Friday, February 28, 2014

Property Managers, Commercial Tenants and Evictions

Your commercial tenant failed to pay rent.  You have heard that things are not going very well for them, but now it is apparent.  As a property manager your duty and obligation is to resolve the issue as quickly as possible.  When the tenant failed to pay by the due date they have effectively breached the lease and you are entitled to evict the tenant from the property.  An eviction lawsuit commonly called an Unlawful Detainer action is a fairly straightforward legal process.  The important thing for property managers to know is that the steps involved in this process are critical and must be followed to the letter of the law.  A real estate attorney representing both parties in the action is common.  If your property manager has followed the law, given proper notice, and has a detailed file of all of the correspondence between the tenant and their company the unlawful detainer action should go fairly smoothly and the landlord or owner should prevail.

The First Step Is To Resolve Rent Payment Issue If Possible
If at all possible the property manager should make every effort to get the tenant to make the rent payments and bring their lease current.  If this involves waiting a few extra days for payment maybe this would be the best course of action instead of filing a lawsuit.  Your individual company policies and best practices will dictate this action, but it would be better for all parties to resolve before litigation.

Three-Day Notice Drafted
If a payment is not forthcoming then a ‘three-day notice to pay or quit’ must be prepared and properly served on the tenant.  This notice must be in a specific legal format.  A commercial owner, landlord or property manager can choose between different types of 3-day notices; 1) specifies the precise amount of rent owed; or 2) estimates the amount of rent owed – usually when a tenant is paying a percentage rent.
If the lease requires the tenant to pay rent and other separate amounts for triple net or CAM charges, the property manager should get the proper advice on whether or not two separate and distinct notices are required to be served.  For example, if the property manager or landlord accepts an overpayment of the rent because they have miscalculated and the tenant overpaid estimated rents and CAM charges this may lead to a tenant victory in the unlawful detainer action.  This would also possibly give the tenant the right to attorneys’ fees.  It is critical to be correct in this step.

The Three-Day Notice Must Be Properly and Legally Served
The tenant is deemed served when they are personally served with the three-day notice, or a responsible person at the place of business is personally served on the premises.  In the event no one is available the landlord or property manager can attach the notice to the front entry door of the business premises while simultaneously sending a copy of the three-day notice by certified mail return receipt requested.  The landlord or property manager must then prepare a ‘proof of service’ in the proper format which states in pertinent part that the ‘three-day notice’ was served on the tenant, or describe the method of service.

The Property Manager or Landlord Has a Three Day Waiting Period Required for Service to be Effective
After properly serving the three-day notice a three day waiting period begins on the next business day.  If the third day falls on a weekend or holiday the three day waiting period is extended to the next business day.

If the tenant decides to pay all rent due at this point or corrects any outstanding violation of the lease terms then the eviction process ceases.  If the tenant makes partial payment the landlord or property manager can accept partial payment but must notify the tenant that they are not waiving their rights to proceed with an eviction.

In the event that the tenant has violated the lease by way of some criminal act or conduct then the eviction process continues.

At the end of the three day waiting period the landlord or property manager may go forward with filing and serving a complaint and summons.

Summons and Complaint are Prepared and Served
In the event that the tenant has failed to cure their outstanding rent violation, or failed to cure any other violation that they have been property notified of, then the landlord or property manager may proceed with filing and serving the summons and complaint to the tenant.  A third party not involved with the action, typically a registered process server can be hired for a fee to serve the papers on the tenant.  The summons, complaint and proof of service must then be filed with the court clerk’s office together with a copy of the lease, and then property served three-day notice and its proof of service.

Technical Mistakes Can Cause Delays
If the landlord or property manager has taken this process on by themselves there is a possibility that they have made a technical error in the processing, preparing, serving, and filing these documents.  There are several technical areas of the law which must be followed or will result is substantial delays if they are not.  A tenant who hires an attorney will likely find these technical errors, if the court doesn’t find the errors.  This will likely result in delays which means money to the property owner.  The best course of action in these situations is to hire an eviction attorney to help prevent delays and additional costs for the owner.

Court Proceedings Require that All Parties Appear in Front of a Judge

If the tenant does not contest the eviction
A properly served tenant has five days to oppose the eviction.  If substituted service was used then the tenant would have fifteen days to file a responsive pleading to the action.  If the tenant fails to oppose the eviction the landlord or property manager will seek a default judgment of possession of the premises.  This will most likely be granted and the case will be referred to the Sheriff’s office for tenant lockout (see below).

If the tenant contests the eviction
In the event the tenant hires an attorney and contests the eviction then things will take a while longer.  The tenant will be granted more time to prepare and there will be approximately thirty-day period in which a trial will be set.  If the landlord wins then the tenant will have to pay the rent and other losses most likely including attorneys’ fees.  If the tenant wins the landlord may have to pay attorneys’ fees.  In this situation a property manager really needs to be represented by counsel.

