Real Estate Snippets

Minnesota Certificate of Rent Paid - CRP's

It's CRP time again.  Actually, it's almost past time, because Minnesota residential rental property owners and managers have just one week left (due January 31, 2009) to complete Certificates of Rent Paid for each of their tenants.  That includes any tenant that paid rent in the last year, even if it was for one month only. 

So, get out the books, or Quick Books, or Quicken, or Peachtree, or whatever system you have and devote a few hours to sorting through the dates of occupancy and amount of rent paid by each tenant.  Then, of course, you have to find a current address or send it off to the address your tenant rented and have it returned to you.  When it comes back, hold on to the thing until you get a call and then forward it to the correct address of the tenant.  Yes, that's just a bit of sarcasm, but it's a duty that I dislike.  It's bad enough sorting through the dates of occupancy if you've had a high turn over, but having to sort through which tenants had adult roommates and divide the CRP's between the roommates (even if THEY didn't pay), etc., is tiresome at best.  It must be done or the landlord can incur a fine for each incident.

The State of Minnesota has made the small landlord's job a tad bit easier, though, by giving us the forms online with the ability to fill them out ONLINE.  That thrills me because I can type faster than print and I only have to change the tenant specific information on each form I print.  Regrettably, the form cannot be filed online, but they can be completed and printed for distribution to the respective parties.  The form and instructions for filling it out can be found here.  (It only works with Internet Explorer, however.)

Rental Property that Makes Sense

Duplexes can be tricky rental properties.  The units are usually small enough that the tenants need to get along or be miserable.  Sometimes duplexes are not equipped with separate utilities either.  Occasionally they have been chopped up by well meaning investors who wanted to make more money by adding more space. 

A perfect example of making a duplex ugly to earn more money is this duplex on Nugent Avenue in St. Paul.  The "before" picture on the left tells an ugly story in this exterior shot.  No one wanted this forsaken building.  Only a few people could see beyond the ugly front porch enclosure and the boxy second floor addition.  Luckily for this duplex, Mike Williams, the owner of Regal Designers and Remodelers, Inc., could see beyond the short sightedness of former owners.  Today, after a full year of rehab, this historic building has a facade more in keeping with its former self.  Yes, some square footage was removed along with the removal of the enclosed porch and second story "box", but what a difference in how the building looks.

Other things in this duplex that make my heart sing include:

• Separate utilities including a second water meter
• New furnaces
• New water heaters
• New windows
• New kitchens
• New bathrooms
• Refinished wood floors
• Fresh paint throughout
• New double garage with a separate stall for each unit
• Three bedrooms in each unit
• Separate laundry for each unit
• Extra space for future expansion in the basement for the main floor and in the attic for the second unit

Last, but not least, it's for sale!

Green Rooftops

Imagine the view from the office skyline that had lovely green rooftops instead of cold cement surfaces.  My thoughts go beyond grass to flowering gardens and fresh vegetables growing from the flat tops of buildings across the city.  The advantages of natural sun protection and soothing aesthetics are numerous.  We could all daydream at our desks and take breaks amid the flowers on the roof!  These are the thoughts of those who want to "green" our air and rooftops.  Carole Cohen in Cleveland and Elaine Reese from Worthington, Ohio, each recently wrote interesting pieces on greening rooftops.

The experts agree a roof must have a waterproof barrier before grass is planted, but I can't help but remember an old landlord's experience every time someone talks about "greening" a roof.  The building was a duplex.  The main floor housed a long term tenant who seldom complained about the property.  A new resident had occupied the second floor for about 7 months.  One afternoon the owner received a frantic call from the main floor resident.  The ceiling over his living room had been discoloring for a couple months but he had ignored it.  The call came to the landlord when the ceiling had started to drip and appeared to be sagging!  The tenant couldn't figure it out as the kitchen and bath were not over the living room. 

