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Commercial Real Estate Finance

The eBook Commercial Real Estate Finance, by Winston Rowe & Associates discusses the fundamentals of the different types of commercial property, the various options that are included with properties and the capabilities that you will have as a commercial property investor.

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This is a link to1226 real estate investing articles written by industry veteran’s.

25 Productivity Tips for Successful Business Owners

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Landlord Inspections: The Do’s and Don’ts of Apartment Inspections

Maybe you’re suspicious one of your tenants is breaking the lease’s pet policy. Maybe you just haven’t checked in with them for a while.

If so, you may ask yourself: can a landlord do random inspections? Well, the answer isn’t an easy yes or no.

As a landlord, you can drive by, walk by, or bicycle by your property anytime. But you cannot walk into the property unannounced. We’re here to walk you through the do’s and don’ts of landlord inspections.

Legal Reasons to Inspect an Apartment

Apartment inspections need to be performed for a variety of reasons. Let’s take a look at those situations in which you can legally enter and inspect an apartment.

Maintenance and Repairs

Your tenant might ask you to service or repair something. Typically, landlords are only permitted to enter the premises during “reasonable hours.” That varies from state-to-state.

Any time between 9 a.m. and 5 p.m. is usually considered reasonable. Those hours are within normal business operating hours.

However, when a repair is specifically requested by the tenant, you can enter and perform the necessary service at any hour that is mutually agreed upon.

In a scenario where the tenant has not requested maintenance or repair, but you still need to perform it, give them 24-48 (dependent on state and local law) hours’ notice of your arrival. Additionally, make sure to come at a time that falls within the scope of “reasonable hours.”

Decorations, Alterations, or Improvements

Can landlords do random inspections to address the aesthetic? As a landlord, you have the right to make aesthetic changes as you see fit. This is different from maintenance or repairs. That’s because it’s not something that you need to do to maintain the unit’s habitability.

For example, you might want to repaint the front porch or install new light fixtures. In these cases, stick to the “reasonable hours” rule. Make sure to give your tenant proper notice.

Showings

You have the right to show the unit to prospective tenants. Again, be sure to notify your tenants in advance. This gives them the opportunity to ensure that they’re out of the apartment during showings or give the unit a good once-over, if necessary.

Keep in mind, with millions of Americans working from home due to COVID-19, it may be difficult to schedule a showing during the workday. If that’s the case, you’ll need to work with your tenants to schedule a time that works for them without disturbing their work. You could also “show” prospective tenants your available units via 3D apartment tours.

Lease Violations

Though you may have done your due diligence, there’s always the chance that you may have a tenant that is egregiously committing lease violations. Whether you suspect there’s an illegal subletter on the premises or that your tenant has willfully ignored your no-pet policy, you have a right to check it out.

As it goes for all instances in which you may want to enter the unit, give notice. If you find that your tenant is committing lease violations, you may need to serve a notice to quit.

Move-in/Move-Out

It’s essential for landlords to conduct move-out inspections to assess the damage, if any, that the last tenant is responsible for. Your findings will dictate how much of a tenant’s security deposit you’ll refund back to them.

Upon move-in, inspections enable landlords to confirm the condition of their unit. Then, they can make any necessary repairs before their new tenant officially moves in.

Extenuating Circumstances

While the previous reasons to perform an apartment inspection were very clear, there are also extenuating circumstances in which an inspection can be legally performed. These include:

Court Orders: If you’ve obtained a legal order granting you permission to inspect one of your units, then you can legally perform the inspection. Typically, the order may stipulate a specific date and time that you can perform the inspection.

Tenant Abandonment: Keep in mind that the requirements to be considered “abandonment of a property” are different state by state. If a unit has been abandoned, you’ll need to remove any remaining possessions. Be sure to document the abandonment.

Tenant Violation of Health/Safety Codes: Not only does this put the tenant and others at risk, but it can also lead to significant damage to your property in the form of a pest infestation.

In Case of an Emergency: For example, a fire, gas leak, water leak, burst pipes, or an extreme weather event that may threaten the safety of your tenant gives you license to make necessary repairs as quickly as possible.

Do’s of Landlord Inspections:

Give Proper Notice of Any and All Inspections (24-48 hours)

Also keep in mind that, even after giving notice, you can only enter a tenant’s unit during “reasonable hours.” Typically, though this varies by state, a time between 9 a.m. and 5 p.m. is considered to be within the scope of “reasonable hours.”

It’s even better to give even earlier notice than the recommended time frame. That’s the case especially in cases of routine inspections that you’ve scheduled in advance.

