What you missed November 2008 Meeting
by Robert Davis
Do your rentals take up too much of your time? David Tilney talked about how to streamline your property management and make your life easier as a property manager. He said the most important part of property management is the selection of the right tenants for your properties. Some of the major things David looks for in a prospective tenant are: Will they improve the property while they are there? Will they pay the rent on time? Will they get along with the neighbors? Will they make the property their home, plant things, etc, and stay a long time? Do they have pride in themselves and their dwelling? He also wants tenants who will pretty much leave him alone.
David has developed a very thorough tenant application form consisting of three pages of questions to help him determine if a tenant is worthy. He also has everyone who will be living in the property and is over the age of 18 fill out a separate application form. This way he avoids problems about discrimination with a married couple versus two single people living together. It also gives him better information that may be useful should a problem arise. Additionally he advises any prospective tenant that they will not be accepted on a ‘first come, first served basis’. He may take several applications and choose the best qualified for the property. David has a tenant evaluation sheet (2 sides) that he uses to evaluate tenant’s applications and other information to determine who will be good tenants. For example, he likes tenants with useful skills. This might be plumbing, electrical, carpentry, etc. These people may be better qualified to maintain the property. He also likes to know if they have garden tools, a lawn mower, etc., and whether they are moving out of a house or out of an apartment. Tenants who have not already lived in a house tend to be more of a problem than those who have lived in a house. The internet is a good source for advertising for tenants, and he uses several sites for this.
Another important thing he said is to have a criteria list. We must be consistent in evaluating every application in the same way. A couple things to be on the list are how we would handle pets. David said tenants with pets tend to stay longer since it’s harder to find a place to rent where they accept pets. Our policy should state whether we will accept all dogs, only dogs less than 30 pounds, cats, birds, etc. Also, how much extra rent per pet will be charged if any?
Using a performance lease which may pay the owner 90% of rents collected is better for tax purposes than charging 10% of collected rents as a fee. The fee would be considered ordinary income while keeping 10% of the rent could be considered passive income. Passive income is not subject to FICA and SS taxes which currently equal more than a 15% extra tax. David also talked a little about doing fixed rate leases and sandwich leases. However, we have to be careful with these to avoid some pitfalls, such as the owner being foreclosed on or selling the property while you still have a lease on it.
David Tilney’s local course in hassle free property management and master leasing November 15 through 17 is a great way to learn how to do it right. For more information about what he has to offer, go to his web site at www.DavidTilney.com . Happy land lording!
Past What You Missed
Jack Shea (2008)
See past meetings schedule here