The Landlord or Property Manager has the Right to Lockout the Tenant
Assuming a landlord victory the county sheriff will post a ‘Five-Day Notice to Vacate’ the premises on the tenant’s door or entry into the business.  On the sixth day the sheriff meets the landlord or property manager at the property.  The landlord or property manager then receives a receipt of possession of the property.  If the tenant is still there when the sheriff arrives, the sheriff will then physically remove the tenant.  The landlord or property manager will now have a locksmith come and change the locks to keep the tenant out.

Notice to Claim Property
If the tenant leaves behind personal property there are state statutes that deal with this specific issue.  The landlord or property manager must give the tenant fifteen days after the lockout period to claim any possessions from the property, or if the tenant left before the lockout, eighteen (18) days after the mailing of the “notice of belief of abandonment” to the tenant’s last known address.  The notice must describe the property with specificity so the tenant can identify it, and the notice must also describe the storage costs.  A prudent practice for a landlord or property manager would be to photograph and log all of the tenants’ belongings so that there was not a later dispute.

It is not legal for a landlord or property manager to hold a tenant’s personal property as security for payment of money awarded by a court judgment.

Unclaimed Property Disposed of or Sold
When the fifteen day waiting period is over the landlord or property manager can dispose of the tenant’s personal property if it is worth less than $750 or $1.00 per square foot, whichever is greater.  If the property is worth more the landlord or property manager must auction it through a public sale held after properly published notice with the proceeds turned over to the county, minus expenses.


Although this article has briefly touched upon this process one should see that this is not a simple process, but is a process which should be taken seriously and professionally.  It is always a best practice to have an eviction attorney help a landlord and/or a property manager through this process.

Thursday, February 27, 2014

Property Manager Education about Carbon Monoxide Detectors is Critical

Carbon monoxide (CO) is an odorless, invisible gas produced when any fuel such as natural gas, kerosene, wood, oil or even common barbecue charcoal is burned.   At high levels without proper ventilation carbon monoxide can kill humans in a very short period of time, even after just a few minutes.  Moreover, there is credible research that acute exposure or poisoning by carbon monoxide can cause chronic health effects such as lethargy, severe headaches, amnesia, psychosis, concentration problems, memory impairment, personality alterations, and even Parkinson’s disease.  The American Medical Association states that carbon monoxide is the primary cause of accidental poisoning deaths in the United States year after year.  The federal Centers for Disease Control estimates that carbon monoxide poisoning kills approximately 500 people annually and causes another approximately 20,000 injuries per year.  Needless to say carbon monoxide is a very important topic and issue for property managers to understand and embrace in order to act as professionally as possible and to protect their client’s best interests.

Today there are laws requiring listed and labeled carbon monoxide detectors within all residences, rental units, investment properties, multi-family residences, and apartment buildings.  It is tantamount for property managers and property management companies to be fully educated about carbon monoxide, carbon monoxide detectors, carbon monoxide poisoning, exposure and prevention.  There are also some ‘best practices’ guidelines for property managers to be mindful of and incorporate into their property inspection checklists.

Various State Laws Require Carbon Monoxide Detectors in Dwellings
In California as of July 2011 the Carbon Monoxide Poisoning Prevention Act of 2010, (hereinafter “The Act”) requires carbon monoxide detectors to be installed within every dwelling unit intended for human occupancy.  The Act also requires carbon monoxide detectors to be installed in ‘all other existing dwelling units’ on or before January 1, 2013.  Thus, as of 2014 “ALL” dwelling units need to be equipped with properly listed and labeled carbon monoxide detectors.

How are CO Detectors Energized
The standards for manufacture of carbon monoxide detectors are well documented in state laws.  Standard 720 of the National Fire Protection Association is the basis for manufactured detectors.  Most home improvement and hardware stores carry several code complying varieties of detectors.  CO detectors can be battery powered, can be plug-in (outlet) with battery backup, or can be hardwired with battery backup.  CO detectors that are manufactured with a combination smoke detector must emit an alarm or voice warning with each signal different than the other.

Where in a Dwelling Unit are CO Detectors Required?
CO detectors are required to be installed in a manner consistent with building code standards for new construction.  For minimum effectiveness and security CO detectors should be located outside of each sleeping room or in the vicinity of bedrooms.  CO detectors must also be installed in every level of a dwelling unit including basements within which fuel-burning appliances exist and dwelling units that have attached garages.  The CO detectors should be at least six (6”) inches from exterior walls; three (3’) feet from HVAC supply or return ducting vents, and not obstructed by other equipment, furniture, or occupant belongings.

Landlords and Property Managers are required to Supply Carbon Monoxide Detectors in All Dwelling Units
The standards and requirements for CO detectors apply equally to landlords and property managers.  After proper notice has been granted to a tenant property managers have the authority to enter dwelling to install, repair, test and maintain carbon monoxide detectors.  CO detectors are required to be operable at the time the tenant takes possession of the unit.  Tenants are required to notify the property manager if the CO detector becomes defective or inoperable.  A property manager will not be held responsible or in violation of the law if a tenant has failed to notify the property manager of the deficient device.

