At the end of this month I am losing a great tenant. I always ask a tenant why when I get a thirty day notice. I want to make sure there is not a problem I can correct. Usually the departure is job related. In this case the departing tenant will be caring for aging parents.

What next? Do I show the unit now or wait until the unit is vacant?

If I start advertising now and don’t show until the unit is vacant, people will have seen the ad too much and will have lost interest. I can advertise now, ask prospects to drive by prior to seeing the interior. I can also post a video of the interior.

What about showing it while it is occupied? This works well if the current tenants are design savvy and very tidy. If the tenants have too much furniture or ugly furniture it it a turnoff to prospects. Also, once the packing starts, the place is not fit for showing. If it is dirty, forget it. Prospects will tell you they can see beyond but they can’t. People have no imagination.

What if I wait until the tenants leave? The net result is usually a month lost revenue. I start immediately with cleaning and touch up. Usually people leave at the end of the month and I am ready for showing by the 5th. My theory is that you get tire kickers before the 15th and people make decisions toward the end of the month when the reality sets in and they have to make a choice. Then they choose from the last few places they have seen. If you showed them on the 7th, you are a distant memory.

In the case of my current departing tenant, the place is too crowded. There is a huge easy chair right by the front door and lots of big furniture. I will have to wait. I will post videos of a vacant unit and hope I get a taker who rents it sight unseen. Otherwise, I will be looking at April 1st before I get a new tenant.

Bummer.

It is the second of the month. Today is the day I input all the rent payments to find out who has been naughty and who has been nice.

After the tally, there is usually one person missing. What next? Immediate phone call. Very friendly. “There may be a problem. Just checking. Not like you. Did not get your rent payment”.

Hopefully I get a call or text back immediately. I am flexible. Sometimes it is a new pay period or an unexpected expense. I get a date when the rent will be paid and I make it clear that this is a one time occurrence. Then I thank the tenant profusely. Everyone needs to feel good going forward.

What if the tenant tries to give me the slip and doesn’t return my call on the 2nd? I am always quick to go to the three day notice. The three day notice says I am very serious and the rent is due on the 1st. Of course, there are different regional restrictions that require landlords to give grace periods but not in my town. The rent is do on the 1st with no grace period. If someone doesn’t pay me on the 1st and gives me the slip on the 2nd then on the 3rd they will get the three day notice and begin the eviction process.

Excuses. If I get a call back from the tenant immediately, I am very sympathetic but if I give an extension to the 10th, there needs to be communication in advance about the deadline. I need to have the rent in my hand at the close of business on the agreed upon date. Period.

This all sounds hard core but I have seen too many people fail in real estate because their tenants have fallen on hard times. Being tough on your tenants may seem unpleasant but you need to “man up” to make your business successful so you can continue to provide great housing for people.

The alternative is grim. Tenants get the boot because the landlord can’t pay the bank. Real estate cash flow can be tricky because there are frequent unexpected expenses.

My 1st rule of thumb. Get the tenants paying on time.

A couple of months ago we were victim to very high winds. I mean 100 mile an hour gusts that were cyclonic. Literally cement lamp posts were snapped in half. Trees were down everywhere. During the storm, there was nothing that could be done. The wind sounded like a freight train bearing down on you. The house shook. The power went out and I went to bed and put the pillow over my head. We have two commercial apartment buildings in the area and a duplex and a triplex. It was going to be a mess.

The next morning did not disappoint. The power outage was wide spread and Edison had no estimated repair time frame. They lost 17 transformers in my area alone.  My 1st call was from my newest tenant. He is a nice baptist preacher and today was his move in day. He was moving into a sweet little one bedroom bungalow. He sounded very distressed on the phone.  He had a moving truck filled and was out of his old place. A giant tree fell on the front of his new bungalow. The problem was he could not get anywhere close to the front door. The tree was that big. In fact, you could hardly see the front door.

“Hum”, I said hoping a thought would come to me. “Well it is an act of God”. I was hoping that he would appreciate that more than anyone. While he didn’t laugh, we did manage to get his stuff moved in through the french windows and by afternoon everyone seemed in good spirits. We got most of the tree down in the next day and the window glass replaced. There was no power so the preacher opted to stay in a hotel at his expense.

