News and Current Events

How to evict a tenant:

Any property management company will tell you that setting high standards on rental applications and conducting proper pre-screening before accepting tenant applicants are the best protection against a future need to evict. Still, evictions are necessary sometimes due to changes in tenants' situations or because the landlord may have been too lenient in accepting tenants who were not really qualified in the first place.  Regardless of how well a landlord or property manager may pre-screen tenants, it could happen that the tenants will need to be evicted due to a failure to pay rent.

In Maryland, the process is rather straightforward. When tenants are late in their rent, the first step is to file a 'Failure to Pay' with the District Court. The cost of this procedure depends on the number of tenants on the lease but is approximately $22. A clerk of the court will then set a court date at which a judge will hear the landlord's claim and the tenants' counterclaim if any. If the judge determines that the tenants in fact do owe funds, a judgment will be made in favor of the landlord in the amount owed.

The tenants are then given an additional 5 business days to make payment in full for the amount in the judgment to the landlord. If this full payment has not been received by the landlord within the 5 business days, then the landlord may return to the court to file a 'Writ of Restitution' for a $40 fee that, once signed by a judge, authorizes the county sheriff to evict the tenants. Due to the sheriff's scheduling constraints, the actual eviction can take place around 30 to 60 days later. All the tenants' belongings are put onto the street at the curb, and any attempt by the tenants to re-enter the property would be considered an act of trespassing and the tenants would be subject to arrest. 

In actuality, it seldom gets to this point. Once the tenants have been made aware that the eviction has been scheduled in a few days, they somehow manage to move their possessions before the sheriff gets there.

Rental Lease Agreements--

If You Don't Include the Details, It May Cost You

Working as a dedicated property manager since 2002, I have come across many different lease agreements between landlords and tenants. Naturally some have been better than others. Many landlords have gone online to search for a 'standard lease agreement' thinking this is all they need. For most part they are right.   Every 'standard lease agreement' will have a start and end date, the monthly rental rate and a penalty fee if rent is late, and the requirement to leave the property clean and free of any trash.

But as the saying goes,  'The devil is in the details.' It is what is not said that can come back to hurt you. As the president of a property management company, I have a fiduciary responsibility to protect our landlords against any event or circumstance that will end up costing our owners. We have created a lease that is fair to both landlord and tenant but is not ambiguous on the items that might otherwise cost the landlord in the end.

For example, consider what a lease may say about the end of term when the tenants move out. A basic lease will state that when the tenants vacate a property they will leave it in 'broom clean condition'.  This may sound reasonable, but it actually leaves too much unsaid and is actually quite ambiguous. What about the appliances, kitchens and baths? They need to be clean too. What about carpeting? A lease that requires the tenants to have the carpets professionally cleaned and to provide a paid receipt at the end of the lease can save the landlord a lot of money. Tenants should not be permitted to leave a property with a chirping smoke alarm, burnt-out lightbulbs and dirty air filters, unless the lease specifies that the owner is responsible to purchase these items. New smoke alarm batteries, lightbulbs and air filters may not be terribly expensive, but the time and energy to get the batteries, the lightbulbs and the air filters and then install them is costly for anyone having lots of other things to do.

In the case of detached properties, a statement requiring the tenants to have all gutters and fireplaces cleaned out should not be omitted. 

As for pets, it is not enough to just include an extra pet security deposit. Our leases include an entire addendum on pets whenever a pet will be present.

Every lease should warrant the property as free of any pest infestation (ants, cockroaches, other bugs, etc.) After 30 days, if any pests are discovered, it becomes the tenants' responsibility to resolve the issue, as it is presumed that they are the ones who caused them to appear. This is fair and reasonable when it is spelled out in the signed lease, making clear who is responsible.

Landlords take caution. Not all rental leases are equal. The lease we use is the 'standard lease' of our association of realtors, which we then modify with our own proprietary 5-page addendum. In this way we seek to provide owners with legal protections and assurances against every circumstance we have experienced or could possibly predict.

Email:DStein@SilverRiverPM.com

Property Management Fees: Beware! You May Be Paying More Than You Think

When selecting a property management company, be sure to check the small print of the management agreement before signing. There are lots of ingenious ways property managers have to bury additional fees in the agreement. 

The two basic fees in all property management agreements are the management fee and the leasing fee.  The management fee is a percentage of the rental income charged by the management company each month for the services they provide. The other fee is the leasing fee. This is a one-time fee as a percentage of the first month's rent for securing a new worthy tenant to rent the property. 