Common Sources of Carbon Monoxide in Dwelling Units
Any fuel burning appliance located in a residence or dwelling unit is a potential carbon monoxide producer.  Gas burning heating systems, gas burning cooking appliances like cooktops, ovens, griddles, and water heaters are all possible sources of carbon monoxide.  Typically, the gas burning appliance somehow becomes mal-adjusted and begins to burn the fuel incompletely, leaving CO molecule production.  This is sometimes caused by the equipment failing, but can also be caused by alterations in the dwelling unit interior atmospheric pressures.

Another common source of carbon monoxide in a dwelling unit is from attached garages and vehicular exhaust.  It is always a best practice to start a vehicle in an attached garage and move it to the driveway exterior while allowing it to warm up.  Never allow vehicles to be running within a closed garage as the exhaust will most certainly find its way into the dwelling potentially causing problems.

Property Managers Must Take Carbon Monoxide Education Seriously
Because carbon monoxide (CO) is a silent killer it is imperative that property managers be diligent about CO detector education and maintenance.   Carbon monoxide is such an extremely important area of concern for property managers for the reasons stated above.  In addition to protecting your client’s best interests diligence in maintaining properly functioning CO detectors can save lives.

Property managers and property management companies must be adequately educated about carbon monoxide, carbon monoxide detectors, carbon monoxide poisoning, exposure and prevention.

Monday, February 24, 2014

New Shared Fence Law Effects Property Managers and Rental Property Management Companies

Have you ever heard “Good fences make good neighbors?”  Now, adjoining landowners are statutorily equally responsible for shared fences and boundary fences pursuant to California Civil Code Section 841 which took effect January 1, 2014.  Adjoining or contiguous landowners are now faced with a presumption that because they share an equal benefit of a shared or boundary fence that they are equally responsible for the reasonable costs of construction, maintenance, or necessary replacement of the fence.   Property managers or rental property management companies whose clients’ properties are affected by this new law must be mindful of the change and be aware of the procedural requirements dictated by the state legislature.

Statutory Notice Requirements for Repairing or Replacing Fencing
Landowners, or property managers, who wish to replace an existing common boundary fence, must give each affected adjoining landowner a 30-day prior written notice of any intent to incur costs for a common or boundary fence.   For those of us who manage properties for clients here is where you need to pay attention.  The statutory ‘Notice of Intent’ must including the following elements:
11)    A notice of the presumption of equal responsibility for the reasonable costs of construction, maintenance, or necessary replacement of the fence;
22)    A description of the nature of the problem with the shared fence;
33)    The proposed solution for the problem fence;
44)    The estimated construction or maintenance costs to address the problem;
55)    The proposed cost sharing approach; and
66)    The proposed timeline for addressing the problem fence.
On a personal note, along with the statutory notice, as a Property Manager I would include or attach a copy of the law and a reference to the state website, and any other supporting documentation to help facilitate the neighbors understanding that the law has changed.  If they are initially resistant I would also counsel them to review the law, the state website, and any other resource material to help them understand their obligations.

Burden of Proof to Show Inability to Pay is on the Objecting Landowner
A landowner who wishes to repair or replace a fence will have to sue to enforce the statutory presumption if their neighbor objects.  Objecting landowners have a right to contest their new statutory obligations, but the burden of proof is all on them.  An objecting contiguous or adjoining landowner has the burden to overcome the presumption described in the new state law by adequately demonstrating to a court (which means a judge) by a preponderance of the evidence (which means evidence that is slightly greater than evidence against it) that imposing equal or shared responsibility on them would be unjust.  To determine whether equal or shared responsibility for the reasonable costs of common or boundary fence repair or replacement would be unjust, a court will consider the following evidence through testimony and documents:
11)    Whether the financial burden on the objecting landowner is substantially disproportionate to the benefit conferred upon the proponent landowner;
22)    Whether the cost of the new fence would exceed the difference in value of the (burdened owner’s) property before and after it’s installation;
33)    Whether the financial burden to the objecting landowner would impose an undue financial hardship given that party’s financial circumstances as demonstrated by reasonable proof;
44)    The reasonableness of a particular construction or maintenance project, including the extent to which the costs appear to be unnecessary, excessive, or the result of one landowners personal aesthetic, architectural, or other preferences; and
55)    Any other equitable factors appropriate under the circumstances.
Many times the cost of the fencing divided by two or three parties will be low enough to handle these cases in a small claims division of the local superior court house.  If the case is in small claims court attorneys will not be involved so costs for this type of lawsuit will be minimal.  It is paramount that any property management personnel involved with conversations with neighbors relating to these issues be memorializing all conversations including taking notes and sending letters to the neighbors.  An accurate written record of all conversations will help preserve precisely what occurred during the period negotiation between neighbors should something end up in court.

Property Managers Will Probably Be the Advocates Selling the New Fence to the Neighbor
When the fencing around the perimeter of your client’s property fails and needs replacement, nine times out of ten cooperation of each neighbor seemingly carries the day and allows for a smooth transaction and replacement of the fence.  Property managers will most likely be involved in these conversations.  However for those occasions when the neighbor objects and does not want to pay or participate in the project please be mindful of the above procedures so that you can help your clients fully and faithfully through these issues.

