The Art of Good Tenant Screening

I just got a call from a screening bureau about a former tenant. I liked this tenant, I was very fair to her, and she paid promptly, took care of the house she rented from me, and I gave her a great reference. However, this screening bureau was not a place I would ever consider using. I usually self-screen, I like knowing what a former landlord / landlady says about a tenant. The landlord prior to the current landlord is more likely to be honest, a current landlord may say wonderful things just to get rid of a horrible tenant.

However this screening bureau was awful. First, the screener did not pronounce the Hispanic – Filipino name anywhere close to where it was recognizable. My response was “Who?” Next, the list of questions was way too long and not extremely helpful. There were the initial validation questions to screen if I was really a landlord, and her landlord. Justifiable because I initially had no idea who this person with the horribly butchered name might be…. However, the list of questions got so ridiculously detailed and trite that you would have to pay me to sit through the interrogation about a former tenant.

I really believe in providing references. We as landlords must collaborate. In so doing, we prevent unethical tenants from wreaking a serial path of financial and emotional destruction across the lives and businesses of well-meaning landlords who provide quality housing at fair prices to those not willing to or able to purchase their own housing.

There are those tenants who shove rotting pork into furnace ducts, use sledge hammers to smash the subfloor, short out furnaces, pour cement or tampons down drains, have parties on your roof requiring a roof replacement, and do myriads of other types of costly damage that is so far beyond what a typical damage deposit can fix. Then there are just the sob story tenants, money is coming soon but not yet, who skip out after 6 or 9 months of unpaid promises, leaving a landlord in the red for the next year or two or three, making up for 9 months of unpaid rent out of a $200 or so profit when the rent is being paid.

However, screening bureaus that abuse the privilege of well-meant information by asking irrelevant questions without getting to the gist of the matter harm all of us.

What tenant screening questions really matter?  Here are mine:

Did the tenant pay on time?

If you had a brand new remodeled unit, knowing what you know about the tenant, would you let him/her move in?

Did the tenant own any pets? (this prevents the person who claims no pets, and all of a sudden has a service dog. (service dogs cannot be charged extra pet rent or pet deposits for. Moreover, in my experience with about 15 instances of service dogs against 45 instances of declared and paid for pets, service dogs cause the most damage, since there is very limited penalty to the tenant when the law prohibits landlords from covering their losses. A few “scratched to death” doors will eat up your one month’s rent security deposit, leaving no funds for the urine stained carpet and the urine soaked subfloor, or the 150 gallons of dog waste in the yard.

Did you have any other problems or issues with the tenant, or were there any other issues reported by neighbors?

That’s really it. These are great questions to start the conversation. If any answer gets too long, you know there is a red flag. Being a landlord is about triangulation: you listen to your gut, and you get external evidence (credit report, criminal and eviction history, references) and make sure they jive. If you find one red flag, dig deeper. If the tenant seems a high risk, they probably are. Find someone who feels safer. I’ve had tenants move out and cost me $6,000 to $10,000 in remodel costs. Rushing to fill a unit with the next tenant like that is never worth it. I’d rather have one more month of vacancy than that.

One final note: If a tenant manages to tug at your heartstrings; if you are their only salvation in a cold, uncaring world, run! Our job is to love ourselves first. This includes drawing healthy boundaries in all our relationships, including our landlording business. You are nobody’s salvation. Moreover, you already know that as a landlord, nobody will rush to save you! Take care of you. Sometimes the biggest gift to a deadbeat tenant is to teach them that they must act in a way that is responsible to themselves and the world around them.

Wishing you much love and success in your landlording journey.

Fleming

The secret hidden power of insulation

I am a bit of a luddite. Doing new things, especially complex things involving technology create a sense of resistance. Such was the notion of blowing in additional insulation into my attic. I knew my house was uncomfortably hot in the summer, I was typically shirtless indoors from June until late September. I could have just installed an AC, but I got my worst sinus infection ever from a Georgia hotel air conditioner that was home to some massively overgrown, spongy growth of fungus or mold. I had looked inside the hotel air conditioner cover and seen the sponge like dense growth, clearly a large living organism that wasn’t friendly, and knew that this life form was the cause of my head hurting like hell for the next 4 to 5 weeks.

