(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.

Tenant screening is an important, but often overlooked, responsibility of the investor.  Prospective tenants are not always truthful on their rental applications (assuming one was filled out to begin with!).  Because of this, it is important to check prospective tenant references.  This is a quick and dirty guide to the questions you should ask.

Before you start making phone calls, I suggest doing reverse phone number look ups on all references.  Whitepages.com offers a reverse search.  Generally a business number will come back to the business address, and a landlord will come back to an address as well.  However, you may see some numbers that come back to “disposable” cell phones.  These instantly throw up a red flag to me, because it could easily be someone covering for a prospective tenant.

Rental applications should, at a minimum, include workplace references and previous landlord references.  Some applications also include a personal references section, where prospective tenants can give you the names of a couple friends who will tell you more about them.

When calling a previous landlord, there are several questions you can ask to help you get more information on the tenant.  Some landlords will answer questions over the phone, and some will require a fax and a signed release of information from the tenant.  You  DID include a release at the end of your application, didn’t you?

• Were there any other people on the tenant’s lease?
• What was their address? (They should know this relatively quickly, or they could be a bad reference)
• Was their rent $xxx? (Give an amount other than the correct amount and see if they correct you – otherwise this may be a bad reference!)
• Is their rent current?
• Are they being evicted / have they been evicted? (If rent is not current, this may be why they are looking for a new place!)
• Did they have any pets?
• Were there any complaints from other tenants?
• Did they cause any major maintenance issues?
• Would you rent to this tenant again?

Workplace references are generally going to end up going to the Human Resources department of any larger company, and will have to be sent via fax.  You’ll need the signed release from the application for this fax as well.  Employers are very limited on what they can give you, but you can request more information (such as pay stubs) from the tenant.

• Is the employee’s address _________? If not, please provide correct address.  (Give address they are currently using on their application.  People tend to update workplace records quickly when they move, so they continue to get paid!)
• When did the employee start?
• What is their position?
• Are they full time or part time?
• What is their current pay rate? (Check against the application and pay stubs)

Tenant screening can be challenging, but it is important to check out a prospective tenant fully and completely before turning over a very costly asset to them, your rental property!  Not completing a tenant screen can cost thousands in evictions, lost rent, and repairs.  It’s impossible to catch every bad apple, but proper screening will certainly reduce the number of bad apples you have to toss!

Showing apartments can be a headache if you don’t have a system down for scheduling showings and preparing yourself for the showing.  Not being prepared can have a negative impact on your showing, and potentially lose a renter.  Take these steps to get ready for a showing, starting with scheduling appointments!

Scheduling appointments should be done in such a way that you have multiple people coming to see the apartment if possible.  Some prefer to do it one by one, but an open house setting will allow more people to see it in less time, meaning fewer trips to the property with a higher chance of finding a renter.  You may want to plan for a couple different times that fit your schedule, and then offer the option to prospects as they plan to come see the apartment.  Make sure to take down a name and phone number!  You may also want to have prospects bring a pay stub to show current employment.

The day before the showing is scheduled, call the people who have planned to come and confirm that they still plan to attend.  When leaving a message, the prospect should be required to call back and confirm.  A good sample message is “This is Tom from XYZ Apartments, calling for Jan to confirm the apartment showing on May 7 at 4PM.  Please give me a call to confirm at 555-1234.  If I don’t hear from you, I’ll assume you are no longer interested, and I won’t go to the appointment, so please call today to confirm. Thank you!”  I like to use this message because it forces an action from the prospect.  If they don’t call back, you can safely assume that they were not interested, and if you don’t have anyone who is confirmed then there is no reason to go out to the property.

The day of the showing, take a few minutes to put together paperwork that you will need.  This may include flyers, signage, rental applications, agency disclosures, etc.  Having all the paperwork together ahead of time will reduce your stress because you will know you are ready when the time comes.

Once you arrive at the showing, set up your signage and lay out your paperwork.  Take the time to prepare the apartment.  For ideas on how to prepare, take a look at these 5 Tips For Improving Open Houses.  Greet people as they come in, but allow them to look around the apartment on their own.  Answer questions they have, and rate their interest level.  Offer the rental application to them, as well as a pen.  Many people will want to take it with them, but most of the time these applications don’t end up coming back in.  The better bet is letting them know the sooner they fill it out, the faster it will get processed.

A good showing can bring you many prospective tenants!  Having a plan before you walk in will help you feel more organized and confident, and this will be picked up by the prospects.  Remember that filling the apartment is important, but finding the right tenant is equally, if not more important!

One of the best parts of being a landlord or real estate investor is collecting the monthly rent check.  Deciding what forms of payment you will accept can determine the amount of work you will have to do on the back end.  Some payments are more beneficial than others, but ultimately most investors elect to use multiple methods to make the tenant’s life (as well as their own) easier.

