Summer in Sagaponack #RidiculousRent

Credit: Zillow.com

Credit: Zillow.com

Sagaponack, New York, is one of the most expensive zip codes in the United States, and we can see why. At just $175,000/month, you can rent this luxurious 7 bedroom, 7.5 bath mansion. However, this private getaway is only available for the summer months, making this investment all the more worth it. I guess the cost of rent will leave room in your pocket for all of the summer barbeques that you’ll be hosting by your heated gunite pool!

This masterpiece of a home includes everything you could ever want, making it virtually impossible to rent for just the short interval of August through Labor Day. With a billiards room, bar, private wine cellar and tasting room, home theatre, and gym, no one will ever want to leave. Those amenities are just a few of what’s available, not including your own private address. I would hope that you are renting this property out with a few of your friends, because 7 bedrooms for 1 person is a little ridiculous!

So if you get that bonus at work you’ve been dreaming of or you finally win the Powerball Jackpot in the near future, let me know and we can venture to Sagaponack this summer before we have to return to our normal lives and empty wallets.

 

See table below for more info:

Neighborhood Sagaponack
Bedrooms 7
Bathrooms 6 full, 3 half
Square feet 7,000
Rent/ month $175,000
Rent/square feet $25.00
Rent period Month
Lot 1.56 acres
Year built 2007
Structure type Modern
Pets allowed N/A
Garage 2 garage bays
Air conditioning Central
Basement Finished
View type Pond, yard
Design features 4 fireplaces, hardwood flooring
Appliances Dishwasher
Features

Spa/hot tub, hi-speed internet, heated/inground pool, master bedroom suite with summetrical sun room, zen rock garden, patio, pond, private terraces, billiard room, bar, private wine celler, tasting room, home theatre, gym

Amenities All

Tips For Drafting a Lease

Writing Pencil

Completely clueless when it comes to drafting a lease? Don’t be! With our guide, you’ll have a clear and concise lease in no time.  Remember—states’ laws differ greatly, so be sure and check on your local laws. What is legal in one state could be unconscionable in another.

A “strong” lease:

It is a known fact that courts will refuse to enforce agreements that are made in bad faith, meaning that the lease terms are outrageous and unreasonable. Furthermore, a lease should be strong, but not so restrictive that it will be held invalid by the court. Each state is different in regards to documenting a lease, so it is recommended to check your state’s regulations prior to drafting your agreement.

What is a severability clause?:

Under the severability clause, the terms of the contract are independent.  Therefore, if just one term in the contract is seen as unenforceable, the contract as a whole cannot be deemed unenforceable (this can come in handy).  Make sure to include this clause, or else your entire lease could be impossible to implement!

Security deposit:

It is important to include the amount of the security deposit in the lease, otherwise it can be difficult (or impossible) to impose later. Additionally, if you do not collect the security deposit because you “trust their character” or some other reason, the tenant could start to take advantage of the situation and fail to pay rent, damage the property, or some other unfortunate consequence.

What should I include?:

Here are some of the articles that we believe would be beneficial to include in your lease. Keep in mind that this is not by any means the entire list, but will give you a good head start on the process. Furthermore, each point can differ depending on the state that the lease is drafted in, so keep that in mind:

  • Will you allow subletting?
  • Is there limit on the number of occupants and animals that are allowed to live on the property?
  • What is your state’s definition (and remedy) for default (when one party to the contract fails to fulfill the terms of the agreement)?
  • Who are the parties to the lease? (This is important for numerous reasons.  One example is that if two people, such as a couple, are renting a unit, then both signatures should be included on the lease, or else this could become a complication later on).
  • When is rent due? When is rent considered to be late?
  • What repairs are the responsibility of the landlord? What about the tenant?
  • What will happen if the tenant breaches the lease agreement?

Do you have any other important items to include while drafting a lease?

Top Legal Mistakes For Landlords to Avoid

Being a landlord can be tough, but at the same time very rewarding.  There are numerous things to keep in mind, but not all are self-explanatory.  To help direct you along the way, we’ve compiled a list of our top legal mistakes steer clear of, because a liability issue is probably the last thing you need on top of everything else. 

Do not be discriminatory. 