Over the next few days we assessed the rest of the damage. A set of garage doors were blown off the hinges. An electrical masthead was bent like a pretzel. A gate was blown of the hinges. Three roofs were damaged. The biggest pain was the massive amount of tree and leaf debris. We had tractor truck loads to move. It took weeks to clean up and we were moving fast.

Fortunately all the tenants were patient about the loss of power. It was cold and the power was out for days. It took forever to get anywhere because you had to stop at every intersection because the stop lights were out. Every other street was blocked by a downed tree.

A month later we got a letter from our insurance company asking for us to trim back the trees from the roofs. Before the storm they had done an inspection and seen limbs touching the roof. Not anymore! The wind blew away the limbs and the leaves. The trees were now trim and bare! We sent photos off of the newly manicured trees to the insurance company.

There is a bright side to everything.

Magical thinking is the idea that your thoughts can affect outcome. Steve Jobs was famous for his magical thinking. He would simply will deadlines to be made and abstract product to be created. It was the secret to his success but the cause of his downfall. His products were revolutionary and he drove his employees to achieve far more than they could have envisioned. In the end however, he chose to pursuit unconventional treatment for his pancreatic cancer and that was sadly unsuccessful.

What does this mean for the real estate investor? Dream big but be very grounded in reality. I am a big think outside box person. True creative thought comes from associating unlike ideas to find a unique solution. Free your mind and fearlessly toss around new solutions to deal with an old problem. The truth is if you keep doing the same thing you will come up with the same result.

Then fearlessly pursuit your new path. It takes commitment to stick to a new agenda and see it through. New concepts and behaviors feel unfamiliar and it takes the confidence of having success and making change habitual before it feels effortless. First you need to believe in the power of change. That is the 1st step.

Staying grounded in reality is equally as important. Some people are very in touch with who they are. Then there are those who have a big gap between who they are and who they think they are. Why? The biggest culprit is ego. Ego will separate you from reality and prevent you from being grounded. Instead of making decision fearlessly you will make decisions based on protecting your ego. The result can be disaster.

Fearlessly or foolishly. Ask yourself. Am I looking at this project/ problem with fresh eyes? Would my product be appealing to me? How can I make it fresher, newer, and more trend conscious? Is there value? Am I staying on budget and in touch financially? Am I on track for the next five years? Ten years?

There are many self help products out there to get you started. I am a firm believer in intentions. I write them down and keep them next to my computer. Some are very concrete like I want to find another building. Some are about more spiritual things like I want to speak the truth with kindness and compassion. As I look through my stacks of intentions that go back for several years, I am proud to say most have happened or are in the works.

It is just that simple.

Many people would like to own investment property but don’t go forward because they find it too risky or too challenging. Getting in requires some creativity in terms of finding a profitable venture, finding a way to finance it and then finally having the gumption to step up and make it happen.

What if your credit is bad? When I bought my first house I had a tax lien. For some reason, it didn’t show up on my credit report. If I had never tried to get the loan I would have certainly never succeeded. Slowly I paid off the tax lien and now my credit is excellent. Patience and determination got me my 1st investment property.

Finding the perfect property takes time. On average it takes me about a year to find the right project. What do I look for? Value and upside potential. I will happily take on a renovation project that requires a turnover of tenants. My goal is to increase the income substantially and therefore increase the property value.

Taking the leap is tough. It always feels like a leap of faith. My most recent project was a fixer with 8 freestanding bungalows. They needed a lot of heavy duty work including all new electrical services, extensive plumbing, landscaping etc. I assumed that the existing tenants would pay a little more for my fabulous renovations. When I gave them the small rent increase and the list of improvements, they ALL moved out within 45 days. Oops. I had more that one moment of panic during that project. At times I thought I had made a huge mistake.

Fast forward a couple of years and that property is my best money maker. We finished the project with pennies to spare. We found all new tenants. I am confident now that it was a great investment.