Blowing in additional attic insulation was a chore I knew was doable. Yet, it was even more doable to avoid doing it. Until I caught a wild hair yesterday and just bought 11 bags of Fiberglass insulation, and got the blower rental for free from Home Depot (free with 10 or more bags). Total cost, around $400. Effort: not too bad, maybe two and half hours for an 1100 square foot attic.  The Home Depot insulation blow rental machine was a bit beat up. I had to figure out my own coupling to three sections of hoses. I had a scrap 2.5” PVC plumbing couple that with some duct tape worked marvelously. I had my fifteen year old son help, and also my girlfriend, they cut bags in the middle, broke the bales of insulation in half and then inserted them into the hopper, being careful to remove the plastic wrap before that gummed up the works. 

The job upstairs, in a very hot attic was relatively easy, I sat on the rafters, being very careful not to put weight on drywall where I would just break through into the room below, and aimed the hose, which blew out flakes of insulation like giant snowflakes in a blizzard.

There is an art to feeding the insulation machine. My son packed it loosely, and the machine regularly sputtered and blew air more than insulation. My girlfriend packed it too tightly, jamming the mixing paddles at the bottom, so that we had to unpack a full machine of insulation, getting insulation all over my garage floor (and subsequently lawn), to free the paddles so they could once again spin freely.

I did spend a bit of time evaluating fiberglass vs cellulose insulation. Factors for cellulose were: that’s what the house had originally (all six inches of it), it has an irritant to rodents, it is not fiberglass, but more like shredded newspaper. Factors against cellulose were that the irritant to rodents was going to be an irritant to me as well, it’s dustier than sandy plains on a windy day. Fiberglass had better reviews, and cost more, so I bought that. It turned out well. The fiberglass wasn’t itchy the way I remember fiberglass batts being, and it wasn’t dusty, although just being in the existing cellulose made the air up in the attic thick and hard to see the length of the attic. That proved to me I chose wisely. I could see light from the house in the attic through slits in can lights and the like. Cellulose would have made my house dusty in a way that the thick cohesive flakes of fiberglass didn’t.

I get the sense the online insulation calculator instructed me to buy more than I need. Yet, that is better, much better than too little. My attic insulation is at around R60 now. I noticed the difference right away. Going back downstairs my house was comfortably warm instead of sweltering. I was able to wear a t-shirt rather than being forced to be shirtless to keep the shirt dry.

Would I do this again on future homes, and any of my rentals with accessible attics? Absolutely.

For the money this was an amazing upgrade. I saw online a typical contractor would charge $1400 for this same job, and I think they would have stopped earlier, using far less insulation than I did – I would have returned some insulation if my helpers hadn’t already cut all the bales in half, so that we just kept running through all of the bags getting me up to around double the required level of insulation. For $1400 with a contractor, they would have stopped somewhere around R30-R38.

Other home projects you are curious about? I have done lots on my numerous rentals and personal residences. Drop me a line with questions.

Best

Fleming

Show your property love – the right way

My friend just spent $10,000 installing a tankless water heater. It’s a good improvement, but the price was about 4-5x on the high side. Sometimes people make investments in a property they really love, the way one might make an expensive gift to our child. This is natural, and can be beneficial. Yet, as much as we love our property, and precisely because we love our property, we should make sure we get the right bang for our buck. In my area, a new tankless water heater runs around $1300, and replacing an existing one, hiring a licensed master plumber might be around $800.  $10,000 was an expensive way of saying “I love this property”. This person, well meaningly, blew his entire wad of bills on one thing, when that $10,000 could have netted him numerous high value improvements.

