Author: Jeff Stinson

Often landlords are looking for ways to maximize the rental income from their investment properties.   One common practice, especially in college towns, is to rent out individual rooms to single adults.  The hope, is that the accumulation of individual rents would add up to more income than what you would get when renting out the whole home on one lease.  Although this might sound like a great idea, there are several reasons this can cause you a lot of trouble.  I’ll go over the top 7 problems you can run into when renting out individual rooms.  You don’t want to miss the last two.

To examine, let’s imagine a fictional character named “Joe the landlord”.  Joe the Landlord has a 5 bedroom home and rents it out to five individual female adults, with 5 individual contracts.  Things start out great for Joe the Landlord but he quickly runs into some issues.

In order of smallest problem to biggest problem, here are Joe the Landlord’s top 7 problems that resulted from renting out individual rooms:

1. Joe’s phone was always ringing because generally his tenants were young and inexperienced and in the middle of a lot of life changes.  As a result, someone was always needing to move and sell their lease to someone else or swap rooms.  Oftentimes parents of the tenants would call as well to discuss or negotiate something.  The phone calls never seemed to end.
2. To attract his target market Joe the Landlord had to furnish the home.  Not only was this expensive but it exposed him to more maintenance and upkeep costs.
3. During an inspection, Joe the Landlord discovered a broken cabinet in the kitchen, a rip in the couch, and a broken towel rack in the bathroom.  When he asked about them, none of the tenants fessed up to the damage.  With individual leases for each bedroom, the rest of the house was considered “common area” and without evidence or someone claiming responsibility, the repair costs fell on Joe.  Had the tenants all been on the same lease, he could have held them all equally responsible.
4. When a vacant room came up, Joe the Landlord started advertising that a woman’s contract was available because all of the other tenants were also women.  Joe was soon contacted by an attorney that told Joe he was being sued because Joe’s advertisement discriminated against the attorney’s client that was a male.
5. After changing his advertising so it didn’t specify the sex of the tenant, a 40-year old man applied.  The applicant did not have any credit or background problems so Joe had to approve him.  Joe the Landlord quickly had a lot of complaints from the four young women that were already living there and then his phone really blew up when the parents of those tenants started calling him.
6. The city contacted Joe because neighbors were complaining about all the cars parked in the street.  Joe discovered he was violating city zoning laws by allowing so many unrelated, single adults to live in his rental.  He was now facing fines and legal action from the city.
7. Joe the Landlord received a letter in the mail informing him that he was being investigated by Federal Fair Housing because the attorney suing him had reported him for discriminating against a protected class of people in the case of advertising a women’s only contract.

This may seem like an extreme scenario with Joe the Landlord, but every one of these problems are very real and really do happen.  Had Joe watched our video about Federal Fair Housing Laws, see the shared link, or hired a competent property manager, he would have been able to save himself a lot of grief and expense.  For your own property management needs, and to avoid the fate of Joe the Landlord, contact Kasteel Property Management today.

If you found this video helpful please like it and subscribe.  You can also find more short videos and helpful landlord tips by visiting our website www.kasteelproperty.com.

At Kasteel Property Management we do more than just watch your rental property.  We protect it, cultivate it, and help your investment grow.

 

Real Estate is a fantastic way to diversify your investments and create financial security for a stable retirement.  Establishing a plan is important for accomplishing those goals.  In doing this, you need to be careful that your plan does not become more important than your goal.  I’ll give you several examples of what I mean by this and how it can be easy to put hard work and money into efforts that don’t produce the level of financial success that was in your goal.  It’s easy to slip into these subtle mistakes, so make sure you pay attention to each example that I give.

A common plan is to rent out your current home when you decide to move rather than selling it.  This can be a great plan to reach your goal, but in some circumstances it may not.  Owning a rental is always a good idea, but stop and ask yourself if this particular home is the most profitable as a rental or whether a different one would be better. Simply because you already own the home does not always mean it should also be the investment property you want.  In many circumstances, you may be better off selling it in exchange for something that will be a more profitable rental.  See our video, What Type of Rental Property Should I Buy for a better understanding of what makes a good rental property. https://kasteelproperty.com/video-what-type-of-rental-property-should-i-buy/ .  I have heard people say they want to keep their home as a rental so they can avoid paying taxes on the capital gains.  However, this can be avoided through a 1031 tax exchange when you sell one investment property and take the profit directly into the purchase of a different investment property. (See our future video on 1031 exchanges)

Just as a thriving company can go out of business because they won’t adapt to a changing market, your real estate is the same.  You need to be willing to adjust and change so that your goal stays more important than your plan.  To keep this focus you may need to clearly define what your goal is and even write it down.

Sometimes we fall in love with a particular house or plan to the extent that we are willing to go to great lengths to stick with that specific property or plan, when in reality there may be better, more profitable options out there.  For example, lets imagine you own an older home that needs landscaping, a sprinkler system, has a partially finished or functional basement, an outdated kitchen, or faded siding.  Or maybe it doesn’t have the problems of an older home, but the yard is really big or complicated.  It has difficult neighbors or is in a rough neighborhood, or it’s in a remote location.  There are many reasons a particular property may not be the best investment in the long-run.  The important thing is to remember what your goal is and to let your plan change, as needed, to best accomplish your goal.

I’ve seen real estate investors that have been dreaming of moving out of their home and turning it into a rental property for so long that they are unwilling to consider any alternative courses of action.  Even when the home has a long list of things that need to get fixed, updated, changed, or improved upon that will cost tens and tens of thousands of dollars and take many years to accomplish.  There isn’t anything wrong with owning or buying a home like this to live in if a person’s goal is something like being closer to family or having a project to work on, or getting more square footage for a growing family that they otherwise couldn’t afford.  However, if our goal is to maximize our profits in the real estate market, this would not make a good investment as a rental property.