If you want to get into investing start taking penguin steps toward your goals. Write down what you want and slowly take action. Penguins travel huge distances in difficult conditions by taking tiny steps in the right direction. You will get there.

Sadly, many landlords do not accept pets. Personally I have had many good experiences with tenants and their pets and some very bad ones. At the end of the day, my policy is that I accept pets as often as possible.

What makes me keep accepting pets? I volunteer at the animal shelter and I see so many people with the last of their belongings packed in or on top of their car as they move from one rental to another. The last stop they make is to the animal shelter to drop off their dog or cat. The new landlord does not allow pets. It is incredibly sad. The owner surrender animals are the most depressed.

Some of these animals will get new homes. Most will not. They will be put to sleep, sent to rendering plants and made into lip stick. Not joking about that.

I helped rescue one dog who had been adopted three times by different families and returned to the same shelter because the families needed to move and could not find a pet friendly rental. Pluto was 5 and in the shelter for the third time. Older and with no options he was rescued by a wonderful foster who kept him for 5 months until he found an adopter. He was incredibly lucky and rare. Most animals do not get out of the shelter. 10 million animals per year are killed in this country in shelters.

Pit bulls have no chance at all.

It is very sad but what can we do? If you are a landlord accept pets. You will be saving lives. My policy? Cats are welcome and I am flexible about numbers within reason. I am very open to considering dogs of all sizes. My restrictions are that the dog must be non aggressive and not a barker. I do not care if the dog is the size of a small pony. I am flexible on numbers of dogs too. I am very clear about the dog being a good citizen. No lonely barkers, no I heard a noise barkers. I interview the owner about barking before I schedule an appointment to see the unit. Prospective tenants either answer “my dog is very quiet” in which case I will consider them or “dogs bark” which means their dog is not trained.  My rules: the dog is allowed to bark when someone comes to the door not when someone walks by. I can’t have the peace and quiet of the other neighbors disturbed by barking. There are collars that mist citronella which aid in no bark training. There is a period of adjustment with any dog new to the property but is should be days not weeks. If a barking problem continues I will insist that a solution is found immediately.

What about damage? I charge a deposit for dogs of $500. This refundable fee covers multiple pets and is in addition to the regular deposit. Rarely have I had destruction that wasn’t a simple fix by a carpenter and a painter. Most of my pet tenants received their full deposit back. I always have tile or hardwood floors and I treat the floors with very durable polyurethane.

My pet contract also requires that the dogs be walked off the property to urinate and defecate. Why? Because it burns the landscaping. Most of my tenants have been very respectful. On a couple of occasions I have had to send out very stern group letters regarding dog feces on the property, However, problems are few and far between as long as everyone KNOWS WHAT TO EXPECT IN ADVANCE.

Do I require an extra deposit for cats? No, the amount of damage from cats is usually very small and covered by the regular security deposit. And  besides, as my husband says, “cats are cool”.

Dirty Sally was a tenant who rented a very small cottage from me several years ago. We had just completed a full and very expensive renovation and I was very excited to have a new tenant. Without thinking it through, I said “sure, your birds are fine”. Two beautiful big pet cockatoos moved into my studio rental with Sally.

How much trouble can two birds be anyhow? Well, the birds were free range. In other words, they went everywhere. An interesting tip about birds is that they cannot control where they go to the bathroom. They spontaneously poop. There was a lot of bird poop, (guano is the technical term) on the floor, in her bed, on the counters. Everywhere.

How can someone live that way? Good question but she loved her birds. They would all get under the covers and watch TV.

Guano also covers whole islands due to the high traffic of sea birds. In fact, there are islands off the coast of South America that are called Guano Islands because there is so much bird poop. The guano is rich in minerals and gets very hard. Native Peruvians treasured it as a fertilizer.

By the time Sally left we had lots of work to do chipping away at all that guano. Fortunately we had a security deposit that paid my handyman Bill to scrape the guano off the beautiful terra cotta floors. When the guano was gone, we had to re stain the grout. The wonderful mineral properties of the guano prized by the Peruvians bleached the grout. Although the floors were new, the grout was now mottled and ugly. So my handyman Bill spent one full day on hands and knees staining the grout lines. When all was said and done it cost about $600 to clean the place up.