However, there are a number of other ways some property managers collect fees in addition to the two stated above. Here are some to watch for: 

• An advertising fee, charged to the owner for any advertising costs to secure a tenant.
• An administrative fee added as a percentage to the cost of any actual repair or replacement costs for appliances, hot water heaters, furnaces, plumbing, electrical, painting, etc. 
• A tenant renewal fee, charged each time a tenant renews the lease for another year.
• A vacancy fee, charged as a minimum monthly fee even when the property is vacant. 
• A termination fee, charged to the owner if the owner cancels the agreement before the end of an existing tenant's term. 
• A termination during vacancy fee, charged to the owner if the owner terminates the agreement when the property is vacant. 
• An eviction or court fee, charged to the owner for time and costs involved to evict a tenant.
• A lead paint processing fee, charged to the owner for the administration and compliance procedures to license pre-1978 homes related to federal and Maryland regulations on lead paint. 
• And a lead paint contamination processing fee charged to the owner for arranging for the abatement of any lead paint found on the property in addition to the actual costs incurred.

Caveat emptor, or buyer beware! Be sure to read the small print before committing your property into the hands of just any property management company.

There is a new Maryland law on the books that will affect all properties built prior to 1978. Landlords and property managers take note!

I am referring to the Maryland Lead Poisoning Prevention Program, required for all rental properties built before 1950, and until now optional for only properties built between 1950 and 1978. However, effective January 1, 2015, it will be mandatory for all properties built prior to 1978.

That's a lot of properties! Property management companies will need to get started soon in order for all their properties built during this 1950-1977 range to be in compliance.

Under this law, landlords are required to (1) address all potential lead-based paint hazards in rental properties constructed prior to 1978, (2) register and annually renew registration of their properties with the Maryland Department of the Environment’s (MDE) Lead Poisoning Prevention Program, and (3) provide tenants with lead educational materials: All tenants must be provided with a Notice of Tenants' Rights that gives a detailed explanation of what property owners are required to do to comply with the law, how to inform the landlord that repairs need to be performed in the home, and steps one can take to enforce tenant legal rights if the landlord refuses to respond to a request.

In order to be fully compliant with the law, a landlord is required  to

1) Give every tenant three items the Notice of Tenants' Rights, the EPA brochure 'Protect Your Family from Lead in Your Home', and a copy of the lead inspection certificate for the unit on or before the day the tenant moves in. Every landlord and property manager should keep on file a signed statement from the tenant acknowledging receiving these items.

2) Ensure that the property is currently registered with the Maryland Department of the Environment (MDE) and to pay a $30 per property/unit registration fee.

3) Obtain a passing 'Full Risk Reduction Certificate' prior to a tenant's moving into the property. This certificate can be issued by only a select number of inspectors, licensed for this type of inspection. The cost for this service can range from $200 to $500 depending on the property and inspector chosen for the work.

I recently spoke with a landlord with a two-bedroom, pre-1978 built home. This home had been fully updated with new bathrooms, new kitchen, new windows and new flooring. Even so, it failed inspection because it was determined that all wood trim on the outside of the house needed to be repainted and a concrete basement floor needed to be resurfaced with another layer of concrete to cover cracks. The cost of the inspection, including taking lab samples, came to $270. After painting and concrete work is completed, the owner will have to call the inspector back and pay another $150 for a visual inspection to confirm all was done as prescribed.

Security Deposits: Maryland Has Strict Laws, and Property Managers and Landlords Must Know Them!

The last thing any property manager needs is to end up in a lawsuit over a security deposit. 

In Maryland, security deposits must be returned to tenants within 45 days of vacating. Also, within 30 days, the landlord must send to the tenants at their last known address a detailed statement itemizing anything that is being charged to the tenants from their security deposit. The more detail the better. A record of the condition of the property via a signed walkthrough document at the beginning of the lease is very important to keep on record. This can be compared to the condition of the property at lease end. Failure of the landlord at lease end to actually inspect the property and to send a notice to the tenants will forfeit the landlord’s right to withhold any portion of the security deposit. This is true even if the tenants left the property totally trashed.

It is also illegal for any landlord or property management company to charge tenants more than twice the monthly rental rate for the security deposit. If tenants are charged a security deposit that is more than twice the rental rate, the landlord is liable to pay back to the tenants three times the extra amount charged plus reasonable attorney's fees.

The property manager must deposit the funds in a designated account reserved exclusively for security deposits and, according to Maryland law, must pay the tenants interest at 4% per year regardless of the actual interest earned.

Dan Stein is the president and founder of Silver River Real Estate, providing property management services in PG County, Anne Arundel and Montgomery counties since 2002.

Email:DStein@SilverRiverPM.com

New Maryland Smoke Alarm Law Effective July 1, 2013

There is a new smoke detector law in Maryland as of July 1, 2013. Property managers and landlords should to be aware of the new requirement. Every property management company in Maryland and all landlords need to be fully compliant with the requirements of the new law.