There is a difference between asking meaningful and discriminatory questions.  The Fair Housing Act of 1968 protects individuals from discrimination, particularly of race, color, religion, national origin, sex, disability, or presence of children, while renting, purchasing, or financing a home.  Therefore, we advise landlords to use unbiased tenant screening methods, such as questions about criminal record and credit score, in order to find the best tenants to fill your property. 

You must disclose all information about your property, whether you like it or not.  

Some common examples of disclosures include information on the installation and maintenance process of smoke detectors and alarms and the presence of environmental or health hazards on the property.  If you do not disclose important information, it will come up sooner or later, and tenants may be able to file a lawsuit against you.

Landlords are legally responsible to keep tenants safe from harm.  

This can be anywhere from installing full-fledged alarm systems to the removal of carbon monoxide.  If any tenant suffers from property or physical loss, he or she may be able to sue the landlord and recover compensation.  This can turn into a very expensive situation, and can also lead to complications in the (potential) eviction process.  

When creating the rental agreement, it is wise to specify whether the tenant or the landlord must make each type of repair.

 Each landlord has the responsibility to furnish a rental unit that is sufficient to live in, meaning that each rental unit must have heating, plumbing, and clean water, amongst other commodities.  If repairs are never made or if the landlord does not provide an acceptable place to live, this may result in a lawsuit against the landlord.

While the landlord does have responsibility to make frequent inspections of their property, this includes certain restrictions. 

The landlord must provide verbal or written 24-hour notice before entering a tenant’s rental unit, or else the tenant can sue the landlord for breaking and entering.  After providing notice, a landlord may enter the rental unit to inspect the property or make a repair.

Eviction is the removal of a tenant from a rental property by the landlord.

 A tenant may be evicted for a number of reasons, like if the tenant fails to pay rent by the due date specified, or if the rental property is being used for something other than its intended purpose.  The eviction process differs between states, but usually follows the same steps.  If the landlord tries to evict the tenant without a court order or notice (the first step of the eviction process), then the tenant may recover damages.

A tenant must pay a security deposit to cover damage that they have contributed to, which is specified in the rental agreement.  

The security deposit should only be used to cover damage that is on a list provided by the landlord and the landlord must pay the balance of the security deposit to the tenant once the process is completed. Unfortunately, some landlords use the security deposit for unnecessary refurbishing for the property, or keep it for their own personal use.  This can result in the tenant pursuing legal action against the landlord to reclaim the deposit.

Do not use generic lease forms.  

If you were to use a “standard” form to create a lease, it could be considered unenforceable, and it might even include greater obligations and restrictions than your own state’s laws. Also make sure to include everything necessary in your written lease so later on if there is an issue, it is clearly stated in writing.  Some important articles to include in a rental agreement would be the length of the tenancy, the amount of the security deposit, and the amount of the rent and when it is due each month.  

Landlords should consider purchasing a landlord insurance policy in order to protect themselves from financial loss.  

This particular policy includes coverage against household accidents or disasters such as fire and water damage.  Additionally, this policy covers all other important structures listed on the property, like swimming pools and garages.  This coverage also includes a landlord’s personal belongings that could be used by tenants, such as appliances and furniture.  Without this policy, the landlords could be unable to be fully compensated in the event of a loss.   

Don’t make a promise that you can’t keep, because it will come back to hurt you.  

For example, if you agree to replace your tenant’s broken refrigerator within two weeks, the tenant will most likely hold you to your word.  Thus, make sure that your promises aren’t unrealistic, and keep all of your promises in writing.  An unsatisfied tenant is able to legally break the lease and potentially sue the landlord for the difference between the value of what the tenant was promised and what was actually delivered.  

