The law does not require this to be a written disclosure.  However, by having a written disclosure in place, landlords can save a lot of the “he said/she said” type arguments that would pop up from not having the policy clearly outlined.

How do you ensure written compliance?  I’ve designed a simple and straight forward lease addendum that can be added to any residential lease.  This addendum outlines the smoking policy for a building, and informs the tenant as to the penalties for breaking the policy.

A copy of the lease addendum in DOC format can be downloaded here:  Smoking Policy Addendum.

Carbon Monoxide is a tasteless, colorless, odorless gas which is highly toxic.  Because it is tasteless, colorless and odorless, the only way to detect it is by using a carbon monoxide detector.  Detectors are available in battery operated (DC power), plug in (AC power), and hard wired versions.  In addition, they may be combined with a smoke detector.

Carbon monoxide is formed when organic compounds burn. The most common sources are motor vehicle exhaust, smoke from fires, engine fumes, and nonelectric heaters. One of the most common causes of carbon monoxide poisoning is poor exhaust from a carbon monoxide producing device.  Some devices that produce carbon monoxide include gas water heaters, kerosene space heaters, charcoal grills, propane heaters and stoves, as well as gasoline and diesel powered generators.

Carbon monoxide detectors should be tested regularly.  If you are using a battery operated unit, change the batteries when daylight savings time starts and ends, the same as you would a smoke detector.  Detectors can be purchased at most department and home improvement stores.

If you have a vacant property, it is a good idea to winterize your home prior to the snow actually arriving.  There are a lot of contractors that will provide this service, and the cost of the service certainly outweighs the cost of the damage that could result from not having a property properly winterized.  For the purposes of this article, let’s focus on occupied properties.

Did you know that a burst pipe can cause over 250 gallons a day of water loss?  If you have a 40 gallon hot water tank, this would be the equivalent of filling and draining that tank 6.25 times… IN ONE DAY!

Frozen pipe prevention is a fairly simple task, requiring a few hours of labor and materials that you can find at any hardware store.  You’ll need to get pipe tube insulation – this comes in many lengths and diameters.  Measure the outside diameter of your pipes before you head to the store.  The inside diameter of the insulation should match the outside diameter of your piping to ensure a proper fit.  In addition, you will want to get a roll of pipe insulation tape to run along the seams of your insulation.  Installation is very straight forward.  The insulation should come with a full depth cut running along the length of the tube – just slide the insulation over the pipe and seal it with the insulating tape.

Ideally you’ll want to insulate all of your pipes.  However, the pipes most prone to freezing are those along exterior walls and in crawl spaces, as well as floors and ceilings.  If your basement is especially cold, you may want to consider insulating all the pipes just to prevent a freeze.  If severe weather is in the forecast, and you think a pipe freeze may be a possibility, you can turn the faucets on just a trickle.  The movement of the water should help prevent freezing.

Outside the house, be sure to fully drain and detach any garden hoses.  Outdoor faucets can be covered with an insulated faucet sock, which run between $10 and $15 at most hardware stores.  You can also use a piece of home insulation in a pinch – just be sure to cover the entire surface area of the faucet up to the wall, and be sure to secure it with a strong, weather resistant tape.  This may not be the most aesthetically pleasing solution, but it beats a frozen pipe.

So, you didn’t insulate your pipes and now you have a frozen pipe?  There are a couple options at this point.  The first option is call a plumber!  Frozen pipes can burst if they aren’t heated correctly, and if you feel unsure, you may want a professional to handle the issue.  However, if you wish to do it yourself, read on!  First and foremost, do not use a blow torch to heat the pipe! The rapid heating action from the torch can cause the water to boil, which can lead to a burst pipe!  Instead, use a hair dryer.  Point it at the frozen area, and move back and forth along the pipe until the ice melts and the water flows freely again.

Frozen pipes can be a real pain, especially in Buffalo.  Armed with a little bit of knowledge, you can take preventative measures to help stop a problem before it starts.

The first line of the introduction in this book says it all:  “In this day and age, we’re lucky to have software that takes care of the nuts and bolts of property management accounting.  The second line puts everything in perspective:  “But even with software, you’ll find it much easier to keep accurate records if you have an understanding of the basic accounting concepts upon which these programs are based.”  This book does just that.

Before I jump into my full blown review, I feel that it’s relevant to include a little background.  I’m alright with accounting practices, in that I understand how money comes in and money goes out.  In addition, I’ve been using the Buildium software for around a year and a half now, and understand how to get the reports I want and need.  In college, I took Accounting 111, and passed with a C.  (My worst grade throughout my entire Bachelor’s studies, but hey, it counts.)  However, the intricate details of accounting were always a challenge to me.  I picked up this book partly out of necessity and partly out of curiosity to see if it could help me really get into the more intricate details of property management accounting.