Pre Printed Deposit Slips – Set up a deposit only account with your bank, and offer tenants pre printed deposit slips with the account number and all the information printed on them already.  You can also print the tenants name and unit on the deposit slip.  This method works incredibly well if your bank lets you see the scanned check or deposit slip online, because you can easily see who paid and how much.  In addition, the tenant will receive a receipt from the teller at the bank.

Checks – Many tenants will want to mail you a check.  The benefits of a check are numerous.  The tenant will be able to see that the check has been cashed, so no receipt is necessary.  Checks can be mailed to a PO Box or an office, so there is no need to meet the tenant every month.  In addition, you can look at the post mark on an envelope to see if the tenant paid the rent late.  One major problem with checks is the fact that if it bounces, you will incur a fee from your bank, which you will have to attempt to collect from the tenant.  A tenant who is struggling to pay rent and is being hit by an additional fee by the investor is also being hit by non sufficient funds fees from their bank, and they can begin to spiral out of control.

Money Order – Money orders are very similar to checks.  They can be obtained at many grocery stores, gas stations, banks, and even the post office.  In addition they are time and date stamped at the time of purchase, as well as the envelope’s time stamp, so you will see when the tenant paid and if they paid late.  Money orders are paid for up front by the tenant so they won’t bounce, however, the tenant may cancel the money order.

Credit or Debit Card – In today’s day and age it is becoming more and more common for people to not carry cash, and use a debit or credit card for their day to day transactions and in some cases monthly bills.  The biggest pro to using credit/debit cards is the convenience to the tenant, and to the landlord.  There are a few cons, however.  The landlord will have to set up a merchant account to be able to accept the credit cards.  If you have a physical office, you’ll want to be able to swipe cards.  This generally means an equipment charge will be incured.  You may also want to be able to take cards over the phone, which may cost more per transaction.  In addition, every transaction will be hit by a 2% to 3% fee + $0.20 to $0.30 transaction fee.  This is a decision that a landlord really has to put some thought in to, as the number of fees incured effects the bottom line.

Cash – Cold hard cash is always nice.  You don’t have to wait for the funds to clear, and it’s an instant payment.  Make sure to double count the funds to make sure it is all there.  In addition, you need to issue a receipt to the tenant so there is proof of payment.  There are a few cons to consider.  For instance, carrying large sums of money can be dangerous, especially if people know that you make a monthly collection run around the same time of the month.  In addition, landlords incur the expense of traveling to collect the rent, taking it to the bank for deposit, missed appointments with tenants who were supposed to be home, and more.

Tenants come, tenants go.  Over the course of your career as a real estate investor, you’ll likely see a lot of tenants come and go, both good and bad.  Being able to protect yourself when a new tenant comes and an old tenant leaves is important, especially when it comes to returning the security deposit.  Having a move in and move out condition inspection reports will help you document the state of a rental before and after tenant use.

A condition inspection report will cover the status of every room in a rental, in great detail.  Everything from walls, floors and ceiling, to windows, doors, and closets should be inspected for damages, to ensure working order, and cleanliness before a tenant moves in and again after the tenant leaves.  Discrepancies can then be charged against the tenants security deposit, to help cover the cost of repairs, cleaning, and replacements.  Appliances should also be

In addition to a condition inspection report, photos should be taken of each room, and those photos should be saved digitally and preferably prints made as well.  Comparing photos before and after is often easier than comparing two sheets of paper, sometimes several years apart, to determine what you meant when you wrote something down.  In addition, photographic evidence of the unit before and after may be admissable in eviction or small claims court if the need arises.

Move In and Move Out Condition Inspection Reports are an important part of any landlord or investor tool kit, and should be implemented as part of your move in and move out systems.  Later this week, I’ll be posting a sample report which you can use!

Contact with tenants is an integral part of ensuring your investments are taken care of.  As a real estate investor, you may have a varying level of contact with your tenants, depending on whether or not you use a property manager, and how much that manager handles for you.

If you are handling tenant contact yourself, you should have a separate phone number for all phone contact with the tenants.  If you are holding the property under your personal name, you may want to consider filing for a DBA for ficticious name, at the bare minimum, and use that name on your answering machine or voice mail.  This gives you the ability to sound more “official”, especially in the early stages when you may only have one or two properties.  You should also use this name on all the postal correspondance you send out.

Postal correspondance should be used for all official letters that your tenants need to recieve, such as updates on policies, copies of served notices, and other important documents.  Using your business name on all correspondance will help create that same official look and feel as with the telephone conversations.