Top 3 Landlord Checklists: The Value of Process

Checklist
I admit it, I’m not the most organized person in the world. However, being an effective property manager or landlord is tricky for anyone lacking discipline, so during my years of managing rentals and talking with hundreds of property managers, I have learned to rely on a few checklists that help me keep my investments working effectively. My top three recommend checklists are:
  • Pre-Move-in check list: You can find decent lists online that are easy enough to customize for your own use, but my suggestion is you use your phone to record pictures and videos of the unit so you have evidence of the pre-existing conditions. Remember to ask your new tenant to sign the checklist before move in.
  • Quarterly or Bi-annual Inspection: This is a proactive process I like for a number of reasons. First, it allows you to be proactive about preventative maintenance issues that you may not have already heard about (think air filter replacements, potential plumbing issues, etc). Second, it helps you keep a closer eye on what’s really going on inside your unit (undocumented tenants, etc.) I recommend customizing your Move-in check list to accommodate these inspections so you have a point of reference throughout the life of the lease.
  • Move out walk thorough: When I get notice from a tenant they are vacating the home, I like to remind them of my expectations upon move out and set up a walkthrough. I print out my checklist with pictures and have my phone or iPad handy if there are any questions. Always get them to sign the move out checklist.
What processes or checklists do you use for your tenants?

Rising rents: an affordability issue or a profitability opportunity?     

Housing affordability is a real thing. A very real thing. It’s hard to buy a home today…..so you rent. Right? Well, markets do what markets do and the rental marketing is rising…with no end currently in sight.

The Wall Street Journal reported on January 6, 2016 (article here) that US rents in 2015 rose 4.6% to $1,179 – an unbelievable 22.3% increase since 2009’s average rents of $964. Over 22%!!!

Affordability is the issue and there is no clear solution – unless real estate developers overbuild again. Let’s not hope for that to happen again. Please, no.

Then, as a landlord, I see profitability. Yes, my rents have been increasing to meet market prices, so my investments are certainly more secure – I am happier!

What are you thinking about? Affordability or profitability? I am in the profitability camp, myself.

Rents_1

The reality of property management: people

At RenterUp, we talk with hundreds of landlords every week. You all provide us the best feedback on the realities of property management – it’s a people based business. We couldn’t agree more.

Our tenants have real-life issues, our homes need people to repair them, and often our jobs require us to negotiate on rent, in real time. For example, this summer, I had an air-conditioning unit go out at one of my homes in middle Georgia. Summers in Georgia are serious and my A/C units have a knack for picking the hottest days to fail. In immediate response to the issue, I sent out a technician to repair the unit but he took three days to get the job done because of a special part he had to order. For my tenant’s trouble, I provided them a discount on their rent for that month – I can’t afford to lose my best tenants.
The point is that many property managers I speak with try to challenge me by saying, “software (like RenterUp) can’t manage your homes.” Of course it can’t – there’s a human element to property management. In fact, one of the challenges the RenterUp team is working to solve in 2016 is one-time rent adjustments within the app. It seems like a small feature, but being able to very simply adjust a tenant’s rent due is very valuable for many landlords.
We agree, property management is a people-centric business, but there are efficiencies to be gained by automating as much as you can with this job. One less thing to think about! Do you agree?

Gimme Shelter! Five Tax Deductions for Property Owners

GimmeShelter

Happy Tax Day! Are you looking for deductions, tax shelters, tax havens, any kind of tax relief? I certainly am….

Guess what? Rental properties are ripe with tax deductions to help relieve you of your annual tax burden. I am not an accountant but I do have my favorite deductions which provide low-hanging fruit-rationale for considering a rental property investment. My top five tax deductions are:

Depreciation

Your rental home, condo, or apartment building cannot be written off all in the year you purchased it; the IRS considers it to be long-term property. Technically, any item that lasts more than one year is considered to be a capital asset and therefore, long-term property. Examples of this are everywhere in a property: the building itself, the roof, the carpet, refrigerator, and on and on. Because these capital assets last more than one year, they are subject to depreciation, which is a process of writing off the asset every year over the general useful life of that particular asset. It is not complicated, but honestly, this can get pretty in-depth depending on how far you or your account might be willing to take it.

Depreciation starts with the property’s basis (what it’s worth today) and an IRS-mandated recovery period for the capital asset. For a building or home, the recovery period is 27.5 years and for capital assets, such as refrigerators, carpet, or roofs, the recovery period can vary from 5-27.5 years. So, in its simplest form, if the value of the building (not the land value) is $100,000 then every year, for the next 27 years, you can depreciate $3,636.36 ($100,000/27.5 years). Let’s say your rental home needs a new refrigerator. Generally (using the general method in accounting parlance), you can depreciate that refrigerator over 5 years. So your $500 refrigerator can be depreciated annually for $100 over the next five years ($500/5 years). Therefore, you are now depreciating $3,736.36 because of the building’s plus the refrigerator’s depreciation.