There are real legal consequences for failing to give notice. Those include arrest, fines, and legal action being taken against you.

Avoid this by giving written notice, leaving a note on the door or in the mailbox, or sending notice via email. Those methods are sufficient and serve as proof that you adhered to the law.

Schedule Property Inspections a Few Times Throughout the Lease Term

There’s no magic number for this. It’ll depend on the length of the lease (we recommend no more than quarterly for a year lease).

What’s the rationale behind scheduled, incremental inspections throughout the duration of a lease? Well, it ensures that maintenance and safety standards are up to date without being excessive.

Remember: Purpose, Professionalism, and Tenant Privacy

If you must enter a tenant’s home to perform an inspection, consider purpose, professionalism, and tenant privacy. State your purpose upon your arrival, give proper notice as a professional courtesy, and respect your tenant’s privacy by ensuring that you don’t overstep.

Document All Routine Inspections in the Lease Agreement

If you have a policy that allows for inspections over a set interval of time, then you need to document that in the lease agreement.

It’s imperative to discuss these provisions when you’re face-to-face with the tenant at signing. This way, everyone knows what to expect ahead of time. It’s much better than having tenants, who haven’t read through the lease, be caught off guard by your routine inspections.

Be Smart and Reasonable

Just because the law is on your side, doesn’t mean you should completely disregard the importance of a good tenant-landlord relationship. If you’re continuously notifying your tenant that you’ll be stopping by, it’s likely to frustrate your tenant over time. If you’d like to increase your rate of renewed leases, limit your inspections.

Don’ts of Landlord Inspections

Breach a Tenant’s Right to Quiet Enjoyment

The right to quiet enjoyment is legally protected. For tenants, this means that they can peacefully enjoy their homes, bar entry from landlords, and that the landlord is responsible for the maintenance and upkeep of the property. Entering the apartment without permission or not giving notice would breach this right.

Show Up Unexpectedly

Outside of an emergency or extenuating circumstance, you need to give tenants proper notice. If your state has a statute that describes a specific notice period that you must give to tenants before entering their homes, then you must always adhere to it.

Remember that a tenant may refuse entry to a landlord that has not given appropriate notification. Additionally, avoid requesting inspections outside of reasonable hours: typically, 9-5.

Ignore State and Local Law

Laws regarding apartment inspections vary in different states, so it’s imperative to be up-to-date with your knowledge of current inspection law. For example, Alabama requires a two-day notice. Connecticut requires reasonable notice. New York has no statue on a state level.

Give a Vague Notice

When you are letting your tenant know you’ll be coming by, stipulate a date and time. Don’t leave the “when” up in the air. Be sure to state your purpose for entering.

Are you coming by for a showing? Are you repairing something? Or is it a regular inspection? Fill your tenant in on the details for your upcoming visit.

Final Thoughts

As a landlord, you’re ultimately responsible for the upkeep and condition of your property, even when you’re renting it out. Though you’ve gone through the process of thoroughly screening all tenants, there’s always a chance that your tenants may not keep their apartment in top-notch condition. That’s where landlord inspections come in.

Whether your tenants don’t report a leak which ends up causing extensive damage or you simply want to perform a routine check-in, you have a legal right to inspect your property.

However, you must comply with the law when you do. Typically, this means giving proper notice and not entering a unit without permission from your current tenants, except in emergency circumstances.

Can landlords do random inspections? The answer is yes if you follow the above advice and adhere to local laws, your lease, and best practices.

Understanding Prepayment Penalties

Mortgage loans are expensive to originate.  It is not uncommon for consumer mortgages to cost upwards of $9,000.  Lenders typically recoup those costs through a combination of upfront fees and interest revenue over the life of the loan. 

If a borrower pays off a loan shortly after origination, the lender is at risk of losing money on the loan. Enter prepayment penalties.  A prepayment penalty is a contractual clause that states the borrower is going to pay the lender an additional fee if the borrower pays the loan off early.  This really isn’t a penalty at all.  It is a way for the lender to make sure they don’t lose money on a loan.

For example a standard prepayment penalties with a 5 year structure of 5/4/3/2/1 structure. This means that if the borrower pays off the loan in year one, they have a 5% prepayment penalty, in year two, a 4% prepayment penalty, in year three, a 3% prepayment penalty, and so forth. So, you might be wondering how this affects the borrower, and the answer is, it depends on your investment strategy. Let’s dive in.

