Real Estate Snippets

Animal Smells

Smell is an issue in rental properties.  One of my rental units that had been occupied for 18 years by a gentleman vacated the end of last month.  The tenant probably saw the property change owners more times than each of the owners had tenants turn over!  As everyone knows, 18 years is a long time to accumulate "stuff", and as landlord's know, quite often the unwanted "stuff" and lots of dirt are left behind.  Such was the case in this unit as the pictures show.

Because my honey and I are the last owner in a long line of owners for this tenant, no deposit had been collected.  We inherited a tenant who smoked; who had owned a cat; who only occupied the unit a few days a month (He lived elsewhere.); who was a pack rate; and who didn't clean house much!  Previous owners had done NO upgrades or remodeling in his unit . . . possibly because they couldn't get past the "stuff".  It's taken us several dumpsters of trash removal and several weeks of repair to get the unit back to our standards.   The smoke smell is finally gone because every wall surface has been cleaned or repainted.  The toilet has been replaced.  The bottled water that had turned yellow was discarded!  We can see out the windows and screens again.

This week we approached the finish line.  We thought we were done with our part leaving just the carpet layer to do his work.  No such luck!  The carpet installer's nose (a very sensitive nose I might add) told him a cat had done its duty on the former carpet and the "duty" had soaked into the subfloor.  The old carpet and pad were gone, but the smell was not.  He suggested we not install the pad until we had treated all the cat spots with straight chlorine bleach!  I was so hoping to have a night off, so hoping.

Four gallons of bleach rolled on the subfloor with a paint roller seems to have done the trick.  The installer placed his stamp of approval on the smell (How could he smell anything but bleach?) and work will progress tomorrow.  Thank goodness!

As a side note, the carpet layer measured when the unit was in it's original condition and he complimented us highly for the vast improvement we have created.  It's one of my weaknesses.  I won't rent a unit that I would not live in myself!  Hopefully, this poor unit won't smell like bleach too many days into the future!

A New Gadget for Rental Property

If you're a landlord or property manager looking for a cool mapping tool to use for your rental properties, check out this link.  The tool is free and easy to learn.

Rental Repairs

One of the dubious privileges of owning rental property is dealing with city inspections.  In St. Paul, multi-unit buildings have an annual inspection required by the Fire Department.  The list of items checked includes whether the paint is in good repair, windows function, screens are intact and in place, halls and stairways are clear of personal belongings, smoke detectors and/or fire alarm systems function, number of occupants per unit, stairs have legal railings, glass shades are in place on lights, GFI outlets are installed within 6 feet of a water source, all electrical boxes have covers, bathrooms have exhaust fans or operable windows, etc.  The list seems endless.

Some owners dread this inspection like the plague, and sometimes with good reason.  If the property has deferred maintenance the list of required repairs can be extensive.  For owners who maintain their buildings, the repair list is shorter.  Sometimes the number of repairs depends on which inspector is reviewing the property as two different inspectors can come through the property and make two different repair lists.  In like manner two different owners of the same property can react entirely differently to the list!

My husband and I experienced this very situation recently.  A tenant's former girlfriend called the city in retaliation because her ex-boyfriend would not give her money.  (The tenant warned me the inspection was coming.)  The girlfriend said she was going to report his unit for overcrowding (it wasn't).  The scheduled inspection came out as well as another surprise inspection.  Each inspector had a different list of repairs.  The scheduled inspector created a minor list including things like removing a multi-plug adaptor from an outlet and replacing it with a power strip, installing a glass shade on the hall light, clearing the front entry in one of the units, making sure the windows were operable and screens in place, install a hydraulic door closer instead of the spring tension hinges, etc.  Because of my property management experience, the 12 minor items on our list were just a nuisance to me.  My husband, on the other hand, had heart failure and spent an evening ranting and raving about the city and how it didn't have the right!  He had been through 2 previous inspections with different inspectors who gave us no work orders.  He couldn't figure out why suddenly we had things to fix!  For him, the repairs were an affront to his attempt at maintaining a clean building.  For me, the work orders were a fact of property management.  It just is!

(c) Bonnie Erickson 2006

Minnesota Homestead Credit

One of the benefits of owning your own home are the deductions you can get on your income taxes.  Another benefit of owning your own home and living in it, is the discount you can get on your property taxes.