The book is broken down into 3 main parts, with an introduction and an appendix.  Throughout the book, there are written explanations as well as charts of accounts and diagrams showing how the flow of the transaction works – everything is broken down step by step to provide an easy to follow path getting you from Point A to Point B.
The best part of the book, in my opinion, is that it builds sequentially.  The first chapter explains basic accounting terms, explains how the cash flow sheets work, and outlines the process a transaction goes through, from the time it takes place until the time you read it on a report.  The second chapter explains how books are kept for one property, and explains basic transactions such as recording rent and security deposits, paying bills, and managing security deposit funds at the end of tenancy (returning or applying to damages).  The third part of the book explains how the books work for a property manager, managing many properties.  This includes recording owner contributions and payments, collecting management fees, and other such tasks that a property manager would handle (assuming they wanted to stay in business!)

There is such a tremendous amount of solid information packed into the book that it will require at least a couple reads to really pick up on all the finer points.  In addition, it covers enough varying situations that it has earned a spot on my desk as a reference guide when I get stuck and need to answer a question.  I would certainly recommend “Property Management Accounting: A Survival Guide for Non-Accountants” to anyone who is struggling with the understanding of property management accounting, or for someone who wants a solid desk reference.  At a grand total of 82 pages, it won’t take up much room and the price point of $29.95 makes it a worthwhile investment in my opinion.

“Property Management:  A Survival Guide for Non-Accountants” can be found on Amazon.com.

In seeking to change the mindset where the landlord just pockets the rent money every month, tenants should consider the following expenses that the landlord is ultimately responsible for. All of these expenses are deducted before the landlord even considers taking any sort of draw.

First and foremost, landlords have to pay the mortgage! Just because a landlord owns a property doesn’t mean that there isn’t a mortgage. The bank wants their payment each and every month on the first, just like the landlord! This is generally one of the largest debt loads the landlord will carry, and they carry it for a term of 15, 20, sometimes even 30 years!

Once the mortgage is paid, the landlord sets aside money for taxes and insurance. Depending on the mortgage, the landlord may have to set aside money for mortgage insurance, as well as for property insurance (to cover their losses – tenants should carry a renter’s policy!) Aside from insurance policies, the landlord needs to set aside money for taxes. Many areas will have a city, village, or town tax, as well as a county tax. In addition, some areas also require a separate tax for schools (while other areas include it in the city tax). The rate for insurance and taxes is higher on a rental property than for an owner occupied property as well.

In addition to taxes, many localities will also tack on additional fees which must be accounted for. For instance, Buffalo tacks on a “User Fee” bill every quarter to cover garbage pick up and totes, as well as charging for Rental Registration in buildings that are not owner occupied.

In some instances, the landlord will have to pay for utilities. Are there lights on in the hallway when you come in to your apartment at night? What about outside illuminating the parking areas or dumpsters? The landlord pays that electrical bill. Is your heat or hot water included in the rent? The landlord is paying that gas bill to ensure you stay warm. If you enjoy a shower in the morning, you will appreciate your landlord making sure that the water bill is paid up every time it comes due. And that waste water from toilet flushes and shower drains has to go somewhere. This is charged back to the landlord as well, either in the form of a line item on a water bill or a tax item.

And of course, nothing works forever. When the landlord comes in and replaces your faucet because the handle snapped off, that comes out of a maintenance budget that must be planned for. This can be a minor repair in and of itself, but what happens when the hot water tank dies and needs to be replaced? This is quite a bit more substantial. Staying dry is important (especially when you are in your apartment), so the landlord has to set aside money each month for larger repairs, such as a new roof, updating electrical service, or other large repairs.

Landlords are in the game to make money, and anyone who says different is trying to pull the wool over your eyes. However, understanding that there are a lot more expenses that go into owning a building is important, even as a tenant. The landlord is there to provide you with safe, reasonable accommodations in which to live. However, he has to cover the back end of things as well. Keeping these things in mind, and being a cooperative tenant, can get you a long way in the eyes of your landlord!

Without getting into a huge discussion on economics, the market rental rate will be determined by several factors.  One of these factors include supply and demand, where the number of available units may cause prices to go up in a desirable area, or lead to a “price war” in an area with many open units.  Another factor is the ever increasing cost of expenses related to the property.

