HOW WOULD YOU LIKE TO BE THE LANDLORD?
© Copyright  2000-2011  Landlord.com

You are a landlord.  Landlording is a vocation, not a hobby.  How you do it is up to you.  You might be the type of "people person" who is anxious to handle matters with your tenants face to face.  You might be more aloof, preferring to deal with your tenants in writing or over the phone, minimizing personal contact.  You can be successful either way, or with any of the infinite gradations in between.  Whichever way you choose, you will need a plan.

            The purpose of this article is to assist you in formulating a plan to assume the position of landlord of a newly acquired property.  You may have thought that once escrow closed, you were automatically the landlord.  This is not so.  At close of escrow, you are the owner, which is a very different thing.  You are not the landlord until you have taken control of the property as well as title to it.  Think of the property as a machine -- a money machine.  You have control of this machine when you have got it working your way, well oiled so as to minimize friction, smoothly delivering the cash flow you envisioned when you first drove by and saw the "for sale" sign on the front lawn.

            This article assumes that you have decided to take on the landlording work yourself, either personally or through a representative, and will not delegate it to a property management firm.  It is aimed at landlords who can really do it themselves because they have a relatively small number of properties.  If you are buying your twelfth one hundred unit complex, well, you probably will not even be reading this.  If you are just taking over a duplex bequeathed to you by a generous relative, or buying a six or seven unit building to add to a modest but valuable collection of real estate, this article should help.

            The first step in becoming the new landlord starts before you become the owner.  There is a quantity of information you should obtain at or before the formal transfer of title to you.   In the ideal world, all of the things we are about to mention will be provided to you of course.  In the real world, there will be gaps you will have to see to it are filled.

            Unless you are buying a completely vacant building, the most important early step is to get information on the tenants.  You should obtain information on their identity, their rent payment history, and their employment and other sources of income.

            Information on the building in general is also essential.  You should, before close, know the maintenance history of the building, the overall condition of the building, the rental agreements with the tenants, accurate information about security deposits and potential liabilities, vendors, and compliance with zoning and other housing codes and applicable security deposit and rent control ordinances.  You should also get a letter of attornment.

            After close of escrow, you will introduce yourself to your new tenants.  The object of this exercise, whether done in person or in writing or through a surrogate is to fill in gaps in the information you received at close of escrow, inform the tenants of the change of ownership and where the rent needs to be paid, find out the major tenant concerns (which probably will be yours if you know about them), ensure you have such access to the building that you need, and, in general, make an assessment of the job ahead.

            Once this is done, it is time for follow up.  You should make such repairs as are apparently necessary, update whatever records you have with the information you have received from the tenant, and double checked contradictions between what the tenants have said and what you were told before the sale, and demonstrated that you are serious about discharging your newly acquired responsibilities as landlord, and are not just a hobbyist.

            When all this is accomplished, you are ready to make those changes which, in your judgment, will bring the building in line with your philosophy of landlording and your landlording style.

            Before title passes, you really have nothing to say or do with regard to how the property is run.  Your job at this stage is to obtain as much information as you can about your prospective new property, and the environment in which it operates.  You probably will have received from the seller an abstract of information about the cash flow of the property, the appraisals would reflect actual, pro forma and comparable rents, but it is a good idea to supplement and confirm this information, if possible, as well as to ensure you get certain things through escrow.  Direct contact with the current owner or the tenants will probably be forbidden, but there is a wealth of information which you, a willing buyer, can obtain from the motivated seller, or from public records and governmental agencies, which will stand you in good stead when you take over, and may even justify you in backing out of a deal before it closes if you find important facts have been withheld from you.

            One of the records which should pass through to you is an accurate maintenance history on the building.  Ideally, there should be a record of each requested repair and action taken in response.  In reality, particularly with single unit or small multiple unit dwellings, there will be little day to day information on this type of thing (something which you will naturally correct once you take over).  Judge the maintenance history in order to be prepared for what is to come.  If you see a history of increasingly frequent and increasingly expensive repairs on vital systems in an aging building, be prepared for major work.  If you see nothing but one or two scattered items of correspondence, make it a point, when you take over the property, to interview your tenants about maintenance so that you can nip the inevitable ignored problems in the bud.  Be ready to pay the cost.