Lots of trainers will say to be dispassionate about your properties, they are an asset, not something to get emotionally involved with. I disagree. My passion for my properties is my strength, and it attracts good tenants who likewise love older, quaint, unique homes. Passion shows, and it can net a premium in rent, or dividends in terms of long term tenants who are problem free. Just use your passion wisely. Get the highest return on being passionate on your investments.

Often a simple google search will get you an idea of reasonable prices for various repairs and upgrades. Likewise, my rule of thumb has long been to get 5 bids instead of 3. The first 3 bids often seem similar, and I still come across as a novice buyer. By the 4th and 5th bid visit, I know the lingo, what questions to ask, and seem to get dramatically better quotes as a result. Those two extra calls are well worth your while.

Beware of Cooperative Housing Projects in areas you are looking to buy (Coops/Co-ops)

I purchased a house on a quiet (or so I thought) residential street, that houses a cooperative housing project (coop). This is a normal ranch house like the one I purchased, yet this one was transformed with government grants into a Frankenstein house that now is allowed to have 16 low-income residents instead of the typical 2-4 middle class residents per house. This also means there are 12 or more cars associated with the coop. One impact is that even when the rest of the neighbors typically just use one off-street parking space, parking is in short supply on this block, in a city where parking is generally not a problem in low density residential zoning districts.

As one city councilman expressed, the city had created a rule that limits the coop occupants to just 5 cars, two of which are to be parked on premises, and only three of which are allowed off street.  This rule was specifically created to appease neighbors concerned about the coop impact on housing values, parking and quality of life.

However, this rule turns out to be utterly un-enforceable. Coop residents are highly nomadic, rotate in and out continuously out of tiny rented rooms as small as 93 square feet that are rented for about $300/month These residents often have out of state license plates or vehicle registrations linked to prior addresses or family members and it is utterly impossible for anyone, even code/parking enforcement to reliably detect which vehicles are associated with the coop to enforce this rule. This municipality is very committed not just being a town for the wealthy, so they are willing to create and fund overcrowded houses that allow low income people to live in a city where market rents for the standard of rentals private for-profit landlords are required to uphold are higher than these occupants claim to be able to afford.

Ultimately this coop appears to lower property values about 5-10% on the particular crescent road it is located on.

This is not a diatribe against coops or low-income housing, but simply a warning to investors to factor in quality of life impacts and value impacts when purchasing. The next blocks never have parking issues. This coop block is consistently a challenge to park in.

Do not be caught unaware as an investor when that house that looks relatively unassuming as you drive by unveils itself as having the same number of habitants as the surrounding 5 or 6 houses, which in this case means the coop has the same amount of cars as 1/3 of the rest of your block. Factor your neighborhood into your purchasing decision and the value and appreciation impacts a coop may create.

Careful when servicing of your mortgage transfers

Last year, in June of 2019, Ocwen Mortgage Servicing transferred a friend’s loan to PHH.

Now, in the new year, he got two 1098 mortgage interest forms, and the Ocwen one appears to be wrong. However, Ocwen appears to be out of commission. The Ocwen customer login area is shut down and all the mortgage history that used to exist there is now gone.

Per Ocwen’s website: “On October 4, 2018, Ocwen Financial Corporation (“Ocwen”) acquired PHH Mortgage Corporation (“PHH Mortgage”), an established mortgage servicing company. PHH Mortgage is a wholly-owned subsidiary of Ocwen and continues to operate as PHH Mortgage. The combination of Ocwen and PHH Mortgage creates a strong non-bank mortgage servicer…” However, wholly owned or not, PHH doesn’t address my concerns about Ocwen’s accounting. Ocwen doesn’t either, since PHH is the new servicer.