Prior Existing Law is Repealed

The new law does not apply to a city, county, political subdivision, public body, or public agency.  Prior existing law enacted in 1872 which required a landowner who fully enclosed a property to refund their neighbor a just proportion of the value of a division fence is repealed due to this new law.

Thursday, February 20, 2014

How To Fire Your Property Manager

How to Terminate Your Rental Property Management Company
If you are the least bit concerned about the management of your investment property remember the old adage, “Where there is smoke, there is fire!”  Nine times out of ten when there is a significant lack of communication, if the results in your monthly statements continue to disappoint, and if your property manager has overpromised and under-delivered it is time to say good-bye.

Read the Contract – It has Important Information
A famous lawyer once said to his client who called asking for an answer to a question about a contract, “[R]ead the bleeping contract.”  Rental property management contracts are not that complicated.  Hopefully you read and understood the rental property management contract you signed in the first place.  You need to review that document for a couple of important clauses (if they exist).  Take some time and review the agreement or contract you have executed with the rental property management company and look closely for any termination clause language, and any “for cause” clause language.  Moreover, it’s important to know if the initial term of the contract was set forth, or if it is truly a month-to-month type of agreement.

Understand the Clauses or Hire an Attorney to Help You Understand
Typically, the initial period of the contract will be some determined amount of time, like one to three years.  Once this initial period has expired you may or may not have signed a new contract which will determine how long it will take to rid yourself of the rental property management company.  If the initial term has expired you are on a basic month-to-month agreement with your manager or company.

Some contracts have a 30-day to 90-day termination clauses which requires the terminating party to give written notice of termination for some set period of time to the other party.

Other clauses require “for cause” for the contract to be terminated during the initial contract period.  If you terminate a property manager or a rental property management company without cause and a “for cause” clause was included then the property management company could potentially have a cause of action against you for breach of contract.  Thus, it is important to be mindful of all of the clauses in the agreement or contract before making any rash decisions.  Again, read the contract.

Follow Termination Procedures Accurately
It is paramount that any and all termination procedures are followed accurately.  For example, make sure to follow the writing, notice and mailing requirements that are dictated in the contract for termination.

In the event that you resort to this procedure you must realize there may be costs involved including a termination fee in the contract, or paying the property manager all of the fees they have earned to that point.  Some contracts will even have a clause which requires full payment of the entire contract period fees.  Thus, again it is important to read the contract and understand it before you execute it or terminate it.

An exception to this would be if a property manager or rental property management company was stealing money or materially breaching the contract in some way and there was a 90-day termination period in the contract.  As an owner you would have the right to immediately terminate that contract due to the property manager’s conduct and you wouldn’t have to wait 90-days in that situation.

Tenants Need Notification
Once the decision to terminate has been made and a change has occurred the quicker the tenants are informed the better everyone will be.  Read the contractual obligations imposed upon the property manager in this situation.  If the contract is silent about this procedure then take it upon yourself to contact the tenants and notify them of the change in management whether it is a new manager or yourself.

Make sure that your outgoing property manager has agreed to provide you with all of the tenant and property paperwork.  Make arrangements to have this information communicated to your new manager or to yourself with expediency.  If trust funds are to be transferred make sure that your new manager is with you during those conversations involving transferring monies including the all-important security deposits.

You Are in Charge – You Call the Shots
Remember that as the property owner and hirer of the rental property management company you are the Boss and you call the shots just as if they were your employee.  If you lack confidence in your manager, even for one moment, it is probably time to start paying close attention to how your manager is treating your property.  If repair bills are larger than normal, if information about tenants are being communicated to you on an untimely basis, or if no communication is occurring it is time to make a change.  Do not hesitate to take charge and help prevent your return on investment from being hijacked.

Wednesday, February 19, 2014

Property Managers Should Make Suggestions To Help Improve Your Return On Investment

Property managers and rental property management companies should help owners and investors improve their return on investment with every action they take with the owner’s properties.  A prudent property manager will make suggestions on improving the exterior of the house with cost effective suggestions.  Improvements will help retain existing tenants and will make the property much easier to rent if vacant.  If your existing manager doesn’t make these types of suggestions maybe it’s time to look for a new property management company.  The following is a list of six (6) easy and cost effective exterior improvements.

11)    New Front Entry Appearance.  If the front entry door on your property hasn’t been changed in a while, maybe it’s time for a new paint job with a new color.  Additionally, changing out the hardware is also a cost effective appearance improvement.

22)    Improve Landscaping.  If the outdoor landscaping isn’t on a consistent maintenance program it should be.  Drought resistant plants, hardscaping, and other low-maintenance improvements will help improve the aesthetics and reduce maintenance costs.

33)    New Exterior Paint: If your property hasn’t been painted in 7-10 years hopefully you or your property manager was prudent enough to have you budget for a new paint job.  A quality freshly painted exterior will help improve and energy and vitality of your investment property.  Make sure to pick a natural earth-tone color which will be attractive to potential tenants.

