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Thursday, April 05, 2007

Rental #2 Purchase Moving Forward

I had a nice, long discussion with my property manager this afternoon and was impressed with what I heard. I first confirmed that she had spoken with the tenants in Rental #1 and told them they now need to send payments to them. She said she both sent them a letter and spoke with them in person. They were still processing the rents checks for this month, so she couldn't tell me if they had paid yet or not, but I think they probably have.

I mentioned that my lease specifies that the tenant is responsible for pest control and minor plumbing leaks. I told her I already had sent people out to spray for bugs and to fix the leaky toilet, so I would pay for those, but I wanted to make sure she knew that in the future the tenant would be responsible. She said I could send her the bills and she would go after the tenants for reimbursement! Well, assuming it was their fault. She said she wouldn't make a tenant pay for a leaking toilet if the problem was a 30 year old wax ring that needed to be replaced, but if it was leaking because they were abusing the toilet or something, she would. I am torn though as to if I should bother with it this time. The former owner told me she thought the tenants might move out if they were forced to pay. Maybe if it was closer to the expiration of their lease, I wouldn't have second thoughts about this.

As part of the above discussion, the property manager told me a story about how she went after someone to collect what they owed. I guess one of their renters moved out while still owing them $60. To collect, the PM wrote a fake letter to a collection agency and cc'ed the old tenant. The letter gave the tenant's information and asked what else was needed to move forward with garnishing their paycheck. She said the day after the old tenant received the letter, she came in and paid the bill :-) Now in this case, the PM didn't actually mail the letter to a collection agency, but she did say she has a relationship with one in case it comes to that.

I also mentioned Rental #2, which the current owner is just moving to their management company. I told them I had that property under contract and hope to close on it soon. It is a Section 8 rental and the lease is up on July 1. I told her I'd like to raise the rent from $439 to $460, which is about a 5% increase. I spoke with the Section 8 agency in Oklahoma yesterday and found out the procedure to raise rents. First, you must give 60 days notice to the agency. The 60 days must commence on the first of a month, which means I'll need to get the request in by May 1. Once the request is received, the Section 8 worker assigned to your property will do an evaluation of neighborhood rents and see if your new rent is comparable to what other properties in the area are going for. The management company deals with Section 8 all the time and my PM said there is a fixed percentage increase that is allowable that does not trigger a new comp study and she usually raises rents one percentage point less than that. She didn't know the exact amount off hand, but thought that it was more than 5%. So it looks like I'll get a rent increase shortly after buying the property, which will help my ROI.

The PM also mentioned that she had four properties for sale right now and asked if I was interested. I'm close to tapped out right now with the purchase of these two properties, but I will keep them in mind. I'd like to get to up to 4 properties to get the discount they offer on management services.

I also (see, I told you it was a nice, long chat with her) spoke briefly with her about a mutual acquaintance...

9 comments:

Trisha#1 said...

Well, that explains it! Thank you, Shaun! :-D

Anonymous said...

I agree with your gut assessment. Let the toilet plumbing leak slide - how do your prove/disprove a toilet leak was the tenant's fault anyway? - and have the PM be a bulldog on any future minor plumbing leak's and pest control.

Joe W.

Doug O said...

Shaun, it's always a fine line to walk on whether to go after a tenant for repair or not... While I like to defer to the tenant for minor repairs (as per the terms I have in my lease), if it comes to making an otherwise good tenant leave, I would almost always bite the bullet and pay for the repair myself... Unless it becomes a recurring problem that would have to be addressed...
I think in your situation, this is magnified, since it's a new property and you are the new owner, etc... So it wouldn't be prudent to go in there, guns blazing, this time...
Just make sure you don't get taken advantage of in similar situations like this in the future!

Anonymous said...

Is it legal to charge tenants for repairs that aren't due to abuse of an item? Toilets and plumbing wear out eventually and I believe anything due to normal wear and tear would be the responsibility of the landlord/owner.

Shaun said...

Your lease is a legal contract, so if your lease specifies that the tenant is responsible for minor wear and tear issues, they are. As Doug O pointed out, if they are good tenants, a landlord probably wouldn't mind fixing minor things for them once in a while.

Steve said...

I actually have a clause in my lease agreement that says the tenant pays the first $____ of ANY repairs (I usually put anywhere from 25 to 50 in the blank), and ALL repairs in which it is their fault, of course.

BTW, Shaun, congrats on your new rental! I feel as though I'm spinning my wheels when I read about you and Trisjha acquiring all these assets. :-P

Shaun said...

Thanks, although I haven't acquired as many as Trisha has. Keep in mind, I haven't had a rental property for a couple years. I've spent the last two years doing just what the Cashflow 101 game taught me - flip properties to get cash, then buy rentals. I just reached the tipping point and switched from flipping mode to buying mode.

Anonymous said...

Plumbing issues are covered by state laws in a lot of cases. I'd make sure that your lease does not conflict with whatever the laws are.

sergeson said...

Shaun, welcome to my blog roll. I see I have a bunch of reading to catch up on here. :)

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