Is the mistake huge? In his case, it’s a few hundred dollars. Is he the only one? Probably not. Search “class action and Ocwen”. My search showed more than $100M in Ocwen payouts for several lawsuits. There are also lots of fraud allegations, along with the statement by a law firm that “Unfortunately, we think that PHH rivals Ocwen in poor servicing practices” (https://www.mahanyertl.com/2019/ocwen-fraud-investigations/)

My big lesson: if you get the notification that servicing is being transferred, review your mortgage statements, payment history and principal balance carefully. In his case, he was paying $200 extra in principal a month and the accounting for that looks to be flawed. However, now it appears to be impossible to get this rectified. The new servicer takes no responsibility for errors that occurred prior to their assumption of servicing.

There are numerous class action suits against banks, specifically around the misapplication of principal prepayments for mortgages. I personally had problems with ABN AMRO and was cheated out of $900 in prepaid principal that the Dutch bank just refused to correct when they serviced on of my loans in the late 1990s.

Real estate is a phenomenal investment vehicle. Being careful with the parties to your investment is part and parcel of getting the highest possible returns. Keep going after your dreams, and you will reap the rewards.

Buy Property for what you think it’s worth

This is the root of being a good real estate investor, or a successful wholesaler (a person who gets properties under contract and sells them at a mark-up to others).

Many people list property for sale, at the price that some aspect of their more or less educated fantasy prescribes.  In interviewing real estate agents pricing gets further distorted. Many real estate agents play the game of suggesting a high listing price with a long listing contract. Then they can negotiate that their seller accepts a lower price if that’s all the market bears. However if they lead with a low listing price, another, less ethical and less fact-based agent is likely to be awarded the listing and ultimately end up with the sales commission.

Therefore, to you as buyer, offering the price that works for you is best. It’s basically mastering the art of negotiating a deal for you that is independent of the price tag a merchant might have scribbled on the asset somewhere. The price tag is an expression of fantasy. The size of your pocketbook and the actual value are an important part of reality that must be expressed and communicated in order to buy real estate in a way that works.

Offending the seller with a low offer is possible, but we cannot caretake the emotions of others. Reality still applies for all of us. If you are realistic, a seller will hopefully be able to appreciate that.

I still drive by a vacant, eventually to be collapsing brick house regularly. All the wood components, from roof joists to floor beams are about to fail from unaddressed water leaks from a roof that hasn’t been replaced since the 1990s at best.  I have spoken to the owner repeatedly over the past 20 years. He always wants to sell his dilapidated wreck that needs a $100,000 or more in rehab for the price of the newly refinished, fully remodeled Victorian home somewhere in the vicinity. It seems like he simply doesn’t understand that replacing roof framing, the roof itself, and all the other aspects that make a house a house takes money.

His price has gone up as real estate values have increased over the past 20 years, and he has never been willing to just sell the house to someone who would heal it and stop the accelerating decline of that home.  His fantasy is creating the slow destruction of the underlying asset he has to sell. Generally, you will not be able to successfully deal with people who aren’t willing to have one foot in reality. This seller’s mental model creates a lose-lose-lose outcome.

Bidding an amount and having him take it or leave it works. Getting attached to an asset and wanting it at any price is never a good strategy, unless you know there is an undamaged Picasso hidden somewhere in the moldering woodwork.

Offer at the price a property is worth to you. The seller can make a decision if that amount of money is worth it to them. Then you either have something you can work with, or you keep looking for something that does work.

Prevent Frozen Pipes

we all know the good advice to unhook hoses from exterior faucets at the start of winter (for us that’s late September). However, I just was forced to remember another important piece of advice: Text all your tenants with plumbing on exterior walls to drip their faucet when the weather is colder than 20 degrees Fahrenheit at night to prevent frozen pipes.

A tenant called me saying he paid his water bill one day late and that now his water didn’t work. I told him that was not the water company, and to open his faucets and aim electric heaters at the wall with plumbing in it to try to thaw it out. Luckily no freezebreaks reported so far.

Keep your plumbing warm, and know that a slight trickle is enough movement to prevent freezing. And, here water rates are about $4/1000 gallons, so a trickle will be undetectable on your ultimate bill (especially compared to plumbing repairs to frozen pipes).

