Subtitled: Why you should use the MLS for your rental property
This is a tale of shame, with a “let me learn the lesson for you” message. It involves 3 students from Michigan who were looking for housing. Disclaimer – I was not a licensed real estate broker at the time of this narrative.
The back story
We had tenants leaving house #1. They had not been the best of tenants, and we expected to have to do a bit of clean up, but nonetheless advertised the house on Craigslist for a month after the anticipated vacating. We got a hit from 3 Michigan State students, one of whom was going to be interning at Microsoft. Yay. Now on to get the house all ready for them.
Arriving at the house, we found the previous tenants gone. But wait, they had given their keys to an acquaintance, a person unknown to us, rather than leaving the keys inside and locking as they left. We had a squatter! This was a problem because there were 6 weeks before we had a contract for new tenants, and we could be held liable. 6 weeks was about enough time to transact the eviction and grrrrr that we had to go through the expense. Except
The squatter was classified disabled, a Native American, and on government disability. As such, he was entitled to numerous special considerations, including a more drawn out eviction process while various agencies tried to find alternate housing. In short, he could stay in the house until that happened, but as we had no rental agreement with him, we could not collect rent. There is nothing quite so desirable as having to pay a mortage on a house you cannot inhabit, while someone else lives there free of charge, right? As the landlords, we could not turn off utilities, but were still liable for water/sewer, as those charges are tied to the property, not the inhabitant. Things just kept getting more expensive with a longer timeline. We had to make other plans.
We opted to ready another house, which though vacant, functioned as a business office. Not the desired course of action, but when pressed, became the only option.
We had to do the paperwork to correct the rental agreement, and held our breath, hoping there wouldn’t be a problem. The second house was quite a long distance from the first and while that was not an issue, the lack of access to downtown where everything lively occurred, was a bigger challenge for our new tenants. Ultimately a bigger, nicer house at the same rate won out and the paperwork was signed. Huzzah!
Now to clean house #2 and get it ready. We were down to a couple of weeks and running out of time. Hire the trucks to clean out the office and leave them the furnishings we had promised. Done. Yardwork halfway done before the rain, and then the first one arrived. We passed off keys and I told him I would be back on Friday to finish the yard.
Primary tenant looked at his room and said that violet was not really his color; could he paint? I should have asked qualifying questions, but honestly I had been so focused on the run getting the property ready that I said, “Sure.” I assumed he would just paint it white. They were only going to be there for 3 months, right?
On Friday I returned to finish doing the lawn and checked in on the move in. Primary tenant had painted the room orange and black. What the foo?? Not only that, but had painted it standing on one of my dining room chairs, which was now covered with orange and black paint. Not happy. Primary tenant and I discussed it in conversational tones and I chalked it up to , “life lessons.” Make sure you get it in writing and clarify expectations.
They were good tenants, even inviting us over to dinner shortly before their time in Seattle was up. They fed us beer they had brewed [all of them were underage] and we had a very nice dinner. At the end of tenancy, they left the keys on the table when they moved, locking the door behind them. Yay, no squatters.
On the walk through, we found the bathrooms un-cleaned, dirty linens on the beds, the yard un-mowed and waist high, and worst of all, the other bedrooms painted. One set of walls had actually very nice black designs on the white, and the tenant had painted the built in furniture to match. He had painted the what???? Oh holy cow, I was furious. The back and forth tenancy wrap up was unpleasant and an interesting lesson for the college students on “read your lease – it is a legally binding contract.” It only ended with them coughing up the money owed when they threatened us with legal action and we responded, detailing the terms of the lease on which the judge would have to rule.
Why should you care?
Well, that was a nice long story, you think to yourself, but why should I care? I don’t have 2 houses or out of state temporary tenants or disabled squatters. You should care because there are sixteen or more ways that any real estate transaction can go sideways, beginning with not having the faintest idea on how to select and screen tenants.
Your real estate professional, whether involved with property management or not, has at least been schooled in the laws surrounding tenancy, and can advise you on best practices for screening, contracts, and compliance with state and local tenancy laws. Better yet, they may be involved in property management and offer to handle it all for you. Let’s look at both those possibilities.
They list, you do the rest
For a fee, whether a flat rate or a percentage of the first month, your real estate professional can list your home on the MLS. In doing so, your rental seekers are limited to people who are willing to have an agent represent them and even more importantly, let them into the home. An MLS listing means a keybox which only an agent can access. You, the owner, do not have to drop everything to go show the house every 2 hours (to people who may fail to show up). The showing agent’s brokerage assumes the responsibility for making sure the prospective tenant does not damage the property. They also keep they key secure so you do not end up with a squatter situation.
Free piece of advice – under no circumstances should you ever put a contractor keybox (with a dial code) on the door and let people go take a look for themselves. You are inviting six kinds of trouble with that one. Even if they are not squatters, they could take the key and have it copied. Your new tenants move it and come home to find they have been burglarized without signs of forcible entry. Hmmmmmm.
With an agent listing comes the ability to use state approved lease forms, which conform to all the current state leasing laws. That in itself is worth its weight in “see you in court” fees. The listing agent will forward all applications to you, and point you in the direction of how to screen and make the final decision on who you would like to have as a tenant. Leave them a move in gift to start off your relationship on a very pleasant note. No, a bucket filled with cleaners and rubber gloves is not too pointed, and will probably be appreciated. Maybe throw in some popcorn too.
They list and do everything else
In the ideal world of investment real estate, the goal is to own property, have the tenants paying the mortgage and providing you will cash flow, while you go do something else. Me, I’d like that something else to involve sandy beaches. The problem arises when you get the phone call at 4am about the toilet overflowing and flooding the basement. There is nothing passive about cleaning sewage.
In most states, a property manager must be, or have within their property management office, a licensed real estate agent. This licensure covers you, the owner with 1) agent oversight by a designated broker and 2) recourse if something is not handled legally and professionally.
Property that is listed and managed by a property manager truly does become hands off investing. The property manager will
- List the property
- Screen the tenants
- Sign all the contracts
- Perform the walk through
- Verify the tenants’ renter’s insurance is current
- Be the one the tenants call when there is a problem.
- Handle move out issues
- Clean the property for the next tenant
- Begin again with #1
Your responsibility as the landlord will be to pay a pre-negotiated fee to your property manager, and to approve and pay for any maintenance or improvement issues not covered in the lease (yes, the tenants should not call you when a light bulb burns out).
With a good property manager, you should be able to enjoy the income without the headache, at least many fewer headaches.