Management Tips for the "Hands-on" Landlord

John thought he had done his homework before purchasing his first investment property, a six-unit brownstone in an older, well kept neighborhood. Because of his good credit rating he had gotten a low interest rate on his mortgage. Even better, the building was 100% occupied and the tenants were great, according to the seller.

The day after closing, he went to the property to meet his new tenants. The news that they had a new landlord took them by surprise, but he was pleased at how he handled the situation. Before he left, he took a moment to walk around the lot and reflect on all the great possibilities his future held. At 27, he was hardworking and ambitious. He would save a ton of money by doing his own repairs and management. Life was good.

An older gentleman saw him strolling and walked up, introducing himself as the owner of a similar building across the street. "So you bought this place, eh?" he asked, scratching the stubble on his chin.

"Yes sir," John said proudly.

"Well, congratulations, son. Now the fun can begin."

At the time John thought the comment a bit odd and shrugged it off. But three months later he knew exactly what the old man had meant. Being a landlord was not an easy job, and when he found himself flooded with problems resulting from his lack of management savvy he decided he had better quickly educate himself before he drowned. He took note of each negative experience, learned from it, and vowed never to make the same mistake twice. Because landlording is a business in which tenacity and willingness to learn are rewarded with tangible results, John was able to get back on track and went on to purchase many more properties, increasing his net worth all the way.

If you are a do-it-yourself type who is new to landlording, the learning curve need not be fraught with trial and error. By following these basic tips, your journey on the road to success will be much easier to navigate.

Tip #1: Landlording is a business; treat it like one.

Accepting payment (rent) for a product or service (housing) means you are in business. Therefore, professionalism is a must. When John went knocking on apartment doors to introduce himself as the new landlord, his tenants had no idea who the man in a suit and power tie was. When he tried to relieve the tension by making casual conversation, he was met with suspicion and hostility. In trying to show that he was just an Ordinary Joe, John nervously let slip his marital status, age, and the area he lived in - all more information than his tenants needed to know.

A management change directly affects tenants, and they deserve to be properly informed when one takes place. When John failed to do that with his tenants, it upset them. While it is certainly preferable to be on good terms with your tenants whenever possible, attempting to defuse awkward situations with an inappropriately casual tone comes across as insincere. Rather than make friends, your goal as a landlord should be to foster a climate of mutual respect, and being cordial, yet firm in your dealings is the best way to achieve that. Prior to introducing himself in person, John should have simply sent his tenants a letter notifying them of the change, with a contact phone number listing his business hours.

Tip #2: Don't dress to impress.

As a hands-on landlord, it is neither advisable nor practical for you to wear business attire when visiting your rentals. This is especially true in the case of multifamily properties like John's, where there is a greater possibility that you may be need to do an impromptu repair or two while you are there. If a tenant pulls you aside to tell you his toilet won't stop running, that Ann Taylor blouse will not look very nice once there's black gunk on the sleeves from replacing the disintegrating rubber flapper inside the tank.

Though professional conduct is critical to your success, it is not necessary to dress like a banker in order to project a professional demeanor. Many landlords dress very casually for work, simply because they know far too many people associate a spiffy wardrobe with wealth. Misguided though that perception may be, it's not one they want to promote. And who can blame them? Why should a tenant rush to get his rent in on time if he thinks the money doesn't matter to you?

Tip #3: Your lease must be inclusive and clearly written.

John's lease was taken from a boilerplate template that he got off a website. He did not modify it to his needs, therefore issues specific to his property were overlooked. For example, while his lease stated the rent due date, it failed to address a grace period, or penalty for late payment. As a result, in the first full month after he had taken ownership several of his "great" new tenants attempted to put the omissions to the test by simply not paying rent.

Two weeks into the month John had received only two rent payments and realized the error of his ways. He finally gave his lease the scrutiny it should have been given initially and drafted an addendum to it, mailing it to his tenants along with a couple of eviction notices. But because he waited so long to take action, he ended up carrying his tenants for the majority of that month. He also felt like smacking himself for having taken as gospel the seller's claim that the tenants were "great" without asking to see rent records that would have shown whether or not they paid on time (Many buyers, when doing due diligence, make the mistake of not getting verification of crucial information for fear of insulting the seller . It's your money at stake; investigate thoroughly).

Tip #4: Know your state eviction laws, and don't be afraid to actually evict.

Because eviction is never pleasant and occasionally can turn downright nasty, it is important for you to be familiar with your state laws regarding the process. But all states have one thing in common: landlords must give proper notice to tenants of their intent to evict, the decision must be ordered by a judge or magistrate, and the actual eviction, or "setting out", must be supervised by the court.