Some areas have rent controls in place, which determine the maximum amount that can be charged for a specific type of rental.  These are generally found in metropolitan areas, and there are many arguments both for and against.  For questions on local rent controls, contact the municipality which the rental property is in.

When determining the price for a rental unit, the first consideration is making sure all expenses are covered.  Be sure to include things such as mortgages, taxes, utilities, repairs, insurance, and management.  This is called the Gross Operating Expense for a property.  However, this isn’t specific enough for our needs.  It is necessary to know the gross operating expense, per unit, per month!  For assistance in determining these factors, see the article on “What Do Your Rentals Cost You?”

Once the gross operating expense per unit per month is known, research is done to determine what the current market rate for similar rental units is in the area.  Comparisons should be based on rental units with the same number of bedrooms, with similar amenities,  and within a reasonable distance (a few blocks in the city to perhaps as wide as an entire county in a rural area!)  Below are three different methods for determining rental rate, in order of least to most technological.

1.  Newspapers & Rental Fliers – This is pretty straight forward.  Pick up the newspaper, flip to the classifieds, and see what other landlord are avertising for similar units.  Rental Fliers are often posted on bulletin boards in public areas, such as grocery stores, community centers, libraries, and in college areas, student unions.

2.  Real Estate Agents, Property Managers, Other Investors - This one is a bit more technologically advanced, as it requires picking up a telephone in many cases.  Real estate agents who are familiar with investment properties will often also know the local rental markets as well.  Property managers may not be willing to hand out information willingly to the “competition”, but will readily respond to requests for more information about an apartment from a potential renter.  Other investors can be contacted via local investment clubs.

3.  CraigsList and Rent-O-Meter – These two can provide a wealth of information very quickly.  Most metropolitan areas have their own CraigsList site, which can be found at www.craigslist.org.  If you aren’t posting your listings here, shame on you!  With a couple clicks, information can be found on apartment listings throughout a city or region.  Using Rent-O-Meter at www.rentometer.com is also a simple service.  By entering the address of the rental, number of bedrooms, and current rental rate, the data is compared to other rentals in the area.  Information such as median rental price, low price, high price, and distance are all provided.  In addition, there is a map showing where other units are located in relation to the unit being priced.  This site does not take into account any amenities, however.

Keep in mind that comparisons should be as close as possible – in bedrooms, location, and amenities!

Once research is compiled, a fair rental rate can be determined based on the data.  A fair place to start would be in the upper third of the price bracket, which will draw a more interested potential tenant, and allow for negotiation room if necessary.

Rental markets change over time.  Being aware of what a rental unit costs to operate, as well as the local trends, will keep a sharp investor on top of the market.  Using the three mthods outlined, a strong comparison of available rental units can be made, and a unit can be priced properly.

1. Mortgage payments
2. Taxes
3. Utilities (if included)
4. Maintenance and repairs
5. Management
6. Insurance
7. Legal and professional fees

Using a spreadsheet, an investor will lay out all of these costs for a year.  Adding them together gives the investor a figure known as the Gross Operating Expenses (GOE).  It may be necessary to estimate some figures, based on previous years, capital improvement plans, and other factors.  An example of this would be the need for a new roof on a property in a previous year causing a higher than average maintenance cost for the year.

Expenses for things such as taxes, utilities, and insurance are probably going to go up every year.  This inflation needs to be accounted for in the GOE.  Based on data available at the time of this writing, the average inflation rate on a per year basis since 1914 is 3.43%.  [InflationData.com] Using a figure of 5% is therefore well within reason.

Once a GOE + Inflation (iGOE) figure is determined, an investor will have a rough idea of what a building will cost to own and operate for a year.  This figure will then be divided by the number of units in the building, giving the Annual GOE for each unit (uGOE)*.  Further dividing the uGOE by 12 months delivers the Monthly Unit GOE (muGOE)*.  This may seem like a headache, but you can’t get where you want to be without knowing where you are starting!

The muGOE should be the absolute bare minimum that would be charged for rent, assuming the property never turns a profit!

Knowing what a building costs to own and operate over the course of a year is important to the investor, for planning purposes, as well as in the event of a building sale.  Knowing what each unit costs to operate on a monthly basis is just as important, as it will help determine the minimum acceptable rental rate, assuming the market will support it!

* These abbreviations are not standard, and are used only to assist with the flow of the article.

(This post is part of our “Landlord Basics” series, which seeks to help the new landlord / investor understand some of the basics of tenant relations and property management. Click here to view the entire Landlord Basics archive.)