Property Managers will often handle your communications for you.  You should find out the policies they have regarding both oral and written communications.  If possible, request that a log is kept of pertinent oral communications (both in the field and on the phone), and a copy of all written communication should be kept in the tenant file.  Maintenance requests, discussions regarding rent collection, payment agreements, and other pertinent conversations should be logged and saved, in case there is a need for the information in court.

Communicating with tenants is vital to your success.  Whether it is being handled by the investor, or a manager, steps should be taken to ensure that tenant communications are logged, protecting your assets for many years to come.

In a perfect world, every tenant would pay all their rent on time every month.  Unfortunately for the real estate investor, we don’t live in a perfect world.  A tenant’s failure to pay rent on time is a violation of the lease, but do you always want to move for eviction?  The tenant payment agreement can help you stay on top of your tenants, while at the same time giving them the opportunity to catch up.

Case 1: Betty White, a 68 year old long term (7 year) resident of one of your duplexes, had a larger than average heat bill for the month of December and calls you a week before rent is due in January asking if she can pay on the 10th of the month.  Her payment history is solid, having been late only one other time during her tenancy.  This is a prime situation for a tenant payment agreement, because Betty is a solid, long term tenant who is just trying to catch herself back up.  In addition, she called early because she anticipated a problem, giving you a heads up on the situation.

Case 2: John Stone and Adam Dopermeiser, 22 year old residents of one of your complexes, call you on the third of the month and ask for an extension for their already late rent.  Since the tenants moved in 6 months ago, you have received 2 noise complaints, and the rent has been late once.  In addition, there is a lot of late night foot traffic in and out of their apartment.  In this instance, you may want to look at processing and serving a 3 day or 30 day notice.  There are multiple lease violations with this set of relatively new tenants, and the increased foot traffic may be indicitive of other activities taking place on the property.

The Tenant Payment Agreement can help you save a good tenant who pays on time from facing a eviction.  These notices should be filled out with the tenant, and the tenant as well as owner / landlord / manager should sign and keep copies of the agreement for their records.  Be judicious in choosing what tenants receive tenant payment agreements, and you can save yourself a lot of headaches.

Consider a tenant payment agreement for tenants who:

• Call before the rent is due, because they have anticipated a problem.
• Have a strong payment history (usually at least 6 months with no late payments).
• Have not violated other sections of their lease.

Some landlords will disagree with this article, saying that “the rent needs to be paid like any other bill” which is true.  However, the cost of evicting a tenant, preparing a unit for rental, marketing, screening, and placing a tenant are generally much steeper than the inconvenience of waiting a few extra days for a good tenant to pay their rent.

In deciding how long to give a tenant to pay, a good rule of thumb (at least in the Buffalo area) is the 15th of the month.  This gives you time to process a 3 day notice and get into court before the end of the month.  You also have the option of preparing a 30 day notice and serving it prior to the first of the following month, terminating the tenancy and asking the tenant to leave.

If you are looking for a sample Tenant Payment Agreement, check out our sample here.

A lease is a legally binding contract between a tenant and a landlord.  As such, you should limit your discussions of issues in the lease and rental property to those on the lease.  It may not seem like a big deal, but you could become legally liable for any third party disclosure.

Some people need information regarding the lease or tenancy, including lawyers,  Section 8 agencies, Department of Social Services, or other rental assistance agencies.  If this is the case, you should have the tenant sign a written release specifically stating who can have access to their information, what information they can have, and when the release expires.  Once signed, you can turn over the information requested as long as the release is still valid.

You should not discuss issues of tenancy with parents or friends of the tenant!  This may seem pretty simple, but you may get a call from a concerned parent of a college student, or a friend who wants to be involved in everything.  The best line you can ever learn is, “I’m sorry, but I can only discuss matters regarding a tenancy with the tenants.”  Once exception to the rule may be a parent who has cosigned on a student’s lease.  It is up to you and your lawyer how much information, if any, you want to share in this instance.

Dealing with tenant issues can be tricky at times, but by thinking before you speak and taking the time to cover all your bases, you will be doing yourself and your tenants a great service.

Update: You can now download a sample Termination of Tenancy Form.

At some point, it will be time to tell a tenant that it’s time to part ways.  The 30 Day Notice, or Termination of Tenancy Notice,  must be issued to the tenant to begin the process of removing a tenant from the property, unless you are evicting due to non payment.  If you are evicting due to non payment, you will want to issue a 3 Day Notice, or Notice to Pay Or Quit, prior to issuing a 30 Day Notice.

Before we get into the meat of how 30 Day Notices work, please note that this is written based on the laws in my local jurisdiction.  Please consult your lawyer prior to initiating any legal action against a tenant!