Minnesota is one of the states that gives a credit or discount on property taxes to homeowners for living in their property.  It is the state's method of encouraging owner occupancy and discouraging landlords.  The homestead credit is significant.  On my personal home, the homestead credit reduces my payable tax by 30%. 

A little published tidbit about Minnesota homesteading is that a relative can rent a property from you and qualify that property for a homestead credit.  Savvy property owners consider this option when they send a child to college.  A property in the child's college town can be purchased and rented to the college bound child and several other students.  As long as the child resides in the home, the taxes will receive a homestead credit reducing the tax  expense normally associated with rental property.  This reduction in the property taxes increases the potential for income from the child's tour of duty in college! 

Relatives that can qualify a property for the homestead credit include the owner’s parent, stepparent, child, stepchild, grandparent, grandchild, brother, sister, uncle, aunt, nephew or niece. The relationship can be either by blood or by marriage.  The relative must be a Minnesota resident, occupy the property as his/her primary residence, and be a qualifying relative.  Applications for the residential relative homestead classification can be obtained from your county assessor and be completed and signed by the qualifying relative.  More information about homesteading can be obtained from the Minnesota Department of Revenue.

(c) Bonnie Erickson 2006

Rental Repairs

A landlord once told me the way to guarantee that tenants paid for needed repairs on their dwelling unit was to write in the lease that all repairs over a certain cost were the responsiblity of the tenant.  This system made no sense to me.  If the landlord was aware of the defect, made the repair and charged the tenant, how was s/he going to collect the repair costs if the tenant refused to pay?  Take them to court and evict them?   

Another concern I had with this system was that tenants would not report needed repairs because they wouldn't have the money to fix them.  Consequently the property could deteriorate without the landlord's knowledge, or the landlord's repair alert might come in the form of an exceedingly high water bill or city work orders.

My preference for tenant management of repairs was to penalize them if they did not notify me immediately of needed work.  The tenant became a reporting partner in the maintenance of their unit.  Because of this system and our responsiveness to reported repairs, word got around that our units were good places to live.  We soon had calls from prospective tenants inquiring about our vacancies.

(c) Bonnie Erickson 2006

Tenant Management

I will forever proclaim that the hardest part of property management is the tenant management.  In buildings with more than one unit, the tenants fight with one another and there's frequently the "he said, she said" problem to solve.  Other times tenants almost expect you to wipe their noses for them.  If they're hot, the owner/landlord is to provide a fan.  If they're cold, the owner/landlord is to turn up the heat.  It's irrelevant that the heat is set at 80 degrees and they're lounging in their underwear with the windows open on a cold winter day.  It matters not.  If they're cold or hot, it's the landlord's problem!!!!

I won't go into all the political aspects of why it's the landlord's problem.  Suffice it to say that when the complaint comes in, it is the landlord's problem: not necessarily to solve, but because it's a nuisance to hear!

Some of the calls I have heard include:

• The call at 11:30 PM Thanksgiving Eve.  "The oven doesn't work and I can't cook my turkey!"  Now just exactly what is the landlord going to do to fix that problem on Thanksgiving Eve?
• The light bulb by the outside door is out and they can't reach it to change the bulb.  Have they tried standing on a chair?  No.
• "I can't mow the lawn because someone stole the lawnmower" . . . again!
• "There are little flies in the bedroom".  .  . Investigation revealed old lunches and fruit left under the bed.  The room smelled like a brewery.
• "The toilet doesn't flush."  This is my all time favorite.  Every time, I repeat, every time the toilet did not flush it was the result of something being flushed that should not be in the toilet.   The variety of items included combs, toothbrushes, children's toys, canning lids, tools, personal hygiene products and everything in between.  Thankfully, we never found baggies of drugs!
• "The guy next door is molesting his kids." combined with the fact that the guy next door has a restraining order against the complainant.  Whose job is it to decide who's right in that case?
• "The garage is burning!"  Never mind that it was the tenant's son who started the fire.

Training tenants in day to day maintenance and cleaning was part of the job.  One property owner actually defined rules regarding cleaning: how often, what products to use, and what equipment was needed.  If the prospective tenant did not have a vacuum, they were rejected as tenants!

School of Hard Knocks

One learns things in school and in the "school of hard knocks".  As a property manager during a time of hyper-sensitivity to lead, I did not realize that people identified with elevated levels of lead ("lead poisoning") are reported to the Public Health Department by their doctors.  In the case of minors, the Public Health Department keeps track of that child until their lead levels are back to normal.