First, any smoke detector over 10 years old must be replaced immediately. There is a manufacture date on the newer ones to help identify those. If there is no date, it is an older one and should now be replaced.

If you are replacing a battery-operated alarm or installing a smoke alarm where none was previously installed, you must use a new lithium 10-year battery smoke detector with a silence button. Hard-wired smoke detectors must be replaced with only hard-wired units, with battery backup.

Previously, homes constructed prior to July 1, 1975, were required to have one smoke detector at each sleeping area. Clustered bedrooms could be served by a single battery-operated smoke detector in the hallway outside the bedrooms.

Homes built between July 1, 1975, and June 30, 1990, were required to have a hard-wired (AC powered) smoke alarm with battery backup, again, at the sleeping areas as before.

Homes built after January 1, 1990, were also required to have one hard-wired smoke alarm on every level of the home, including basements, and to have them interconnected so when one alarm sounds, all alarms are activated.

New construction law now requires an AC-powered, battery backup smoke detector in each bedroom, in the hall outside bedrooms and on every level, including the basement, and that all of them be interconnected.

When must you replace your smoke detectors?

• Now, if they are older than 10 years;
• Anytime a smoke detector malfunctions or fails to respond (no new 9-volt batteries);
• At a change in tenants;
• When a building permit is issued for an addition or renovation;
• Not later than January 1, 2018.

Replacement must be made with AC-powered, battery backup units, except you may use the new long-life battery units with hush features where no AC unit was previously installed.

The new law is applicable to homeowners and landlords. Property management companies need to be sure all their units are compliant and should give a clear direction to all their property managers.

The law aside, this is important because

• In Maryland, 39 home fire fatalities have been reported from January to June, 2013.
• In 2012, nearly half (46%) of Maryland fire fatalities occurred in homes without smoke alarms or with inoperable alarms.
• Approximately 800,000 Maryland residences rely on battery-powered smoke alarms.
• Two-thirds of all home fire deaths in America occur in homes with either no smoke alarm or no working alarm, mainly due to missing or disconnected batteries.

Sources: National Fire Protection Association, Office of the Maryland State Fire Marshal, U.S. Census, Kelton Research

Post submitted by Josh McNally of Market Ready, Inc.
JMcNally@ContactMRI.com

Should You Renovate Your Rental Unit?  Cost Versus Return on Investment (ROI)

Advice for property owners from Appfolio's Aimee Miller.

It is the job of property management companies to minimize the cost of maintenance and repairs through the use of a choice network of vendors and periodic and timely maintenance updates. Still, they also know when it is time for major renovation and remodeling. Making correct recommendations to their investors as to what projects to do and how far to take the transformation requires thoughtful consideration. Beyond the immediate or long-term potential return on investment (ROI), other solid reasons to renovate rental units include

• Maintaining the integrity of the property with necessary repairs/replacements
• Making improvements to attract better-qualified residents
• Amortizing costs with intent to sell
• Gaining tax advantages and credits

Determining which rental property renovation projects will offer the greatest benefits will depend on whether you plan to sell or continue to rent, so let’s cover some facets of both possibilities and what renovations renters and buyers consider most essential.

5 Desirable and Cost Effective Renovations

Buyers and renters typically have the same wants in a home, but a few highly sought-after improvements also offer a substantial ROI for investors.

1. Thorough Cleaning – The cheapest and simplest way to boost a unit’s appeal is to clean the interior thoroughly. Don’t forget the exterior either: Consider pressure washing the exteriors.
2. Interior and Exterior Paint – Interior paint can mask small flaws and make most surfaces look brand new again, and exterior paint boosts curb appeal.
3. Flooring – Flooring can be luxurious and cost-effective with newer laminates on the market. Choosing one that matches your desired demographic and suits your unit will likely pay off quickly.
4. Kitchen and Bath Remodeling – According to Realtor.com, kitchen and bath remodels offer nearly an 85% ROI, making them sound investments whether renting or selling. Units can benefit substantially even with small improvements like resurfacing showers, tubs, and countertops or refinishing cabinets as opposed to complete replacement.
5. Windows and Doors – Doors are far less expensive than windows but are just as essential to home safety and keeping the elements out. Sagging windows and doors are just plain unattractive, and both renters and buyers are turned off.

Call in the Pros for Renovation Advice

Investors should consult with an expert who can evaluate their property’s current condition and make an educated estimate of what the ROI will be for each renovation under consideration. This is called a Comparative Market Analysis, or CMA, and a qualified property management company or other real estate professional or appraiser can perform this analysis and offer investors estimates on their return, whether selling or renting is the plan. These experts can also offer a time frame for how long it will take to recompense the investment, and realtors can further assist investors in determining which improvements can help attract the right kind of residents or fit in with the neighborhood “vibe.”