From time to time as you purchase buildings, you may inherit tenants that come along with them.  If a tenant is paying their rent on time every month and taking care of the property, this is a very good thing.  However, if a tenant is not taking care of a property, it can cause issues down the line when that tenant moves out.  Some of these tenants will pay rent on time every month, and never call with concerns.  Others will make themselves more evident by either not paying rent, calling constantly, or both.

A tenant who is not paying rent should be evicted.  This really shouldn’t come as a shock, since you purchased the property as an income property, and a tenant not paying rent is not generating income.  This is the easy bas tenant decision to deal with.

A tenant who is paying but is not taking care of the property is another issue.  This could be an issue as simple as not cleaning properly, or not taking care of the yard.  Generally these tenants will respond to a formal letter requesting them to clean up their act. Over the course of several years, the “non-cleaning’ tenant could cause serious damage, such as mold build up.

However, some tenants do physical damage to the property.  For instance, some will throw things into the walls and create holes.  Another example would be a landlord story where the tenants knew they were being evicted the following day, so they removed both hot water tanks and both furnaces from their duplex (other unit was vacant), and sold them for scrap.  The repairs can become very costly very quickly!

So, what do you do?  Should you keep a bad tenant?  If a tenant is causing physical harm or destruction to the property, an eviction could be in order.  Catching them early in the destruction of the property will only SAVE you money on the inevitable rehab.  However, if it is an issue of cleaning, it may be better to send a strongly worded letter or make an appearance to tell the tenant that things need to change, or they will be facing an eviction as well.

In addition, not having a utility turned on leads to the tenant doing whatever they have to to get by.  For instance, a tenant without electric will be using gas that much more – in addition to cooking, they may be using it for light, or even  for heat if you have an electric furnace.  A tenant without gas will be using their electric for all their cooking needs, including open hot plates, and possibly other unsafe cooking devices.  In addition, they may overload outlets with electric space heaters.  A tenant without water may not be taking care of their own hygiene needs as often as necessary.  In addition, in some areas (Buffalo and Erie County specifically), a property can be foreclosed on if there is a large outstanding water bill for too long!

There are some things you can look for to ensure that utilities are on.

Most utility companies will leave several notices and door hangers at the meter or on the door stating the service may be disconnected, or that the service has been disconnected.  If you see a door hanger from a utility company, you should check the status of the utility!

On a water meter, you may find a lock in place at the meter if the utility is turned off.  However, many areas will simply turn the water off at the curb.

On a gas meter, you’ll want to ensure that the gate is open, allowing gas to flow through.  Many utility companies also put a tag on the meter with the date it was installed, serviced, etc.

The picture to the left shows an open gate – one that parallel with the piping.  A closed gate would run perpendicular to the gate, and would probably be locked by the utility company.

Electric meters are generally tagged to prevent entry, with the colors of the tags meaning different things.  For instance, in the Buffalo / Erie County area, a grey tag means that service is active.   A yellow tag means that service is not active.

On an older style electric meter with the dials, you may notice the dial spinning, which inducates the service is active and being used.  However, fi the electric main is turned off inside, this dial should not be spinning.

Dealing with a tenant who has had a utility turned off can be a challenge.  In your lease, you should outline the requirement of what utilities the tenant is responsible for.  In addition to spelling out what the tenant is responsible for, you should also have a clause stating that the utilities must be active for the duration of the lease, and that their bills be paid in timely fashion.  If a tenant is failing to keep utilities active, you would then have the grounds for an eviction.  It may seem cruel to consider evicting someone when they are at such a rough spot in their life, but the damage they may cause to your rental as a result of the misuse of other utilities should be enough to convince you it is time for them to move on.

When selling in Western New York, plan ahead for the following expenses:

• First and foremost, all taxes, water bills, liens (such as mortgages), need to be taken care of.  Generally a mortgage will be satisfied as part of the proceeds of the sale.
• Real estate commissions
• Attorney’s fees on average are currently $500-$600.
• Transfer Taxes – In Erie County, this is $9 for every $1000 of the sale (broken down into $4 for NY and $5 for Erie county).  For example, on a $130,000 sale, there would be a transfer fee of $1,170.
• Title Search costs of $400 to $500 if you have your original abstract.  It could cost significantly more without!
• Survey costs of $350 to $400 for an average city or suburban parcel with a copy of the survey from when you purchased your home.
• And generally another $500 in miscellaneous expenses that pop up along the way.

This list is not all inclusive, and the figures may vary depending on who you use to complete various aspects of the transaction, but the core principal remains the same:  Plan ahead for closing costs!

(Thank you to contributing editor and real estate broker Ken Nagel for his assistance on this article.)