The rub to depreciation is called recapture. What you depreciate today needs to be recaptured by the IRS when you sell. So, using the example above, if you own the rental home for ten years and have depreciated $3,636.36 every year (let’s forget about the refrigerator or any other capital assets), then you have depreciated a total of $36,3636.00. If you purchased the rental home in 2005 for $150,000 and you sell it in 2015 for $250,000, you think you have $100,000 of profit that should be taxable. Not so fast……because of the depreciation you applied during those ten years, your taxable amount is now $136,363 because you sold for a $100,000 profit and you must recapture the $36,363. Recapture only exists for capital assets that have been following a depreciation schedule.

As you can see above, this can get quite hairy. It’s probably best you hire a solid accountant to help you manage and keep track of the complicated depreciation schedules that accrue. Regardless of the perceived complexity, it all adds up and provides a nice tax benefit for property ownership.

Interest

This is a big one – probably your biggest deduction. Basically, you can deduct any interest paid that you or your business accrues from 1) the purchase of a property through a personal loan or mortgage, 2) property improvements made from a personal loan or mortgage, or even 3) any general business services or products pertaining to your rental business, even if paid for with a credit card.

This is easier to calculate than depreciation but may require more documentation to back it up. Mortgage companies will provide you with a Form 1098 which will show how much interest was paid during a particular year. It is important to note that the principal payments do not qualify to be deducted – only the interest portion can be deducted. Instead, the principal amount typically gets added to the property’s basis. For example, if you were getting a $20,000 second loan to pay for a kitchen renovation, then the $20,000 would add to the property’s basis and follow it’s respective deprecation schedule, but any interest payments made during the life of the $20,000 loan can be deducted.

Again, it all adds up and interest is usually the largest deduction for most property owners.

General Repairs

Your home or building will require repairs and maintenance, all of which is deductible. This can be anything from a plumbing bill for a leaky sink to weekly lawn maintenance. The only place this gets tricky is when you add a capital asset to the repair, assuming you replace the faucet to repair the leak. The faucet can be put on a depreciation schedule while the general repair can be deducted.

Travel

Any travel activity pertaining to your rental business can be deducted – normally trips to your property or to the hardware store, etc. The deduction for this kind of local travel falls into one of two methods (not both!):

  • Depreciating your vehicle and expensing gas, repairs, etc. This generally works well for “company cars” that are used primarily for the purposes of supporting your rental business. Depreciation schedules vary based on the type of car, SUV, or truck you buy, so it’s worth looking into it for your particular vehicle.
  • Deducting mileage based on today’s standard mileage rate. This works well when you use your personal vehicle for the purposes of supporting your rental business. The mileage from any trips to your property, the hardware store, etc get added up and applied to the current mileage rate for reimbursement to you from the company; then, that reimbursement gets applied as a deductible expense.

Long distance travel that applies to your rental business also applies, including airfare, meals, hotels, car rentals, etc. It is very important that you document every receipt and every mile during your travel for your records. I highly recommend a simple application called Expensify to help manage all receipts digitally – I never deal with paper receipts…..ever.

Home Office

If you have an office at your home and meet certain IRS requirements, you can deduct a certain portion of your home’s expenses for your home office. In my honest opinion, this one gets complicated and it further complicates things if you also own your personal home and are looking to take advantage of your capital gain benefits from your personal home. If you deduct your home office, you erode your cost basis on your personal home and may get you outside of your capital gain tax-free benefit. Again, talk with your accountant about this one.

Tax benefits are a great reason to invest in real estate and hopefully these five deductions can help you consider an investment property as you consider you next tax day.

Happy renting!

You MUST pay rent online!

I-Want-You-Pay-Rent-OnlineObviously, the RenterUp team is passionate about paying rent online. To us, it simplifies everything for both the tenant and the property manager. For the tenants, no more digging for checks, envelopes, and stamps. The value for property managers is even greater: there are no more checks, cash, or money orders to be lost or stolen; there are no more costly trips to the bank; and, honestly, manually reconciling rent payments is a tremendous time killer.