Further investigation by the landlord found a full fledged vegetable garden growing under lights on the upper level.  (For the suspicious, it was not marijuana.)  The immigrant family did not realize the damage the soil and water would create in their dwelling (Their homes were constructed of concrete.), but knew they needed to grow some of their native vegetables that could not easily be purchased here.  The landlord was shocked.  The insurance company didn't believe it, but in the end it all got sorted out.

The moral of the story is that if you want to make your roof "green" make sure you get professional advice on how to first waterproof the building below it!

Landlord Woes

It's my mantra:  property management is really tenant management.  Given my mantra, it's totally annoying when I've been had.  Yes, I've been had by a tenant and it was all my fault.  TLH (The loving husband) liked the way she looked.  She was a classy lady.  Very refined and articulate.  Her hair was in place, her clothes were nice, she wrote legibly, etc., but I should have known better.  The application checked out except for one small flaw.  The rental reference company showed changes of address about every two months.  Yep, I shoulda known better.

TLH said go for it, so knowing I could cast the blame on him, I signed the lease.  Thankfully, we chose a month to month "trial" period before executing a longer term lease.   The neighbor complaints began immediately, on day one of occupancy!  The police called.  They didn't pay the balance of the rent.  Calls made from my known number were not answered by the tenant but from my office they were.  The lower unit was flooded by an overflowed toilet. We got visits with complaints at 2:00 AM and calls regarding heavy bass at 4:30 AM! It ended with a 45 minute shouting match in which the neighborhood and I were called many unsavory names! 

By day 21, we were done, but I kept hoping.  My hopes fell flat.  Thirty days after the lease was signed, we gave notice that we were terminating the lease effective the end of the next month.  Of course, the rent didn't get paid for that month, but empty promises kept floating my way.  My assumption was they'd remain past the move out date which they did.  Only with a stern threat of filing an unlawful detainer did they move  leaving an apartment full of "stuff" for us to deal with.

Some landlords have creative ways of dealing with these problems.  A client said he "repairs" the entry door by removing it until they leave!  Steve Glover shares in his blog about a nightmare owner in California.  My husband's first experience with removing tenants had him issuing fantasy threats of changing locks at midnight and proclaiming, "This is MY building!" 

Regrettably, one has to follow the rules.  Using the month to month lease as we did, allowed us to terminate the lease by giving written notice no later than the last day of the month stating that the end of the next month is the end of the lease. This allowed us to avoid a court action.  The thirty day notice cannot be given at mid-month for vacating at the following mid-month if the lease period goes from the first to the last day of the month. 

Had the tenant not left, filing for an unlawful detainer at the courthouse would have been the next step.  The $250 filing fee is a bit tough to bear, but well worth getting rid of a troublesome tenant.  The papers have to be properly served and every "t" crossed and "i" dotted in order to successfully follow through with an eviction (unlawful detainer action).  If the owner doesn't follow the law and the correct procedure, the tenant has every right to stay in the property regardless of what the owner desires!

Certificate of Rent Paid - CRP's

If you're a residential rental property owner in Minnesota, you are required to issue a CRP (Certificate of Rent Paid) to each of your tenants by January 31, 2008.  The CRP verifies the rent each of your tenants paid in 2007.  The State of Minnesota website has the forms on this page (It only works with Internet Explorer.) under "CRP Instructions for Landlords". 

Like all small time landlords, I stall and stall in issuing the CRP's.  It's not a hard job, just a pesky one.  It's fussy work.  In previous years I have filled out one form by hand which contained the information that was consistent on all the forms.  Information like the PID (Property Identification) number and the owner's name and address did not change on the individual tenant copies.  I would copy the one that was partially completed and add the variables for each tenant by hand.  Information about each unit, the length of residency, etc., all differed by tenant. 

Imagine my surprise when I clicked on the forms link (from my own blog I might mention), opened the form I needed, and found that this year the CRP form can be filled in (not filed) on-line and then printed for the tenants!  The State of Minnesota has finally joined the age of technology!   