44)    Improved Outdoor Lighting.  A quality new exterior fixture will add safety, drama, and interest to your investment property.  A path lit by some exterior lighting will also improve overall aesthetics, but may not make sense in all instances and properties.

55)    Update Inefficient Windows. If your property has older single-paned windows a prudent plan will be to budget for the installation of dual-paned windows to reduce heating and cooling costs for your tenants.  This will also help you when the property is vacant and a prospective tenant who has lived with single-paned windows knows the difference.

66)    Plant Trees For Energy Efficiency.  A properly-located tree will provide shade in the summer and allow sunlight in the winter which will make your tenants happy.  This energy saving addition is also aesthetically pleasing and will make neighbors happy as well.

Tax Savings For Improvements
Even though these above items may cost some money to implement the return on investment should be measurable.  Moreover, every dollar spent improving the property will be a deduction off your taxable income for the rental property tax return.

If your property manager is not making suggestions like the above six (6) item list they should be.  The property manager should be your partner in helping you drive maximum return on investment and should be looking out for an owner’s best interests.  Without making suggestions to improve the property with cost effective suggestions the property manager may be looking elsewhere when they should be looking at your property.

Tuesday, February 18, 2014

Go Green with Your Investment Property for Maximum Return On Investment (ROI)

If you are planning any renovations to your investment or rental properties in the near future you should consider going as green as possible.  Improving your investment property’s Eco Performance has monetary and intangible benefits as well.  You can ask your property management to help you along with using some of the helpful information in this quick guide.

Solar Panels
First and foremost there is no quicker way to reap the rewards of eco-friendly construction then with the installation of solar panels on your investment property’s roof.  There are dozens of programs available in all parts of the country which could help you improve the overall return-on-investment of your property.  Additionally, the installation of solar panels sends an eco-friendly message to your tenants, your neighbors, and the investment property community.  Don’t hesitate to start working on a solution for this improvement.  All Solar companies will come to your property and give free estimates and also provide a thorough array of options for your individual situation.

There are so many new eco-friendly roofing materials available now that it boggles the mind.  They include slate, metal, composite, and recycled plastic and/or rubber.  These new eco-friendly materials offer superior fire and impact resistance and come in various colors and textures.  There are a number of manufacturers are selling roofing shingles made from 100 percent recycled vinyl and cellulose fiber that resist fading and are fire retardant.  Other products include shingles made from 98 percent post-consumer metals – some of which look just like a wood shingle or shake but don’t warp, crack or mold.

Eco-friendly manufacturing has now penetrated the insulation market.  There are several eco and health-friendly options in each insulation category.  One of the most recent products is a soy-based polyurethane  spray-in foam that expands to fill-in cracks, crevices, and hard to get to places which will provide an airtight seal with extremely high thermal resistance.  There are also new batt-type insulation products constructed from post-industrial cotton and denim fibers that contain virtually no chemicals.  There are several products that are now odor and formaldehyde free.  One manufacturer offers an alternative insulation that resists mold.

Windows and Doors
When replacing windows and doors, look for low U-factor ratings – which is the measurement of a window’s heat flow.  An average U-factor rating is .25 to 1.25.  An easy and cost effective way to help improve the air leaks around doors and windows is to use caulking around the entire perimeters of each opening, the trim, the window housing, and the framing (if exposed).

When replacing windows consider dual-paned glazing with Argon chambers; patio doors with double or triple pane glass to improve energy efficiency.  To be really eco-friendly consider installing new windows and doors manufactured using a water-based treatment that decreases Volatile Organic Compounds (VOC’s), which are a key cause to indoor air pollution.

Tenants Can Help You
Implement a plan with your property management team to talk with tenants about being eco-friendly partners with you.  Have your property management team put together a list of eco-friendly energy saving hints and tips that will not only save your tenants cash each month, but will improve the overall energy efficiency of the property for the long-haul.  It is a good practice to print the list and display it at various locations on each of your investment properties, including posting it on your company website.  Some ideas for the list include but are not limited to:

11)    Install thick drapes or shades at all large windows.  This reduces heat loss in winter, improves heat gain controllability in summer, and also provides the tenants with privacy.
22)    Only use washing machines and dishwashers when they are full.
33)    Install auto-thermostats as a difference of 2-3 degrees could be hundreds of dollars spent on unnecessary energy costs with little or no comfort level increase.
44)    Unplug cellphone chargers, appliances, etc., when not in use.
55)    Install faucet filters to avoid using plastic bottles for water.


Each and every eco-friendly improvement or addition can collectively make a big difference in the bottom line of your rental property.  Make sure to get your property management team involved in this process as they should be fully prepared to help you in this endeavor.  If they are not you can easily use this guide along with some quick research and you will be well on your way to having a more eco-friendly rental property business.