Things to Consider Before Renovating Rental Properties

Remember, scaled renovations and remodeling can increase equity and help investors maintain a top-tier resident base, so don’t go overboard with projects. Remodeling costs will typically have to be depreciated, not deducted. Investors will also want to time renovations to occur during the off-season or while the unit is vacant unless offering big rental discounts is on the agenda.

Last, but certainly not least, renovations for rental units should be performed by a professional, not by a general handyman or through a DIY project. Subpar work is likely to only cost more money and cause additional headaches down the line, so work with top-quality local contractors to assist with rental property renovations and improvements.

Source: Aimee Miller  at https://www.appfolio.com/blog/author/aimee-miller/

Sometimes finding the right tenant is a process of elimination — weeding out the applicants who are likely to make bad tenants.

It’s costly and time-consuming to get rid of problem tenants. Don’t take the gamble when it comes to turning over the keys to one of your most prized possessions — your rental property.

Here are some warning signs of applicants you may want to toss back:

1. Lack of income for the property. Hope springs eternal for some candidates as they juggle multiple bills but want to get into their dream property. Set standards for needed income, or face the possibility of chronically late rent payments.

2. A dangerous criminal history. Always check applicants’ criminal history, and avoid those with a violent past or crimes that could damage your property. That puts you and your property at immediate risk, as you may be sued for subsequent injuries or held to account for drug or other criminal activities on the property.

3. A prior eviction. These applicants might as well be wearing a sign that says, “I don’t care about ripping you off.” They are people who defaulted on their lease but would not make good on it by moving out voluntarily. Evictions kill profits, and you can’t afford to take the risk.

4. Bad credit. Always check tenants' credit history to see how they manage their money. Many landlords set a standard score threshold, or, you could look for bad signs like late payment history.

5. Incomplete application. Those who won’t fill out the complete rental application should be turned away. It’s a sign of false identity, a bad history, or just plain apathy. Whatever the reason, they are not the right applicants for you.

6. Needy, demanding. If your very first interactions with applicants leave you wanting to pull out your hair, just imagine what it will be like when they have a legal right to the property. 

Save yourself the headaches.

7. References are negative or defensive. Read between the lines when a reference has little to say about the candidate, so long as that information is relevant to the rental relationship. Be specific about questions you ask other landlords. Pin them down about potential problems that may be repeated.

8. Planning to move mid-lease. If the rental application shows the applicants are looking for a place well in advance of their expected lease termination, they may repeat the pattern. Find out more before you get into trouble.

9. Not likely to follow your rules. If you smell cigarette smoke on applicants who are renting a non-smoking unit, or they are covered in cat hair but swear they don’t own a pet, you have a problem. Casual liars make bad tenants.

10. Too many occupants. You have to follow the law when it comes to local zoning. So do the tenants. Be on guard for the bait-and-switch —tenants who rent in their name, then move in all of their friends. Speak with other landlords, and apply common sense. A word of caution: Don’t reject families with children on occupancy unless you are sure you have met the standards of the Fair Housing Act and your state’s discrimination laws.

Source: American Apartment Owners Association. Find out more at www.aaoa.com.

Real estate as an investment involves some risk, as do all good investments. Naturally, by reducing risk a property owner increases the opportunity to maximize profit.

Then, what is the greatest risk and the three most costly expenses in property management? The quick answer to the above can be summarized in just two words: bad tenants.  

In the same way that experts often describe the three essential elements of good real estate as ‘location, location,   (Delete extra space after comma)location', we can emphasize that the three big reasons for draining profits to property owners are 'bad tenants, bad tenants, bad tenants'.  

Bad tenants create losses in three ways. First, bad tenants are tenants who are not paying rent. This scenario is worse than a vacant residence as there is no chance to get it re-rented until the bad tenants have finally been removed. Second, bad tenants are not taking care of the property. You can assume they're probably not taking off their shoes before walking on the carpet. With bad tenants, walls get dirty faster, appliances break down sooner, and plumbing issues occur more often. These all have to be restored to good order before a landlord can expect good tenants to move in once the bad tenants are finally moved out. Finally, bad tenants involve the necessity to go through legal processes to evict. Not only is this costly but also it consumes a lot of time, sometimes dragging on for months.  

Although there are no guarantees, good property managers are trained to recognize the signs of bad tenants before they move in. Some of these signs are revealed in credit scores, employment history, references and time period at previous locations. Additionally, some property managers who have been doing this a long time have developed a sixth sense for spotting trouble before leases are signed, thus nipping it in the bud.

Unless you are confident about the business of property management, save yourself a lot of time and money by hiring a property manager who's been doing this a long time and knows what he is doing.

Dan Stein is the president and founder of Silver River Real Estate, providing property management services in PG County, Anne Arundel and Montgomery counties since 2002.

Email:DStein@SilverRiverPM.com