We believe everyone should pay rent online; we do not believe everyone must pay rent online.

I recently stumbled upon a story from July 2014, by Lindsay Bramsom at KXAN, an Austin-based NBC affiliate station, describing how an apartment complex in Austin was forcing their tenants to pay rent online. Forcing them. (View or read Lindsay’s piece here: http://snip.ly/aGKc)

Forcing tenants to pay rent online is bad business. I manage seven units and have personally seen the challenges many of my tenants have with online payments: some don’t have email accounts, some don’t have checking accounts, and many don’t do well with online accounts (“I can’t remember my password” and “I don’t have internet” are the two reasons we often hear).

At RenterUp, we believe that providing rental payment options to tenants is good business. Next week we will officially announce our newest product to support the needs of cash-paying tenants, like many of those in Lindsay’s story. Our product, called Paper-or-Plastic, will allow tenants to pay rent directly in the registers of normal check-out lanes at any of tens-of-thousands of nationally recognized big-box retailers. More details will be available next week.

The point is that property managers and apartment complexes would do well to provide more payment options rather than imposing payment types. Providing more payment options illustrates goodwill and understanding that everyone’s needs are different.

We believe everyone should pay rent online, but we don’t believe that should be so limiting – we believe online can mean rental payments via cash, money order, check, or credit card.

 

5 Simple Steps to migrating from SparkRent to RenterUp

 

renterup_sparkrent_closingChange is never fun. It’s especially not fun when it involves changing your ability to receive rent payments. Since SparkRent’s recent announcement, we have received hundreds of calls and emails about our features, capabilities, and the work involved to migrating to RenterUp. I thought it best to distill it down to 5 easy steps, which take about 120 seconds for your first property and about 60 seconds for each additional unit. To migrate from SparkRent to RenterUp, you must:

  • Sign up for RenterUp. Start off by adding property information for all of your rental units.
  • Add rent rules and late fees. You want to collect rent, right?
  • Add tenants to each rental property. If you’d like, you can customize a personal email to each tenant to guide them through their account setup. If you rather send a pre-canned email, we have that ready for you as well.
  • Add your bank account information. We do need to know where your rent should be delivered! For security purposes, we will need to verify your identity.
  • Relax! RenterUp has all reminders and notifications covered.

Your tenants will receive your email about RenterUp and click through a link in that email to quickly set up their account. They will add their bank account information and verify ownership of that account to be ready for all future payments. When rent is due, they simply click “Pay Rent” in RenterUp and it’s done.

You can learn a little more HERE, or if you have questions or concerns about migrating from SparkRent to RenterUp, please don’t hesitate to call or email us. We can talk you through it!

Late Fees. Better Late than Never.

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Late fees. I wish I could tell you that all of my tenants pay their rent on time and, therefore, I don’t have to deal with late fees. Sadly, it’s just not the case for me.

I love hearing from different property managers about how they handle their late fees. I hear everything from “I have good tenants, therefore, I never have to use late fees;” to “My tenants pay on time because they certainly don’t want to be stuck with a $150 late fee.” (yes, that’s one-hundred-fifty American dollars!)

When considering late fees, there are a few important points to keep in mind:

  • You cannot enforce a late fee unless it is documented within the lease agreement
  • Many states set limits on the amount that can be charged for late fees
  • Most late fees tend to be about 5% of the rent amount

So, RenterUp is very excited to announce that we have officially launched Late Fees into our product. When you set up your rent rules, you can simply define your grace period and late fee amount for that unit. If rent goes beyond your grace period, the late fees are applied and tenants are notified. Simple for everyone.

“But I live in New York and my property is in Los Angeles; when is the late fee applied?” I’m so glad you asked. Each property’s zip code identifies the timezone it’s in, so when midnight hits for that property, the fees are added.

We would love to hear about are your late fees. How do you handle them? Do you really need them? Do they help you? Do you enforce them? How much are they? When do you apply them? Let’s hear about them! Our team is listening and will work to adjust this feature to better accommodate your needs.

Feel free to sign up for a RenterUp account and give it a try for 30 days, free.