How Property Managers and Owners Can Keep an Investment Property Looking Good and Occupied by Improving the Landscape

First impressions matter immensely, thus a property owner should never neglect their investment property’s landscaping.  A real estate agent who is getting a property ready for sale spends time, energy and effort making the most of a property’s curb appeal to entice a potential buyer to buy for the highest possible price.  A rule of thumb is that a realtor who invests $1 dollar of curb appeal improvements will gain their clients $3 of return at close of escrow.   In the same vein, a property manager should counsel his clients to invest some time, energy and effort in sprucing up their rental property exterior landscaping to help attract more potential renters or keep the ones they have.  The art of providing just enough curb appeal, just the right balance of attractive landscaping, while maintaining a fixed maintenance budget can be achieved through education, experience, and common sense.  Experienced property managers should be able to put together a plan for their owners at no additional expense.

Long Term Landscaping Planning for Your Portfolio of Properties is Key
An experienced property manager can and will help their clients improve their exterior landscapes with just the right balance of attractive components while not breaking the bank.  A proper mix will help the owner keep the property rented, while at the same time reduce the monthly maintenance of the property, which in turn reduces costs.  For example, although lush, cool, beautifully manicured green grass is very attractive, the cost of installing and maintaining the grass is not as cost effective as keeping a small patch of grass with other drought resistant groundscape like gravel, bark, mulch and wood chips.  These other ground cover alternatives also help keep moisture in the ground to reduce water consumption.  An experienced property manager can evaluate and help an owner make some design changes to improve aesthetics and reduce maintenance costs.

Trees, Trees, and More Trees
Other than the property’s building a well-thought out scattering of trees are by far the most valuable asset a property exterior can have.  Mature, gorgeous, and sky-reaching trees can also help reduce cooling costs for a rental property which in turn makes the property more attractive to rent.  If your investment property lacks trees consider having an arborist or landscape architect suggest some different species of trees and locations to plant them on the property to maximize their possible benefits.
Seven (7) Ideas for Low-Cost Landscaping
When you have an opportunity you should get together with your property manager and try to implement a long-term plan for landscaping improvement and maintenance with the goal being to improve aesthetics and reduce maintenance costs.  The following list includes some low-cost ideas to think about and brainstorm with your property manager:

11)    City Tree Program – Some cities and towns actually give away trees for property owners as long as the owner follows certain guidelines;
22)    Look for Sales – Wait until the end of the growing season to go shopping for trees, shrubs, soil and mulch because the retailers that didn’t sell all their inventory will be looking to get rid of these items at a discount;
33)    Demolished Buildings – Look around your neighborhood for demolition sites as there are often free bricks or other building materials which can be used in your landscaping designs;
44)    Work Your Existing Plants – Educate yourself to help keep and shape the trees and shrubs you already have to give them new life and vitality, or even relocate them.
55)    Buy Small – Buy smaller sized plants, shrubs, and trees which will be less than larger ones.
66)    Make Your Own Compost – You can easily build and maintain a composter on your rental property where you or your gardener deposits all of the grounds clippings, waste, and leaves.  This compost will eventually produce fertilizer which is one more thing you won’t have to purchase.
77)    Use Drought Resistant Plants – Not only is water scarce, but it is getting more expensive on a monthly basis, so a collection of drought resistant plants is important for long-term maintenance cost reduction.

Be Patient and Watch Your Property Exterior Improve
When you have slowly but surely implemented a long-term plan for exterior landscaping improvement and maintenance your reward will be improved aesthetics, reduced maintenance and reduced costs.  More importantly your investment property will be more attractive to potential renters and those renters who do live there will not want to leave.  Finally, the improvements and maintenance expenses are fully tax deductible provided you and/or your property manager has saved the receipts and properly recorded them.

Remember, first impressions make a huge difference.  A property owner should get together and implement a plan with their property manager and never neglect their investment property’s exterior landscaping and overall appearance.  If your property manager is not making these types of suggestions maybe it is time to begin looking for a new property manager.

Monday, February 17, 2014

Property Management, Investment Property Tax Deductions, and Tax Strategies for Real Estate Professionals

The cost of hiring a property management company to handle investment properties is significantly less than most property owners believe.  Investment property owners who manage their own property with the idea that property management costs are too much might be mistaken as to the actual real costs.  Additionally, a large percentage of property owners do not take advantage of all of the tax strategies available to them.  For example, if a property owner manages their investment portfolio out of their home office there may be some business related items they are not expensing.  Interest in all forms including mortgage interest, equity lines of credit interest, and any business loan interest are all expenses which are typically deductible.  Losses like casualties, disasters, and thefts are expenses which properly accounted for are deductible.  The most overlooked deduction is depreciation on investment properties, and for real estate professionals as defined by IRC 179, an investment property owner can supercharge their depreciation deductions.  To maximize one’s return on investment each property owner should educate themselves about tax strategies, and thoroughly evaluate their entire tax planning roadmap with a tax attorney or competent certified public accountant.

Combined Tax Bracket Percentage Determines the True Cost of an Expense in Your Investment Property Business
First of all a property owner must fully understand this basic concept.  If their annual income from all of their activities placed them into the combined, federal, state, and local tax bracket of 50%, then their ordinary and necessary business expenses are in actuality fifty cents ($.50) for every one dollar ($1.00) spent.  It’s simple to think about it this way: If a one dollar ($1.00) is spent on advertising then that one dollar ($1.00) is legally expensed.  If a person is in the 50% combined tax bracket then they have actually only spent fifty cents ($.50).  This is because the one dollar ($1.00) they spent actually reduces their taxable income by one dollar, thus, reducing their tax liability by fifty cents ($.50).  So each ordinary and necessary expense is truly only 50% of the actual cost.