Another common situation is inheriting a home and wanting to keep that home as a rental.  Again, having a rental property is always a great idea but you need to ask yourself, is your goal to keep that specific home or is your goal to have a successful investment property.  Either goal is a great goal but if your goal is the latter you should ask yourself if your inheritance could be used better by selling that home and using those funds to purchase something that will perform better as a rental property.

Also, sometimes circumstances can change and what was a good plan, now needs to be adjusted to stay on track with your goals.  Maybe the property is getting older or the community is changing, HOA rules can change, markets can change, etc.  If you aren’t willing to also change and update your plan as needed, you will have a much harder time accomplishing your financial goals.

You can find financial freedom and success in real estate if it’s done right.  Define your goals, stay focused on them, make plans, and change plans as needed to reach those goals.

If you found this video helpful please like it and subscribe.  You can also find more short videos and helpful landlord tips by visiting our website www.kasteelproperty.com.

At Kasteel Property Management we do more than just watch your rental property.  We protect it, cultivate it, and help your investment grow.

With home prices and interest rates going up people are often asking if they should wait to buy investment properties until it’s a better time to buy.  My good friend Peter Skaggs with Innovative Mortgage took on this question and put together a presentation that clearly and  expertly answers it better than I’ve ever seen anyone answer it before.  When I saw the value of his presentation I asked him if I could share it on my website.  He graciously agreed and put together the following video.

 

Wow. Thank you Peter.  What an amazing and valuable presentation of information.  I’ve always been impressed with Peter’s knowledge of the real estate industry and his desire to share that knowledge with others. 

I think a couple of the most eye opening things Peter teaches in this video is how even when a rental property has a negative cashflow it will still out perform other investments.  I really loved that he showed how expensive waiting until “the perfect time”, to buy Real Estate can be.

On Peter’s website, www.innovativerates.com, you will be able to learn not only about real estate investing and mortgages but also the ins and outs of life style assets.  Something very few people truly understand.

If you found this video helpful please like it and subscribe.  You can also find more helpful landlord tips by visiting our website www.kasteelproperty.com.

At Kasteel Property Management we do more than just watch your rental property.  We protect it, cultivate it, and help your investment grow.

 

 

You are a good person and treat everyone fairly.  Therefore, you don’t need to worry about breaking Federal Fair Housing laws.  Right??  Maybe, but you will be surprised how a decision or policy can unintentionally affect a protected group of people in a negative way. As a rental property owner, consider the following:

Federal Fair Housing prohibits discrimination based on: race, color, national origin, religion, sex, familial status, and disability.  You should also be aware as to whether or not your state has some additional protected groups.  This law seems pretty straight forward and I believe that, for the most part, people do not want to unfairly discriminate.  However, let me give you some examples of where one can unintentionally get yourself into trouble.

Example #1: A tenant is late with their rent.  Their ecclesiastical leader calls and offers to pay their rent but not the late fees and asks if you‘ll waive them. This can really pull at your heart strings and you might want to say yes.  However, consider how this could be perceived.  You would be making exceptions for people of a certain religion.  Now imagine how much worse it looks if they also happen to belong to the same religion that you do.  Then you would be making special exceptions for people that worship the same as you.  Ouch – Not a good idea.

Example #2: If you have a listing that says “No animals allowed, no exceptions” you may be discriminating against those with a disability that need a service animal or emotional support animal.  It is important to be aware and distinguish between pets and service animals.

Example #3: You receive a text message regarding a vacancy that is written in Spanish, but unfortunately, you don’t know Spanish. You write back and explain that you only speak English, so you can only rent to those that speak English.  Your response may only reflect your concerns regarding the logistics of communication, and your ability to provide good service, but that text just discriminated against the national origins of some people.

Example #4: When working to fill a vacancy, people will often collect several applications and then carefully look through them to pick the one they like best.  This might seem like a good idea, but the problem with this practice is that it can create a lot of variations in your approval process.  This lack of consistency can lead to a strong argument for discrimination against a protected group.  It’s best to screen applications in the order they come in.  Based on your written criteria, they are either approved and given a chance to sign up or they are denied and you move on to the next one.  This will make you much more consistent rather than picking and choosing your “favorite”.

Example #5: You rent out individual rooms in your townhome to college age single women.  One of the tenants is moving out, so you advertise Women’s Contract Available.  Fair Housing laws say this would be discrimination based on sex.

The best course of action you can take is to:

1) Be aware of the laws and choose your words and policies carefully to avoid unintended discrimination of protected groups.  You should consult an attorney or hire a competent property manager.

See our video, “Questions to Ask When Hiring a Property Manager”

2) Keep it simple.  Always stick to the lease no matter who the person is or their circumstance.

3) You should have your policies written down and follow them to make sure everyone is treated the same.

Keeping these things in mind, my tenant screening criteria centers around three main questions that I want to answer:

1) Are they likely to pay the rent on time?

2) Are they likely to take proper care of the property?

3) Is it likely they will be good to work with?

To learn how I answer these questions fairly and without discrimination, you can see our other videos shared in the description below.  If applicants will meet those standards, and I apply those same standards to all people, then whether they are in a protected group or not won’t be a concern.

If you found this video helpful please like it and subscribe.  You can also find more helpful landlord tips by visiting our website www.kasteelproperty.com.

At Kasteel Property Management we do more than just watch your rental property.  We protect it, cultivate it, and help your investment grow.