            Do not rely only on the Pest Control Report and kicking a few bricks to determine the overall condition of the property.  Your cash flow will quickly turn very negative if there are latent defects or dilapidation in the property that will need correction.  The pest control company does not work for you and is only interested in assuring there will be a structure of some kind standing to cover the lender's security interest in the property.  Engagement of a private property inspector, working on your behalf, will go a long way to provide you information about conditions which will require attention (and money) to correct, which may not be apparent to the untrained eye.  This will permit you to be ready for them once you take over, or to include appropriate terms in the sale agreement to deal with them before close of escrow.  The cost is quite reasonable when compared with the overall cost of your new building, or the damage which can be done to your financial statement if the problems come as a surprise.  Ethical property inspectors do no contracting work on their own, and do not recommend contractors to do work they have found to be needed.  Their sole function is to make an objective assessment of the condition of the property and make recommendations.  Their independence of mind is ensured because there is no way they can profit from the subsequent repairs.  The owner's permission for such an inspection will be needed, but no honest seller will refuse, although he may insist on some reasonable conditions.

            See to it that all rental agreements are passed through to you through the escrow, and for any units for which there is no written agreement, a statement that the agreement is oral or lost.  A precise accounting of the security deposits and their disposition as of the date of closing must also be there.  These are routine matters, but are sometimes overlooked or incomplete.  You, the new owner, do not start with a clean slate.  You are bound by all existing written or oral rental agreements, together with any written or oral modifications to them, and by the status of the security deposits as of the close of escrow.  If a tenant has a $500 security deposit posted which is not passed through to you on close, then you, the new owner, are obligated in most states to honor every penny of it.  Your only remedy is to try to recover your $500 in small claims court from the previous owner, who by this time has probably moved to Nice on the proceeds of the sale.

            A powerful tool for pinning all this down is the estoppel certificate.  This is a document which the current owner sends to each tenant during the escrow.  It states, in effect, that as of a given date certain named tenants are living in the unit, all the terms of the rental agreement are still in effect without modification, a security deposit in the amount of $X is posted, and there is no outstanding maintenance.  The tenant is given a brief fixed time to respond or be bound by all the statements in the certificate.  These are then passed through escrow and become a part of your business records as to each of the items mentioned in the certificate.

            A letter of attornment is an essential part of any transaction, particularly involving a multi-unit building.  Nothing creates chaos as effectively as a change in ownership of rental property.  The process of rent payment alone can be paralyzed as some tenants withhold payments in good faith because they do not know to whom they should be sent, or worse, send them to the old owner who cashes the checks, and others withhold them in bad faith, taking advantage of the confusion.  The attornment letter is a document signed by the previous owner and passed through escrow informing the tenants that the property has been sold, identifying the new landlord and his agent, if any, and instructing where and how rent payments and other communications are to be made after a specific date.  This letter should be sent to each unit upon close of escrow and, except for those few percent who never get the word, will remove this source of misunderstanding and problems from your post escrow check list.

            While escrow is pending, make it a point to check with your local zoning and code enforcement departments to ensure there are no outstanding violations and that the building is being used legally.  Many factors may motivate a person to sell a rental property, but most of these factors also carry the side effect of a loss of interest in it.  Even a scrupulously honest seller may have overlooked a notice, or failed to renew a certificate of occupancy, or fallen out of compliance with some stupid regulation.  Checking on your own can eliminate a small, but potentially nasty problem.  If you are in a rent control jurisdiction, get a copy of the ordinance and regulations.  If registration is required, see to it the property is in compliance, and all rent increases have been legal.  Ensure also there are no pending enforcement proceedings against the prior landlord, because if there are you will become the respondent as soon as escrow closes.

            From your inspection of the records at the time you made your offer, you will know who the major vendors are.  A letter might go out from escrow to ensure that all vendors, such as handymen, off site or on site managers, painters, etc., are paid in full, or, if not, how much they are owed.

            Escrow is closed and you are the titleholder.  Having gone through all of the above, you are armed with a pile of documents including rental agreements, security deposit accountings, estoppel certificates, and so on.  The letter of attornment has gone out to each of your new tenants.  Now is the time for you, either personally, or through your representative, to become the landlord.

            It is not a good idea now to send out a letter detailing all 33 changes you intend to make in the previous, unsatisfactory routine of running the building, threatening instant eviction in the event of failure to comply.  Before overthrowing the ancien regime, you should avail yourself of the first month of your ownership to find out what the ancien regime actually was.

            Your money machine will function smoothly and without friction only if your tenants comply with your policies and requirements because they want to do it.