A young family rented one of my nicer units and two weeks after taking occupancy, I got a call.  The Public Health Department wanted to test this family's unit for lead!  My knees turned to jelly and my head started to buzz.  The presence of lead was a legitimate reason to condemn the property.  Why did they choose this rental property?  Had we done something to alert the authorities or what?  As property manager I got the dubious privilege of meeting the PHD's representative in the apartment.  Conversation revealed that the children in this family had lead poisoning and everywhere they live will be checked in the same manner until the children's lead levels returned to "safe" or disappeared!  I had unknowingly rented to someone who could have caused the entire building to be condemned!  Yipes.  Further conversation revealed that this is why some owners have chosen to "discriminate" against children with lead poisoning which is perfectly legal as long as it's enforced for all protected classes of people.

Thankfully, our unit had no chipping, flaking or loose paint (we kept it that way) and the exterior was fully encapsulated with aluminum.  It passed the lead inspection, but I had learned a good lesson.  This new information caused the owner to add a new question on his application:  Have you or your children tested positive for "lead poisoning?".  Thankfully, I never encountered another tenant that answered "yes" to that question, but the owner established the policy because we learned in the "school of hard knocks".

Legal Discrimination

When one places a property for rent, usually the fair housing regulations apply.  Only under limited circumstances (i.e., renting a room in one's own home) can an owner discriminate against a prospective tenant based on the protected classes.  The categories protected under fair housing regulations in Minnesota include race, color, creed, religion, national origin, sex, marital status, status with regard to public assistance, handicap (whether physical or mental), sexual orientation or family status.

What many landlords do not know is that one can discriminate on the basis of unprotected criteria as long as it is part of your policy and as long as you discriminate on that basis across all the protected classes of people.  An example of this happened to me in the early 90's when I was doing property management.  There was an influx of gang activity from Gary, Indiana, into Minneapolis at that time.  Landlords were frantic to protect their properties from drug dealing and violent crime.  The Minneapolis police department conducted workshops for property owners across the city.  It was at one of these workshops that the statement was made, "Owners can make a policy not to rent to anyone who moves here from Gary, Indiana, as long as they enforce that policy for all races, colors, creeds, religions, national origins, . . . "  Prior to this training statement many landlords felt trapped.  It was almost as if one had to rent to any living breathing employed person!  This clarified for many owners and property managers that the key is to have a policy statement and to enforce it universally.

My policy statement included the following:

• I would rent to no one from Gary, Indiana.
• I would rent to no one who had a criminal record of weapons, violence, trafficking in drugs, prostitution, or domestic violence.
• I would rent to no one who had 911 calls to their current address reflecting friends who were involved in the criminal activities above.
• I would rent to no one whose child had elevated levels of lead poisoning.  (I'll explain this in tomorrow's post.)
• I limited the total number of occupants allowed in a unit based on number of bedrooms.
• I would not rent to someone who had an unlawful detainer history or was formerly delinquent on their rent.

Other landlords discriminated on the basis of smoking in an attempt to maintain non-smoking buildings.  The decreased risk of loss and the easier maintenance of non-smoking units (No smoke caked walls, smelly carpets and drapes, or burn holes in bath sinks, floors, or carpet.) saved much money.  All of these criteria were legal as long as they applied to all of the protected classes.  As the police officer at one of the trainings said, "You can discriminate against everybody who has purple hair or visible piercings, but you better not try to discriminate based on eye color because that could be construed as discrimination against some protected classes."

The Throne

Oooooooh, noooooooo!  A toilet!  She's showing a toilet!  Oooooooh, noooooooo!

Whether you call it the throne, the head, the John, the pot, the @#$%er, the potty, commode, lavatory, or toilet, this one fixture in the bathroom is responsible for more landlord dilemmas than any other.

Secrets of property management include how not to flush money down the toilet.  Two preventive maintenance items in rental properties are important for me:  changing wax rings on toilets and changing the "guts" in the tank.  A consistent pro-active schedule to change these two items will prevent greater expense if they wear out.

Because tenants seldom realize the importance of leaking toilets, a toilet can run in a rental unit for a whole billing cycle before the owner sees the increase in the water bill.  The bill can double, triple or skyrocket.  Calls to the water department return the pat answer, "Check the toilet."  After that response a couple times, I stopped calling the water department and called the plumber instead.