What a relief.  I accomplished the same putsy task in half the time because I type faster than I write.  The same constants could be typed in including the tenants' addresses and all I had to change was the unit numbers and the months of residency. 

The CRP's are done.  I'm happy.  My tenants will be thrilled to be able to read the form for a change.  (I used to have beautiful penmanship BEFORE real estate.)  The State has shown its ability to change with the times.  We're all moving on.

If you've got this dastardly task to do yet, check out the link above.  You, too, may be thrilled with the new improved forms.

Pros and Cons of "Found Space"

A quality investors love when purchasing a rental property is what I call "found" space.  The thought of bonus space that can be finished into more bedrooms or even an entire additional unit gets an investor's full attention.  The additional living quarters translate into money!  If the property already cash flows with the existing space, how much more money will be made with additional square footage or an additional unit?

A perfect example of the vagaries of "found" space follows.  The St. Paul building was actually 5 units but one of the units was an "obsolete" one bedroom apartment being used for storage and office space by the former owner.  The advantages to having an obsolete unit were multiple, but the primary one was that the building could be financed as a conforming residential property (even an FHA ARM) since the appraiser considered it to be 4 units.  A conforming loan meant a lower interest rate and lower down payment.  If the appraiser had considered the building as 5 units, the buyer would have had to get a commercial loan with a higher interest rate. 

The buyer was ecstatic with the appraiser's assessment of the property because it cash flowed as 4 units.  The buyer already had plans for finishing the 5th unit and adding another $500-600 to the monthly income.  Whoopee!  Hooray!  Let's get to the closing!

Now, several years have passed and the adjustable rate mortgage has reset making the current interest rate similar to the rate the owner could get on a fixed rate mortgage today.  The owner investigated refinancing at a fixed rate assuming the property would still qualify for a conforming residential loan.  Ooops!  Not only did the addition of the 5th unit bump the property into a commercial loan category, but the loan officer warned the owner of another roadblock.  If an appraiser went out to determine the property's value for eliminating the private mortgage insurance and found the 5th unit, the mortgage company might call the loan due immediately!  Oh, my.

The owner has just begun his journey into the financing world, and doesn't HAVE to refinance, but the bad news about the private mortgage insurance will cost him a few thousand dollars.  In the grand scheme of things, that few thousand dollars will be recouped with the extra rent, but the inconvenience of not being able to refinance or remove the PMI until the alloted time was an unexpected bump in the road.  He'll be checking out other avenues and in the future . . . Well, the next "found" space will be turned into extra bedrooms instead of an additional unit!

Domestic Abuse Lease Termination

The holiday season is in full swing and much to the chagrin of public servants and mental health professionals, increased holiday fervor is accompanied by  an increase in domestic violence.  Reasons can be many ranging from more parties with access to alcohol, financial stress from buying presents, spending time with relatives that one doesn't get along with, time pressure or just plain being alone.  In too many cases these stressors are the  breeding ground for domestic abuse.   

St. Paul rental property owners should be aware that a new Minnesota law became effective on July 1, 2007, that gives very specific victims of domestic abuse the right to terminate their lease prior to the ending date with no financial repercussions.  The law applies only to a tenant who is a victim of domestic abuse and fears imminent abuse to self or minor children if they remain in the leased premises.  There is a specific procedure the fearful tenant must follow in giving notice and the law only applies in a narrow set of circumstances.  As a landlord, however, it is wise to be aware of this new law in the event a tenant gives notice based on domestic abuse.  A copy of the law can be accessed here.

A Truncated Buyer's Inspection

Buying a rental property is different from buying a home.  With a home, the buyer uses his/her own income to pay the mortgage.  With a rental property, most often the rental income is used to pay the mortgage.  As a result, proof of the rental income and occupancy history of the property is provided to the lender.  It is also important that the property be fully rented at the time of sale if the income is necessary to qualifying for the mortgage.

