage professional for additional guidance.
- Selling the house to the tenants can be a cost-effective way to exit. Don't get sucked into providing financing. Let them get their own financing. There are a lot of great financing programs available right now. If the risk doesn't fit the lender's programs, it probably doesn't fit yours either. Offering financing is not an exit, but digs you deeper if you run into a problem scenario. If you no longer own the home, your legal tool kit gets smaller.
- If you do decide to keep your property, utilizing a property manager like The Key to Rentals, can help you distance yourself from the investment, and have a disciplined approach to managing the property. Learn more on Selecting a Property Manager.
It has been a tough time for many people over the past year. Landlords are only now starting to get some press for the specific challenges that they have faced. Do your best. Be optimistic.
This article was originally posted at thekeytorentals.com
Thank you for reading!