When Building, Health and Safety Code becomes the new threat to Real Estate and our Economy

Codes on average get updated every two years, and they keep driving up costs. The cost of a fully loaded electrical panel went from about $300 to about $2500 when Arc Fault Breakers became made mandatory.  Fire sprinkling residential housing is a big cost, and a huge risk. When’s the last time you even heard of a house fire, let alone a fatal one? For me, I’m not a firefighter, and the last is in the 1970’s when someone smoked in bed and caught the bed and curtains on fire. That sounds really 1970s.

What I do hear about all the time is massive flooding caused by malfunctioning fire sprinklers. I stayed at a Residence Inn where half the hotel was under renovation for 2 years because of a fire sprinkler system malfunction on the fifth floor.  Can you say millions in insurance costs?

I wonder how much of the tripling in insurance rates is due not to the increase in hail storms and natural disasters, but to manmade disasters living right there in your city inspector’s code book? And those disasters will get worse every code update. Global warming might still be up for discussion, but this is very clear: Manmade failures required by new codes are costing our economy literally billions!

Here’s my latest one: Boilers in the City of Denver must have a backflow prevention valve. Apparently, maybe a malfunctioning boiler could push boiler water back into the drinking water system. Yet, the backflow prevention device costs $360 for the part, it will leak per the installation instruction and trouble shooting manual, it needs a line filter to keep debris out that will make the backflow prevention device leak sooner, and it needs a second device to prevent normal fluctuations in water pressure from making the backflow prevention device leak.  Luckily, the max leakage per the enclosed pamphlet is 40 gallons per minute.  That’s like 18 showers running at the same time.  Go City Code! This way we sell more water! And my boiler installer choked when I told him. All newer boilers, including mine, already come with a built in backflow device. Duplicating costly equipment is a disservice not only to landlords, but to my low income tenants who I have to pass along the 1200 dollars in install costs to, along with any emergency costs.

Yes, there is a famous backflow incident that sparked all this regulation. Someone bright in Chicago had a poisonous solution in their utility sink. That sink had a mop bucket hose attached to the faucet, one of those cut off hoses that allows you to fill a mop bucket sitting on the floor. That hose was now in the sink, which was filled with some kind of toxic dye or cleaning agent or whatever it was. The faucet on, water was coming out of the hose until there was a fire nearby. The fire department hooked up their hoses and pumps, and the pressure caused backflow. Fire department pumps sucked all the available water out of several blocks away of city piping, including the toxic solution in that one sink with that mop fill hose. Drinking that water might have been very bad for someone.  Now, instead of banning mop hoses, we are creating billions of dollars in install costs, installing flood causing devices (in duplicate), and dramatically ratcheting up insurance costs.

Life is about tradeoffs. Yet, I know legislators love sound bites and will pass crazy laws any chance they get to get a little TV exposure. We’ve seen ones just like this: A child broke their front teeth riding a tricycle and then falling onto a curb.  Senator Dumas Legrand will now introduce a bill to protect young children and forever ban the manufacture, sale and use of tricycles. Childhood obesity be damned, tricycles are a health hazard and must be banned, immediately. Anyone that votes against this bill hates children and is a tool in the pocket of tricycle industry lobbyists. 

Yet tradeoffs that dramatically upend costs and hurt our economy as a whole because of one fluke accident are ill conceived. It’s amazing some of us survived without seatbelts, headrests, infant car seats, with leaded gasoline, leaded paint, asbestos in just about everything, riding our tricycles and bicycles without helmets, lawnmowers that didn’t stop when you let go of the handlebars, and so many more hazards. 

How many billions can we spend making life idiot proof, except for the fact that the problems we’re solving don’t really fit the norm, and could be solved more cheaply. Don’t use mop hoses!  Make smoking in bed illegal (even if you just had a great time in bed and need that “after a great time” cigarette).  Let’s all vote for sanity. And, stop the unnecessary code book updates. Those code update guys sitting on their hands for a few years would keep our economy in better shape.