One of John's tenants still had not paid rent despite the notice, but she had a reason. In fact, she had several, and tried them all out on him over the course of several phone calls: Easter was coming and she had to buy her son a new outfit; her employer had cut her work hours; she had a leak under the kitchen sink which John "had refused" to fix (he hadn't been informed until then). It was only after John told her that he would not rescind the notice and would proceed to file it in court once the seven day notification period was up that she somehow found a way to make the payment.

This is not always the case, though, and you must be prepared to carry out the court process for eviction if it becomes necessary.

Tip #5: Don't be played.

Put emotional appeals by tenants in perspective. One good way of doing this is to imagine yourself giving a creditor the same reason for non-payment of a bill that your tenant gave you. What kind of response do you think you would get? Your creditors do not allow you to shirk your responsibility, and chances are they have much deeper pockets than you.

Yes, there can be legitimate reasons why tenants are late with rent. And because you're human, some of them will even tug at your heartstrings. But don't let tenant problems become yours. Tenants are entitled to have a legal authority determine the validity of their reason(s) for not paying rent. Likewise, you have the same right as a landlord to have your case heard. Take advantage of the legal system when it becomes necessary; it's the only way to go. Even though it is your property, using "self-help", or retaliatory measures to get rid of a problem tenant is illegal and not worth the risk.

Tip #6: Keep up your end of the bargain.

You should be aware that under certain circumstances, a tenant can legally withhold rent. If a unit is not kept in reasonable repair rent can be withheld until the required repairs are made. However there is a procedure for withholding rent which is dictated by state law; the tenant cannot arbitrarily decide not to pay. In most cases, they must mail the landlord a letter stating why they are withholding rent, and allow reasonable time for the landlord to cure the problem. If it is not corrected the tenant will need to file a complaint, with the rent held in escrow by a neutral third party (which is often the court).

Tip #6: Need help? Get it.

No one does everything well. Being a "hands-on" landlord does not mean that you attack everything as a solo endeavor. It does mean that you know what is going on with your investments - no matter how few or many units you have, or whether you delegate certain duties or not. Some landlords are comfortable handling minor repairs themselves; others "don't like to get their hands dirty." Whichever category you are in, know your limits. If you lack the credentials to do a repair, don't attempt it - hire a professional. In addition to sparing you frustration and time, you'll avoid potential liability issues resulting from a botched job. Besides, you cannot deduct your own labor at tax time.

Treat repair requests seriously and handle them quickly. If you have to repair or replace an item due to tenant negligence, misuse, or abuse, do it as soon as possible and bill the tenant. Never delay maintenance because you are upset with a tenant - it's your property. The only one you'll hurt is yourself.

Tip #7: Screen all potential tenants.

You've had a vacancy for a few months and someone comes along with cash on the barrel who wants to rent it immediately. You may be tempted to take the offer, but don't. Choosing tenants based on haste or need will result in a constant drain on your emotional and financial well-being. Screen your tenants. This is as crucial a rule for landlording as the "measure twice, cut once" rule is to carpenters.

Do not be influenced by how well an applicant dresses (there's that perception again), speaks, or drives. And though it may hurt at times, do not be swayed by your own financial standing at the time. Use the same qualification criteria for all applicants; it is illegal to discriminate against applicants because of sexual preference, race, or religion. You are, however, entitled to a reasonable assurance that the applicant you are considering can afford to rent your place. If their income indicates otherwise, you don't have to rent to them. Your application may also ask if the applicant has ever been convicted of, or pled no contest to a felony. If they have been convicted, you can deny their application. You can also turn down an applicant if you uncover lies on the application.

Verifying employment, checking for criminal activity, and pulling a credit report on an applicant are all relatively simple procedures which will decrease the chances of you getting a tenant you have to evict a month later. There are several companies you can register with online that provide this service at a reasonable rate. Jeffrey Taylor's website, Mrlandlord.com, offers a credit report service along with a wealth of other resources and information for the hands-on landlord.

Tip #8: Write it down.

Documentation is essential. You may have a memory like a steel trap, but do not trust your ability to accurately keep income and expense records on assorted paper scraps, or, needless to say, in your head. There is software designed specifically for landlords that has greatly simplified the task of recordkeeping, but many find the plain old spreadsheet and word processing programs that come bundled now with most PCs sufficient. Whichever option you choose, get your information loaded into a program you can update with little effort, and make frequent backups to a portable disk or CD.

Mail memorandums or letters to your tenants informing them of any updates or changes, in clear, unambiguous language. Unlike a conversation between two people, a printed, dated hard copy of a document is difficult to refute. And like it or not, the occasion may arise when you need to produce evidence of a communication. Written communication is still the best way for a businessperson to Cover Their Assets. Make notes of phone and face-to-face conversations with tenants.

While the business of being a hands-on landlord is not effortless, it doesn't have to be a grind. With planning, organization, and determination, along with a healthy amount of people skills, you will be on your way to becoming a successful entrepreneur.