Cheap preventive maintenance can prevent these three kinds of leaks.

• The sneaky ghost:  the toilet starts running all by itself for a few seconds and then quits.
• The waterfall:  the water runs and runs and runs taking your money down the drain with it
• The creeping crud:  the wax ring has come unglued and allows flushed water to seep out between the toilet and the floor.  You don't want to be in the unit just below when the smelly crud starts dripping through!

To check for the sneaky ghost, open the top of the tank and drop some food coloring in the tank.  Do not flush the toilet.  Take the trash out and come back to check the toilet bowl.  If the food color has transferred from the tank to the bowl, there's a leak in the "guts" of the toilet.  A handy person (a husband or even me!) can usually replace the tank innards, but you can also call a plumber.  The plumber will usually cost less than the water bill you'll incur from this leak.

The waterfall usually means the flapper is shot in the tank or the chain to the handle is too short or ...  Same repair will solve this problem.  Buy a kit for the replacement parts at your local hardware store or call a plumber.  While you await a plumber, shut off the water to the toilet.  The water can be turned on for each use and turned back off until help arrives.  I know that's a lot to ask of a tenant, but careful instruction should create the desired result.

The creeping crud is gross.  Not only does the dirty water go under the floor covering, but if left undiscovered too long it will eventually drip through the ceiling in the lower unit.  When that happens, it's major repair time as flooring in the leaking unit and ceiling below usually have to be replaced.  The toilet must be lifted, a new wax ring installed, and the toilet reset (the least expensive part of the repair).

My solution to prevent these more expensive repairs is to have a plumber visit each of my rental units once a year to replace the tank works.  I ask the plumber what the replacement schedule should be for the wax ring, and we keep to that schedule.  Both the tank innards and wax rings are inexpensive and a plumber can do all my units in one day.  While he's there, I have him check other faucets and drains for leakage as well.  This annual maintenance is much cheaper than the shocking water bill I could get if the preventive maintenance were not done.

Crash and Burn

Property management is a misnomer.  Whoever coined the term never owned property, because the real test of rental property ownership is tenant management.  First hand experience was my teacher when I broke my own cardinal rule of rental ownership:  If the tenants get to you, hire a property manager!  Tough lessons are never forgotten.

A sunny afternoon presented my husband and I with another one of those opportunities to amass wealth.  Upon exiting my current rehab project, I saw the very agent who had listed this house coming out of a similar house just two doors away.  I waved a greeting and went to chat.  He was in the neighborhood listing the house he had just left.  My inquiring mind had to know the price and when he said $40,000 (for a house converted to a legal 2 bedroom up, 2 bedroom down duplex), I suggested we find a place to write an offer.  At $40,000, my income property rule of only paying $50,000 per unit was well met.  I could collect enough rent from one unit to cover the mortgage and expenses and use the other unit's rent to upgrade the property.

A month later my reluctant husband and I owned our first duplex.  He was scared.  To his fear I added my anticipation.  I loved the house with its character and immediately began to upgrade one of the units.  The rent, the hail storms of the late 90's, a tenant's son burning down the garage (long story for another time), all provided needed upgrades to the building.  The husband decided rental property was a good idea when he got the first year's tax returns.  He was all set to buy more!

But all did not stay so rosy.  Tenants revolved in and out, and my dream was to find some lifers, tenants who wanted to stay in one place for their lifetime.  My goal clouded my good sense, and I accepted a tenant who was a relative of the other unit.  Big mistake.  The fighting between the units turned me into a mediator.  The calls to the cops tarnished my good landlord reputation.  The garage burned down.  The tenants denied access to the property to make repairs.  The tenants reported me to the city for not making the repairs when I started the eviction process.  The tenants even denied access to the city inspector!  I crashed and burned.  A colleague was looking for a duplex for a client in the price range my duplex would sell, and I marked it sold!  Big mistake.  Huge mistake.  Dumb mistake.  Capital gains mistake.  Loss of equity mistake.  You get the picture.

Not only did I not hire a property management company, but the exchange we had set up backfired on us and we ended up paying more taxes in capital gain that year than my income.  Not to mention that property would be yielding a NOI (net operating income) of close to $1000/month today.  Did I learn a lesson?  You betcha!  I've already got the property management company picked out!