            A face to face meeting with each tenant is a good idea.  The person who will be dealing with the tenants on a routine basis should accomplish this.  If that is not you, then you may want to accompany that person, but do not conduct the first meeting and then fob the tenants off to an on or off site manager.  This person's authority will only be undercut.  Qualify him immediately by having him meet the tenants.  This way there is no question of playing the representative off against the "real landlord."

            Take care not to alarm or offend your tenants.  By this time all sorts of rumors will have been flying through the building.  Some will fear their rent will be doubled, some that the previous owner absconded with the security deposits, others that the building will be razed to make room for a parking lot.  The initial approach should be a friendly letter.  This might be a form but it should be individually addressed to each tenant or family and bear an original signature.  Stress that this meeting is merely to get to know them and get a handle on their concerns.  Introduce the person who will actually be present at the meeting and qualify him to make decisions, if necessary.  Suggest a day of the week and approximate time and invite the tenant to call to firm up an appointment.  If you do not get a call back, call them.  If you cannot make contact, then present yourself at the unit at a reasonable time.

            The meetings will be done in a friendly manner, and are designed, from your point of view, to fill gaps in the information you got through escrow.  The tenants should do most of the talking.  Bring a copy of the rental agreement and ensure it is the latest version.  Go over the security deposit and confirm its existence and amounts.  Seek information about maintenance issues with the unit or common areas.  Confirm employment and contact information and update as needed.  Ensure the tenant understands where and when rent is to be paid and establish a person and method for contact for maintenance and other problems.  Keep your eyes and ears open.  Note the overall condition and cleanliness of the unit.  Listen for sound.  Is the upstairs unit particularly noisy?  When you leave, take a moment to note your impressions on these and other issues in a memo for the tenant file.

            Take the time also to ensure you have access to each unit.  See to it that the keys you were given out of escrow actually fit the locks in each unit, and other secured areas of the building.  If they do not fit the unit, ask the tenant to make a copy, offering reimbursement for the cost, explaining that the law requires that you have access to each unit (if it does), as does common sense, in case there is an emergency in the tenant's absence.

            Remember that the tenants naturally will be suspicious of you at first.  If the suspicions remain, your management of the building will only be more difficult.  One of the purposes of these meetings is to allay those suspicions.  This will not happen if you are seen to be snoopy or intrusive.  For each piece of information you request, be prepared to give a friendly but professional explanation of the reason for you having it.

            This meeting is not the time to shove a bunch of documents in front of your tenants to sign.  Make your notes to show interest as well as to remind yourself of what was said.  Give them a maintenance checklist if you want to, but do not ask for it before you leave.  Give them an envelope with which they can mail it back after a few days.  A sheaf of legally binding documents will only increase the tenant's perceived threat level.

            Most of your tenants will be willing to comply and make a good impression.  There will be a few, however, who for whatever reason will dig in their heels.  Do not enter into a lengthy argument about why you need to update employment, or have a key to the front door.  The best thing to do at this stage is to explain in a calm and reasonable manner that you will do your best to provide them all the service and support that they deserve, but that, without their cooperation, your task will only be more difficult or impossible.  If they do not come around, mark them down as a problem which will have to be liquidated at some point, then do it.

            Having gone through all this, now is the time to follow up.  This is particularly true as to the matters of maintenance.  The problems that need immediate attention should be attended to immediately.  Do not interpret this to mean that each item on a tenant wish list should be granted.  Concern yourself with those items that are legitimate and needful.  No tenant's rental unit will ever be entirely free of desired improvements.  Make sure the tenants learn that you are fair, but not a push over.  Maintenance is the most common, but not the only, tenant concern, which may arise at this time.  See to the others as well and in the same spirit.

            Now that you have met all the tenants and actually determined what the situation is, you are in a position to change the things you do not like about the building.  Convert to a uniform rental agreement which is to your liking.  Increase the rents to a level which you believe is reasonable for what the tenants are getting.  Institute your new pet policies.  Set up a maintenance request procedure.  In doing all these things, once you have established yourself as in control and acting fairly and considerately, remember that change is most effectively accomplished gradually, that is, in small, palatable steps.

            Apply the ideas in this article to your particular situation.  They may well help you avoid unpleasant surprises after you have been handed the keys, and should assist you in establishing yourself as the landlord of your new building.

Back To Alphabetical  Back To Category