The rental investors looking to grow a legacy of rental properties and hold on to them long term (we call these properties “permanent rentals”) are not really affected by the prepayment penalty.  Since their investment strategy focuses on the lifetime of the loan, paying off the loan in the first five years is a moot point.

On the other hand, investors looking to purchase rental properties with flexibility to sell in the foreseeable future (we call these properties “transitional rentals”) are very concerned about the prepayment penalty. These investors are interested in market conditions and want to be able to sell the property at the right time without worrying about paying a penalty fee.

5 Benefits Of Investing In Apartments

Investors, You know the saying, “What is one man’s garbage is another man’s treasure.” Or something like that…

I guess that is why companies like eBay do so well is because this is true more often than not. But what about those ‘treasures’ that you have, right now, that are collecting dust?

I will give you some of the ‘treasures’ I have that are collecting dust in a BIG, BIG way –

About 4 magazine subscriptions.  I get them in the mail and put them in a pile.  They never seem to move from the pile!

Newspaper subscriptions.  I have a couple of these too that see the recycle bin many days before I read them.

Fitness equipment.  I have a couple pieces of fitness equipment in our exercise room that I have not used in years!  Not even as hangars!

Appliances.  I was fishing around for something to eat over the weekend and found our bread maker. I don’t think we have actually used the bread maker since 1999.

And there is more but I won’t bore you. But, I bet you can relate huh?

But there ARE some treasures that I do like. Treasure investment properties like the apartments projects that I will be getting into here in 2014 and the ones that I currently have.

Benefits of Apartment Investing

The nice thing about apartment investment properties is not only the return of course but all of the other intangibles that never collect dust such as:

Appreciation

Equity Build Up

Income Tax Savings. A lot of it!

IRA/401 (k) Investment Options

 And of course, cash flow

When you think about it apartments like this really work overtime because it is really four or five investments working together as one.Day and Night, Hot or Cold, Spring or Fall.

And when the struggling economy sends out another ‘danger signal’ people will still need a place to live won’t they. Again…an investment working overtime.

So, my goal is to add more investment treasures like these in 2014 to my portfolio and write about them so you can add them to your treasure chest as well.

Let’s focus on investments that won’t collect any dust.  Get rid of those!

And be motivated to get out of those investment that you now have that you know have been collecting dust – sometimes for years. Investors be aware it takes cash flow and net worth improvements to get you where you want to be financially.

Not dust!

So, stay with me and get all that dust out of your life – once and for all!

Apartments are continuing to be the best investment alternative for many investors – even in a dusty economy!

Contact Winston Rowe and Associates

10 Rental Property Red Flags You Should Never Ignore, Winston Rowe and Associates

These are problems are structural in nature. And by that, I’m not talking about the actual foundation of the building, but something that is relatively unalterable about the property. Some of these problems may be at least partially fixable at a reasonable price, such as the point on storage. Others are not, such as the location or floorplan. But these are not items you can simply and easily add to a repair list and make them go away.

With that in mind, let us begin our list:

1. The Proverbial War Zone

I wrote an article about how to analyze the crime risk for a potential deal that I would recommend reading to evaluate which areas are proverbial war zones. Furthermore, I wrote another article on why most investors (and all newbies) should avoid properties in D areas. The gist of it is that properties in such areas will usually cost more to maintain than the rent they bring in. And the risk is much higher, to boot.

Remember, square foot for square foot, a new roof or furnace will cost the same in D neighborhood as it does in an A neighborhood. If the rent is too low, it simply won’t cover the cost of such repairs. And add to this that crime is more common in these areas. It will take a long time at $500/month in rent to cover the cost of an A/C condenser that decides to grow legs and walk off. Tenants in these areas are also more likely to fall behind on their rent or do significant damage to a unit. While there are plenty of good tenants in rough areas, unless you specialize in these types of rentals, really rough areas should be a deal breaker.

2. Terrible Schools

Often, terrible schools go hand in hand with war zones, but not always. Some areas, particularly densely urban areas, have bad schools but some quality areas where most of the people who live there send their kids to private schools. While I personally find this dynamic to be tragic, there’s not much you can do about it as a real estate investor.

Bad schools is definitely more of a red flag than anything that would resemble a deal breaker. But after safety, the most important thing people look for when looking to rent a property (at least a family-sized property) is the quality of the school district. So keep this in mind. http://www.GreatSchools.org is a good place to go to evaluate any given school district.

3. Houses With Only One or Two Bedrooms

I hesitated to even include this because it is absolutely not a deal breaker. But it is worth noting that one and two-bedroom homes are not what any family is looking for, so with these types of houses, you will generally have a more transient clientele. Now, with some such houses, you can add a bedroom, which can be a great value-add. But with others, there simply isn’t the space. Small houses can be risky, and the tiny houses movement is too likely to be a fad to be worth investing in as rental property.

