When to refuse rent from a tenant
You might think that your job, as a Los Angeles landlord, is always to get your tenants to pay rent. And you’d be wrong.
There is one situation where you absolutely do not want to accept rent from your tenant under any circumstances: When you have a tenant you want to get rid of and the tenant has done something which may give you the ability to get rid of him.
For example: Say your tenant doesn’t pay rent on the 1st of the month. You post a “3 day notice” (which basically says, “pay rent within three days or move out). Three days elapse without the tenant paying rent. On the fourth day, you should not, under any circumstances, accept rent from the tenant.
Why? Because accepting rent from a tenant in that situation could be viewed by a judge as you implicitly ratifying a new lease with the tenant. By accepting the rent, you are saying “I understand you failed to do what you were supposed to do (in this case, pay rent within three days of receiving the notice) but I am accepting your continued tenancy in my building.” Obviously, that’s not what you want to say.
How do you refuse to accept the rent? You photocopy the check for your records, then send it back via registered mail (return-receipt requested) along with a letter telling the tenant you are refusing to accept the rent. Then, you proceed with whatever action you are going to take (in this case, presumably initiate an unlawful detainer / eviction action).
One more thing to keep in mind: It’s not enough for you to personally understand and internalize the above. You also need to ensure that your entire organization (bookkeeper, property manager, etc.) is clued in. Because it’s super easy for an oversight by someone who works for you to cost you the ability to get rid of a bad tenant.
[Note: I am not a lawyer and the above is not legal advice. If you need help evicting a problem tenant, I recommend you get in touch with Dennis Block.]
Why choosing a good listing broker matters
Some people have the impression that who your listing (selling) broker is doesn’t matter that much. After all, whoever it is is going to put the property up on the MLS, maybe have an open house or two, and then collect offers. Who cares how knowledgeable that person is? Why not just hire your cousin and be done with it?
Unsurprisingly, I think this is a big mistake. Here’s an example of what happens when you have a listing broker who doesn’t know what he’s doing:
I just had a client go into and then cancel escrow on a flipped triplex in Silver Lake.
The owner had bought the property at a trustee sale, done a VERY light rehab, and then put it back on the market for a lot more than he bought it for. When we went in to inspect the property, we found some minor things wrong with it, including construction odds-and-ends undone and missing appliances.
If we were all cash buyers getting a deal, we would have gone through with the purchase. But we were using an FHA loan and paying top dollar. This raised two distinct problems for us:
- FHA is very wary of flipped properties. If the agree purchase price exceeds what the seller himself paid for the property by a certain percentage, FHA will require two separate appraisal inspections, only one of which the buyer can pay for. Then FHA will use the lower of the two appraisals to set the value of the property, and therefore of the loan they will provide. This increases the risk of the deal falling through.
- FHA requires that properties be in very good shape. In particular, they require that the heater work and that there be a stove and (I believe) other appliances. In this case, because the property wouldn’t have passed the inspection, we were inevitably going to get into a debate with the seller about who should pay to get the property up to snuff, who would stand behind the quality of the work, etc.
What does this have to do with the listing broker? Well, the seller presumably got a whole bunch of offers on the property. On the advice of his listing broker, he chose ours. But this was horrible advice, because it was never particularly likely that this property was going to close with an FHA buyer in the state it was in.
So the seller ended up rejecting a bunch of offers that were likely to close in favor of one that wasn’t likely to close. Not good business: Those buyers have probably all moved on in the five days since we got the property under contract.
Bottom line: Who your broker is matters on the sell-side, too.
One space available on Saturday property tour
Just had someone cancel last minute, so we have room for one more.
Here’s what we’re going to do:
- Meet at our office in Silver Lake at 1pm this Saturday
- Start with a quick discussion of the numbers behind our deals
- Go tour 2-3 of our properties where we’ll discuss what attracted us to the deal in the first place, what we did, how much it cost, how long it took, and what we ended up with
Simply put, if you’re interested in understanding how you can buy and renovate apartment buildings for profit (and fun!), this will be a pretty amazing introduction. You’ll also get a chance to meet and compare notes with other investors just like you.
Interested in taking that last spot? Email me at moses@betterdwellings.com.
Why we have video cameras at our buildings
Hint: It’s not what you think.
We have cameras because they’re very, very useful in resolving disputes with tenants. Here are a few examples:
- We had a tenant in 2516 Kent St. who insisted that she didn’t have a dog. She hadn’t disclosed a dog when she applied for the apartment and certainly hadn’t paid a pet deposit. So it was awesome to be able to email her 5 video clips of her walking a pit bull out of her unit to the backyard (presumably to have it crap there and not pick up after it) and then back to her unit.
- That same tenant also swore up and down that she lived alone. So it was, again, awesome to be able to send her 5 clips of the three other people she had living with her in her one bedroom apartment (along with the pit bull!).
- Another tenant claimed the gate of our building had suddenly slammed closed, damaging her car. She wanted thousands of dollars to pay for repairs. So we sent her a clip of her opening the gate with her remote, driving half-way through, stopping her car, answering a cell call, and talking for 5 minutes or so before the gate closed on her car.
I just wish we had had cameras when one of our tenants invited some guests into a building, guests who proceeded to vandalize the backyard furniture. This tenant was paying $550 / month for a $1,250 apartment. Video of that incident would have been worth probably $50,000 to me, in the form of a swift nuisance eviction.
If you’re trying to run clean, quite, nice buildings you need to make sure that you keep an eye on things. And there’s no better way to do that with a small staff than to install some unobtrusive cameras.
How I feel about Frost / Chaddock invading Sunset Junction
I, for one, welcome our new mixed-use overlords.
You’d think I’d be pissed about a developer coming into Silver Lake and building 300+ rental units. After all, the rules of supply and demand would seem to indicate that this new competition will drive down the rents on my units in the area. But I’m thrilled they’re coming. Why?
Well, first, I obviously have a general preference for dense, in-fill development. Sunset Junction is a human-sized, walkable neighborhood. Putting more rental units there will mean more customers for the amazing stores, restaurants, coffee shops and bars that are already thriving in the neighborhood.
Second, the structures these buildings are replacing are mostly horrible. Yeah, they ripped down the building that formerly housed a noted gay bookstore. And I kind of like 4100 Bar (which is going to be a casualty of the development). But I can tell you with great certainty that no one is going to lament the demise of the Bates Hotel. Overall, I can’t see how these new building won’t end up being an upgrade.
I have a third reason that, I admit, is a bit selfish. You see, the new units are going to rent for tons of money. Right now, the developers are forecasting $2,000 / month for one bedroom apartments. That’s a hell of a lot more expensive than even my highest-priced one beds. So my units are going to look like bargains by comparison.
Nothing like a little price-anchoring by the competition to make sales a bit easier, right?