Landlords beware of Nest Thermostats

I bought a house with a Nest thermostat, and while I would never have purchased that expensive of a thermostat for a rental, I left it installed, rather than replacing it with a cheap Honeywell thermostat from Home Depot. BIG MISTAKE!

Once the wifi got disconnected when the prior owners moved out, the thermostat went on strike. No heat meant that plumbing froze and water damage occurred to the oak floors. Think Nest is expensive? That made it infinitely worse.

A similar thing happened recently, the tenants got a new wifi router. They disconnected the old router, once setting up the new router, they didn’t think of re-connecting the thermostat by entering the new wifi password. Nest went back on strike. No harm done, but the same symptoms occurred. Nest didn’t do its job until its addiction to wifi was sated.

My opinion as a former software analyst is that the thermostat should perform all its core functions regardless of internet status. We all know that heavy snow and other inclement weather can contribute to internet outages. However, this doesn’t appear how this version of a Nest thermostat operates. Buyer beware!

The death of sheet vinyl

When I first started in the landlording business I used a decent amount of sheet vinyl. I hired people to do my flooring and that was what they recommended and I said Yes to. They procured the material and it looked good when the install was complete. Later, I saw that sheet vinyl curl at the edges, and sometimes tear in the middle when poorly rolling things like fridges were dragged across it. “Oh Sheet!” It’s only 3 years old, sometimes less, rarely more, and it’s not holding up that well.

My adaptation: buy the best vinyl possible, the nicely cushioned, 10 mil wear layer vinyl that maybe didn’t have the perfect pattern that I wanted but that I couldn’t seem to damage with my truck key while pretending to be a tenant attacking the vinyl floor sample at Lowe’s.

The last couple weeks I’ve been in two units where I had laid that exact, what I thought to be virtually indestructible vinyl myself. Both had tears in the middle of the kitchen, that v-shaped tongue where a little part must have caught on something and kept pulling back, wider and wider.

Now I’m facing trying to find my receipts from a 3 yr ago install and pursue a warranty claim, and having to deal with the labor costs of getting that floor redone. Kitchens are probably the highest trafficked rooms of the house, and both fridges and stoves get dragged around during cleaning/reorganizing/etc. A recipe for needing a good floor!

My lesson: install Allure Trafficmaster. It’s not sheet vinyl but comes in pieces. That’s good and bad. The product is expensive, relative to the best sheet vinyl (about 50% more for the nice colors, similar for colors that are on clearance/less popular at Home Depot) but for irregular rooms, the smaller pieces avoid the large cuts and wasted components when dealing with 12 foot wide sheet vinyl.

Allure is double thickness vinyl flooring with a very good wear layer I have never seen damaged. I have had some problems in wetter locations with Allure curling and the edges catching with foot traffic and that causing the demise of this flooring (in partially addressable smaller areas like bathrooms).

My solution. Glue down Allure with regular flooring glue, I use whatever flooring glue is cheapest, typically the Carpet/VCT glue sold for about $25 for a 3.5 gallon bucket. That keeps the Allure down where it’s been set and minimizes the effects of moisture that would otherwise negatively impact it.

The bad part: it takes some work to install. You have to handle dozens of pieces rather than unrolling a pieces of sheet vinyl and just cutting the edges. You have to do all the edge cuts, align the new piece to the previous piece, and most importantly, get the first row exactly straight, otherwise the rest of the install becomes a mess with little misalignments everywhere.

However, it’s doable by a savvy homeowner (although uncaring handimen can screw this up badly).  However, I have Allure in a basement I installed in 2010, and it’s still there and looking fantastic. I can’t say that for a single piece of carpet, most sheet vinyl, any laminate, or even most wood flooring I’ve had tenants on.

Long term landlording is about cutting through the clutter of crap building materials that are designed to be remodeled every few years. Let’s get some real solutions out there. Allure Trafficmaster in my mind is one of them.