The 30 Day Notice will be similar to the Letter of Violation, because you are expecting the tenant to complete an action based on their violation of the lease.  In this instance, however, you are asking them to remove themselves from the premises as opposed to pay a fine or some other such action.

At the top of your 30 Day Notice Under, address the letter to the tenant by name and address.  Be sure to include the date.  You should have a bold header a size or two larger than the rest of the text in the letter  stating 30 Day Notice or Termination Of Tenancy Notice.  This gets the point across right away that you are asking the tenant to leave.

The body of the letter needs to explain that the tenant is required, within 30 days, to remove themselves and their belongings from the property.  It also needs to explain that if they fail to do so that legal proceedings will be initiated against them to remove them from the premises.  Include an explanation for why you are asking the tenant not to leave.  Common reasons could be non-payment of rent, intent not to renew lease, or violation of a lease clause.  Keep in mind that you are using the “soft date” of 30 days.  This date gets confusing because of weekends and holidays.  After  you explain why you are asking them to leave, give the “hard date” that the tenant needs to be out of the property.

Under the text of the violation letter, you should document how the letter was served.  For instance, if you are mailing the letter, state that the notice was served in the mail.  If you send the letter certified, include the article number.  Since you and the tenant will both have a copy, there is no argument that can be made.

Serving the letter property is very important! In most jurisdictions the 30 days begins the first day the month after the letter is served.  If you serve the letter on March 1, the 30 days doesn’t begin until April 1, meaning the tenant has rights to the property for 2 full months!  If you serve the notice February 28, the 30 days begins March 1.  This means the tenant needs to vacate by the end of march, giving them only 1 full month!

If you served the letter personally to the tenant, document the date and time the letter was served, and to whom.  Keep in mind that in most states you must be 18 to accept service of a notice.  Your best bet is to serve it directly to the tenant and not a child in the household.  Since you and the tenant will both have a copy, there is no argument that can be made.

If you post the notice on the property, document the date and time the letter was posted, and where.  You may want to take a photo of the posted letter so there is no wiggle room.  Since you and the tenant will both have a copy, there is no argument that can be made.

Make sure you keep a copy of the letter in your records! If you need to show cause at a legal hearing (eviction, small claims, etc.) the documentation that you have will be your proof!

Keeping your records in line will help you in the long run.  If you missed our article on keeping property records, read up on that here.

(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.)

Update: You can now get a sample Letter of Violation [here].

It should come as no surprise that occasionally, a tenant won’t do what they are supposed to.  It could be something as simple as not moving the garbage bins back from the curb (which is a $55 fine in Buffalo, last I checked), to not mowing their lawn (also a fine in Buffalo, but I can’t recall the amount.)  If these are things that the tenant is responsible for in the lease, you should write and serve a Letter of Violation.

A Letter of Violation outlines to your tenant that they failed to hold up their end of the lease, in some form.  This isn’t necessarily something you will want to void their lease over, but having a permanent record of the violation will help you determine how you want to handle a tenant when their lease expires.  Based on their conduct, you could let them stay at their current rate, go for a rent increase because they are a “problem”, or just tell them that it’s time to move on.

Writing your letter should become easy after the first one or two.  Put the letter on your letterhead, and form it similar to how you would form a business letter.  After you list both the tenants address, your address, and the date, you will want to make it obvious that this is a Letter of Violation.  Use a bold print a size or two larger than the rest of the text, in the center of the page, and print “LETTER OF VIOLATION”.

Address the tenants by name as listed on the lease, and state the section and subsection of the lease that was violated, and how.  If you are applying (or passing on) a fine for the violation, that should be clearly outlined in the letter as well.  Give the date that the fine is due to be paid, so that there is no confusion.  Using language such as “within 7 days” or “within 7 business days” can become confusing because of holidays and weekends, so you are better off saving yourself the hassle and just issuing a date.

Under the text of the violation letter, you should document how the letter was served.  For instance, if you are mailing the letter, state that the notice was served in the mail.  If you send the letter certified, include the article number.  Since you and the tenant will both have a copy, there is no argument that can be made.

Serving the letter should be done the day the notice is issued.  If you served the letter personally to the tenant, document the date and time the letter was served, and to whom.  Keep in mind that in most states you must be 18 to accept service of a notice.  Your best bet is to serve it directly to the tenant and not a child in the household.  Since you and the tenant will both have a copy, there is no argument that can be made.

If you post the notice on the property, document the date and time the letter was posted, and where.  You may want to take a photo of the posted letter so there is no wiggle room.  Since you and the tenant will both have a copy, there is no argument that can be made.

Make sure you keep a copy of the letter in your records! If you need to show cause at a legal hearing (eviction, small claims, etc.) the documentation that you have will be your proof!

Keeping your records in line will help you in the long run.  If you missed our article on keeping property records, read up on that here.