Many times investment property sellers do not want the tenants disturbed during the time the property is for sale.  A prospective buyer is often allowed to only see "sample" units that may, or may not, be representative of the whole building.  A rental property may be listed as "fully occupied" or "fully rented".  Occasionally the building is NOT fully rented as advertised which impacts the buyer's ability to qualify for the loan.

The buyer's insepction provides a perfect opportunity to determine that all the units of the apartment are rented.  Not only does the buyer get the normal detailed information about the building's condition but at the same time, the housekeeping and occupancy of each unit is verified as well.  A couple times one of my clients have discovered in the inspection that a St. Paul property listed as fully occupied were actually 50% vacant.  The listing agent excused this oversight saying the other units would be rented by the time of close which was just 5 weeks away!

Because there are so many details to check when buying a rental property, sometimes the obvious things are overlooked.  Such was the case with the St. Paul property shown in this picture.  My client liked the building, liked the large yard, and liked the price.  The seller was cooperative in providing supportive paperwork to satisfy our contingencies of proof of rental income, occupancy, etc.  We were so busy verifying everything else that we missed the elephant in the room.

We arrived for the buyer's inspection to find the inspector standing across the street awaiting our arrival.  He glibly asked if we had looked at the property from this angle.  We turned to look at the building across the street and, much to our chagrin realized, the top of the property was listing to the right at about a 15 degree angle.  In this situation, the proof of rental income and occupancy was moot.

CRP Reminder for Minnesota Landlords

It's January again when self-employed people start sorting their shoebox of records to prepare for tax preparation. 

If you're a residential rental property owner in Minnesota, you are required to issue a CRP (Certificate of Rent Paid) to each of your tenants by January 31, 2007.  The State of Minnesota website has the forms on this page under "CRP Instructions for Landlords".  The forms are quite simple to fill out if you take the time to read the simple one page of directions.

People from other states or who have not rented question what is the purpose of the CRP.  The form allows tenants to file for a rebate of a portion of the property tax paid by the property owner.  Minnesota has a property tax discount for owners who live in the property they own.  As a result, non-owner occupied property, i.e., rental property,  has higher taxes.  The theory is that landlords charge higher rent to tenants to cover the tax cost (no kidding!).  The rent rebate is the State's attempt to give a portion of those higher rents back to the tenants.

It's convoluted, I know, but keep it simple.  Fill out the form and mail it to each to your tenants to be in compliance with the State law.

Property Management

Some tenants don't know when enough is enough.  My honey is a mild mannered Clark Kent type until he gets pushed too far.  Last night a tenant did just that.  He pushed and pushed on the phone and then made the mistake of hanging up on TLH (the loving husband).  I would have loved to be a fly on the wall when super husband ended up in the tenant's unit.  Disrespect is something TLH will not tolerate.  Hanging up in the middle of a conversation or honking from the street are in the bucket of disrespectful actions he cannot abide.  If a tenant has a legitimate dispute with another tenant in the building, hanging up on the owner/landlord is not the action to take!

It turns out that Mr. Disrespectful was upset because there was not a parking place for his car behind the building.  There were lots of spaces on the street, but one tenant had taken two places (only one allowed) and Mr. Disrespectul was demanding the other car be moved instantly.  There was a tight space open, but he didn't want to use that one.  Prior to TLH's arrival (just 2 minutes) or even before the phone call to us, Mr. Disresptful had kicked and pounded on the other tenant's door to get them to move the car (We will be checking for damage.).  It was below zero and the second car would not start which is why it was stuck in the lot.  Mr. Disrespectful didn't care.  It had to be moved now!  TLH was met at the door with, "We're moving!" to which TLH replied, "I'll take your 30 day notice now.  I can easily rent this unit to someone else for at least $150 more than I'm collecting from you.  Besides you're late on your rent."  Mr. Disrespectful didn't care.  He was in a huff.  What he doesn't know is that he is on borrowed time.  Too many more encounters like this with my Clark Kent husband will find this tenant eating his threats.  He will be moving on.

And some people wonder why property management isn't for everyone!