Now that you have your mind around that concept if a property manager is charging you $200/month to manage their single-family residence rental property the actual (end of year) cost to the owner is only $100/month because the property management fees are an ordinary and necessary business expense and fully deductible.  Now consider that 50% reduction in your perceived cost and maybe property management doesn’t seem so expensive anymore.  Add to that the impact on your time, energy, effort you spend managing that property.  Add to that the gasoline expense necessary to drive by that property once or twice a month.  Finally, add to that the comfort of knowing a professional property manager could in fact be taking care of your property and you wouldn’t have to have all of these expenses, time, energy and effort and maybe, just maybe, you would reconsider using a property manager going forward because you now realize that they really aren’t that expensive for the services they provide.

Home Office Deductions are Tricky, but can be Legitimate
If a home office is used 100% for ordinary and necessary business reasons then there is no reason a person shouldn’t be taking advantage of expensing the home office square footage, the equipment, the materials, the supplies and any utilities paid to help operate the office.  The problem lies when the home office is used for personal reasons because it is difficult to prove what percentage of the home office is actually an ordinary and necessary business expense.  There are many Internal Revenue decisions on this vary issue, and each one shows the difficulty in achieving the correct balance between business and personal expense, and more importantly, being able to prove it in an audit.  If you are considering running your property management business out of your home office be careful.  Although there are a lot of legitimate expenses which are clearly available to you, there are several that are not.

Interest Expense is Sometime Overlooked
When you are evaluating your interest expenses do not forget to expense any interest from your home equity line of credit as this can be easily overlooked.  Also, if you have a small business loan that interest is deductible as well. 

Disaster, Theft Losses are Deductible
In the event that a loss occurred during your business cycle those expenses are deductible provided you had a good record of the items that were lost.  There would almost always be an offset as well for any insurance reimbursements, but the point here is that losses must be fully evaluated while you are preparing your tax strategies.

Depreciation and the Real Estate Professional Internal Revenue Code
When planned correctly the “non-cash” expense of depreciating one’s rental property can be the difference in paying taxes or realizing the benefit of a tax-loss.  Most residential investment properties are depreciated over 27.5 year period.  Commercial property is depreciated over 39 years.  However, if a person were to be classified as a “Real Estate Professional” pursuant to Internal Revenue Code 179, then the benefits of owning investment property become much greater.  Without going into great detail a real estate professional’s own personal property portfolio is treated differently than a typical investor.  If this is enticing enough one should investigate the benefits of this little known exception in the IRC and real estate industry.

Contact a Competent Tax Attorney or Certified Public Account to Review All of Your Current Tax Strategies and any Planning Going Forward with Your Investment Properties

The information contained in this article is by no means tax advice, but merely some ideas to contemplate the next time you consider your tax situation.  Every person who owns a rental property business should consider tax planning and tax strategies with a competent professional specializing in tax.  There are numerous legal ways to take full advantage of tax laws and your professional status within the property management context, however these decisions need to be considered carefully with a tax professional.

Friday, February 14, 2014

What Property Managers Must Know About Fair Housing Laws, But Are Afraid To Ask

Fair housing laws were implemented in the U.S. during the Lyndon Johnson Administration of the 1960s to help prevent discrimination towards minority and underrepresented groups in housing or renting.  Some fifty years later we are still faced with it on a daily basis.  According to recent data there were close to 30,000 housing discrimination complaints filed in the U.S. in 2012, which is an increase of nearly 5% from 2011.  As a property manager or a property management company it is paramount to understand these basic fundamental laws to avoid any violation and potential liability for you and the property owner.

Advertising Must Comply with Fair Housing
The following language should be communicated on all advertisements, websites, marketing materials, and communications:

“ABC Property Management and our clients do not discriminate on the basis of race, color, religion, national origin, sex, disability or familial status.”

By displaying this language you are communicating a public acknowledgement of the Fair Housing laws and the concomitant           restrictions.  Property managers need to be mindful not to use language which although is seemingly innocuous actually discriminates against its perceived audience.  Some examples of this are phrases like, “great for a young couple,” “family-oriented neighborhood,” or “perfect for single female.”   Words which appear harmless like “safe,” and “exclusive,” also imply that the property is not available for certain groups based on stereotypes.  A prudent practice for property managers and property management companies would be to describe the neighborhood, its location, and attributes of the surrounding areas instead of being exclusionary towards individuals.

Screening Policies Requires Precision in Communication
A written policy for minimal tenant standards is critical such that a bar is set and cannot be overlooked in qualifying tenants.  The exact items to have in a written screening policy include employment history, present income, credit worthiness, criminal background, eviction history and any other red-flags on a screening report.  This information should be communicated to the prospective tenant immediately and be front and center in a written policy such that a tenant that is denied for meritorious reasons will not be able to argue discrimination.  These standards must be clear, concise, and unambiguously communicated to the potential tenants.