Got to love your birds….

A smart landlord always runs a credit report. In my opinion, it is more for discovery than for judgement. A face to face meeting tells you a lot but a credit report is like a resume. Who are they? Do they pay their bills on time? Have they had problems? Has the person been truthful about their credit?

Do I rent to people with less than stellar credit? YES!

Firstly, I don’t even mind having a tenant with bad credit. Most understand that they are a bigger risk and are prepared for a large deposit. I make sure that I get the biggest deposit allowed legally.

Second of all, the tenant with bad credit will not be buying a house soon. They are more likely to stay in the unit.

Thirdly, the tenant with bad credit will be grateful for the opportunity to rent your unit.  They will need to be monitored more carefully  to make sure they follow through. In other words, no slack. They pay on the 1st.

The people with great credit. I love them. They are welcome. They get the lowest security deposit and for the most part are the easiest. The down side of the great credit people is that they are capable of owning their own home. They tend to rent for a short term and invest in their future long term. Smart!

Some credit reports say STOP, DO NOT RENT TO ME:

1) People who have just plain never paid their bills. These people will have endless collection accounts for small sums of money. You will notice that the problem exists for a long period of time not just a period of unemployment or divorce. Everyone can have a period where they have temporary financial issues but what was their credit like before? What is it like now?

2) People who are older and have no credit. I have had several of these turn out to be false social security numbers. The real social security number would reveal a very bad payer. Both of the previous tenants I had that fell into this category ended up as unlawful detainer cases for non payment of the rent. That is a 100% failure rate!!!!

My decision whether to rent to someone is made on a case by case basis. I look at credit, income and proof of reserves. But the bottom line is always when in doubt, get a bigger security deposit. Another option is a bigger deposit AND advanced payment of the rent. I have had several tenants with bad credit pay 6 months or more in advance. Money in my hand now is always better than money I may or may not be able to collect in the future. The less secure I feel, the more deposit I need.

Add the word holiday to anything and it sounds somehow more appealing. Even the holiday blues are better that just regular sadness because the word holiday evokes nostalgia. However the holiday vacancy is the most nightmarish kind of vacancy. The one you cannot fill. People do not like to move between Thanksgiving and New Years. If you have a vacancy that is not filled after the 15th of November, it is likely to remain unrented until January.

I felt so smug this year. Just rented the last unit on the 11th of November. Patted myself on the back for my brilliant timing and planned a busy social holiday schedule. 2011 is over and I deserved some R and R.

Then to my surprise I had a tenant abandon their unit. Yes, she up and left with no notice and no reason and lots of mess that included boxes of books in the front yard and big headache for moi.

Blah la la la la!

So, the net net is I am down the income for one unit for at least a month. I will keep all the receipts for the clean up. When I re rent the unit I will send a closing statement documenting my costs. I will charge for the notice and the time to re rent because the tenant had a lease. I had a substantial security deposit so I may break even.

Otherwise, I will find her and take her to court. Regardless, I will treat her like any other departing tenant with a professional closing statement sent to the last know address which is my unit LOL,

2012 is now here and I am ready to fill my holiday vacancy. Happy New Year!

Merry Christmas!

Instead of getting “a lot of stupid toys”, what is it that the Peanuts comic strip character Lucy wants for Christmas?

REAL ESTATE

Why, because real estate it is the gift that keeps giving. Most jobs require the work = pay correlation. I loved my old job as a fashion photographer. The downside is I had to be present every moment….working.

My goal in real estate was to find a better balance in my life. I wanted more play = life correlation. The passive income stream was my solution. I can play all day and I am still making money. Love it!

Real estate is not the only passive income stream. Stock market, art investment, even blogging can provide income while you play. The list can be as long as your imagination will allow.

Like Lucy, I am a pragmatist and while investing in art sounds so much more glamorous, people will always need a place to live. So if you don’t want to be tied to the kissing booth like Lucy from 9 to 5, start thinking about how to create a passive income stream for 2012.

Happy Holidays:)