House Rules Must be Consistent
All rules in an apartment house or complex must be compliant with Fair Housing laws and must pertain to everyone, not just a few.  Rules must not single out children, unless the rule is designed as a life safety issue such as children being supervised at a community pool.  Any violations of the rules must be documented with the date, time, specific violation, violator described, and remedy undertook by the property manager.  Property managers must keep accurate and complete records of these instances, circumstances and conduct.

Eviction Process has to be Detailed
Fair Housing laws allow for tenants to be evicted for meritorious reasons such as non-payment of rent.  There are other acts and conduct that can result in a tenant being evicted; however, these standards must be detailed, consistent, and non-discriminatory.  A property manager must keep detailed records of each and every conversation, act, confrontation, or circumstance which leads to an eviction.  The documents which should be included in a tenant’s file in chronology include but are not limited to:
1)   Warning letters and/or eviction notices
2)   Written complaints by neighbors to city police
3)   Writing logs maintained by property manager
4)   Police records
5)   Photographs
A property manager’s website or tenant packet must include with specificity a list of conduct which a tenant may not engage in.  Eviction is the ultimate owner remedy for removal of a bad tenant, however, the property manager’s goal should be to maintain a personal working relationship with the tenant and resolve any issues that could result in an eviction.

Employee Training is Critical
For those property managers who employ staff to deal with tenants it is imperative that the employees receive Fair Housing education and training.  Each employee should be required to read and be familiar with Fair Housing laws and should be required to maintain a Fair Housing manual.  They should also be required to sign a commitment to comply with Fair Housing laws and non-discriminatory practices to help prevent any situation from occurring.  This is for everyone’s protection including the tenants, the employees, the property manager and the owner.

Real Estate Attorneys Can Help Property Owners with Fair Housing Laws
Property management companies who have a real estate attorney on staff can help owners with their Fair Housing questions.  A real estate attorney familiar with Fair Housing laws has the expertise, training and procedural knowledge to help keep owners on the right side of the law.

Wednesday, February 12, 2014

Property Managers Need To Be On Lookout for Potential Water Intrusion Issues

During winter and rainy months property manager and professional property management companies need to be mindful of potential water intrusion problems with each and every property in their portfolio.  Many buildings start leaking right after construction, but do not manifest the water intrusion and building damage until years after the leakage has started.  Water intrusion can lead to structural damage, rot, mold, termite, sick building syndrome and eventually significant mitigation repair costs.  A prudent property manager will spend time during periodic inspections of the property to help prevent these issues from occurring and also ferreting out any existing and ongoing issues.  A property owner should expect nothing less from their property manager.

How Serious is Water Intrusion in Buildings?
Every year hundreds of millions of dollars are spent investigation, diagnosing, repairing, and mitigating water intrusion problems in all types of buildings.  Interior environmental problems such as mold can occur if the conditions are ripe, water intrusion occurs, and the interior mechanical systems do not mitigate the moisture creating a potentially toxic concoction and subsequent mold production.  The mitigation efforts required after a mold infestation are significant including usually displacing any occupants of the building.  The environmental companies must scrub down the interior, must prevent mold spores from moving from room to room, and must remove and clean interior components which have become contaminated.  This is not a small effort, nor an inexpensive one.

Water intrusion also can cause significant damage by rotting of structural members and interior components concealed by floor or wall coverings which can go undetected for many years.  Other areas consistently exposed are the window and door openings where framing and window/door flanges intersect.  These intersection, if not properly flashed and sealed, are water entry points that also are sometimes difficult to detect.

Why do Buildings Leak?
There are many areas of potential water intrusion points of entry into buildings including the roofing systems and appurtenances, the angled intersections of the building systems including wall to roof intersections, the building openings like doors and windows, and the sub areas, foundations, and downspout discharge locations.  Gravity, building intersections, kinetic forces, wind, rain, air currents, pressure differentials and lack of maintenance all play a part in water intruding into buildings.  Property managers need to be familiar with the tell-tale signs of potential water intrusion points, specifically they should be mindful of all of these areas during their periodic inspections of their portfolio of properties.

What is the Best Way to Diagnose a Leaking Building?
The best way to diagnose a leak is to identify the area which is affected and single out each and every component that is attached to the area which has manifested the leakage.  If the property manager can not specifically identify the precise cause of the leak they should immediately contact a competent licensed contractor to evaluate and correct with expediency.  Any delay in repair can result in increased costs, and possible loss of rent due to a tenant being displaced.

Speed is Critical in Mitigating a Leaking Building?

Even though a property manager cannot prevent all of the possible water intrusion problems with a property they can be mindful of the potential areas which are susceptible to leakage and monitor those areas during their periodic inspections.  The old saying an ounce of prevention is worth a pound of cure is never as true as in preventable water intrusion problems.  Prudent property managers spend significant time during their periodic inspections of their properties to help their owners from having to deal with water intrusion issues.  Ultimately this leads to a greater return on investment for the property owner which is the ultimate goal for the property management company.