That being said, I have heard of one investor who specifically looks for one-bedroom homes and rents (mostly) to elderly people, and he does very well with it. For our part, we have plenty of two-bedroom houses, and they do just fine. But you definitely need to know what you are getting into with such homes.

4. Huge Units

A 3,000 square foot house does not often make for a great rental. Again, this is not an always proposition, though. But for the most part, the maintenance and turnover will be much higher on such large properties simply because of the sheer size of it. Furthermore, most people looking for such a house will be buyers, not renters.

We find our sweet spot to be around 800 to 1,500 square feet for houses.

5. Huge Lots and Rural Properties

I put these two together since they tend to go together. Now, a big lot is a good thing. But if you are looking at anything too large, especially over an acre, I would start to get nervous. For one thing, that’s a lot of yard maintenance to deal with upon turnover. Furthermore, most people don’t want to take care of such a large yard themselves, so you will turn off a good number of potential tenants. Or you may get a tenant who simply won’t take care of the yard, and then you will start getting letters from the city.

Rural properties are also difficult to manage since they will generally be far away from you. I’m not a fan of rural properties in general (although, for some, I’m sure it’s a very profitable niche). But my advice would be that if you want to invest in rural properties, they make for better flips than holds most of the time.

6. Any Sort of Environmental Problem

OK, another major disclaimer—this could be a goldmine for a savvy investor who will buy what others won’t. But if you have toxic waste dump or an underground leaking oil drum or the unit is going through meth abatement, unless this is your specialty, move on to the next one.

7. Tiny Bedrooms or Kitchen

There are some instances where you can fix a tiny bedroom or kitchen by removing a wall here and adding a wall there. But often, there’s no economically good way to do it. Some old houses are just designed in a way that makes me think the architects were on LSD—even though that drug hadn’t even been invented when those properties were built. I’ve seen massive and useless hallways connecting one tiny bedroom to another in a 1,200 square foot house with no conceivable way to add a third bedroom. It’s endlessly frustrating.

But it’s important to note that potential tenants do not decide on which property they are going to rent by plugging the amenities and specs into a spreadsheet and running a logarithmic, covariate algorithm that takes the least-squares regression of the hypotenuse to determine the best value. They make their decisions based on emotion and livability. Tiny bedrooms are a huge turnoff for anything other than the third bedroom, which is often used as an office, library, or nursery. A master bedroom is a huge plus, but the first and second bedroom need to be of decent size (at least 10 feet by 10 feet or something equivalent).

And they say that kitchens and bathrooms are what really sell houses. I think the kitchen is particularly important, and a tiny kitchen that cannot be expanded or opened up is a huge turnoff. Not necessarily a deal killer (remember, every property has some value), but it’s a big red flag.

8. Awkward Layouts

Can you only get to the bedroom from the kitchen? Is the only bathroom right next to the kitchen? Can you only access the garage from a bedroom? Is the only door to the backyard through a bedroom? Is the second bedroom only accessible from the first (which, I should note, means it’s not a bedroom)? Is the only access to the unit’s only bathroom through one of the bedrooms in a unit that has more than one bedroom?

Maybe you can fix these problems by moving a wall or whatnot. Maybe you can’t. If you can’t, that is a major problem that seriously affects the properties sale and rental value. And tenants, like homeowners, generally don’t like awkward properties.

Obviously, it doesn’t mean the property is worthless, but it is another major red flag.

9. No Storage

Say you have a three-bedroom, two-bathroom house with no garage, basement, or bonus rooms. You need to note that the lack of storage is a big negative to potential tenants. Not a deal killer, of course, but a red flag nonetheless. The best remedy, we have found, is to add a shed in the backyard. Both Home Depot and Lowes sell such sheds at reasonable prices. But this is an imperfect solution at best. So be careful with a house that has no storage.

It’s safer to buy apartments with minimal or no storage, particularly with smaller units, as 1) the tenant doesn’t need a lawnmower or anything like that since they are not responsible for the lawn and 2) it’s less likely to be a family living there, so the person likely has a lot less stuff.

10. Local Governments That Hate You Simply Because You Exist

OK, that may be a bit of hyperbole. But it’s extremely important to know how landlord-friendly any municipality you intend to buy in is. Some cities require landlords to have annual property inspections, which are both expensive and arduous. Are you willing to put up with that? Other cities, particularly on the East Coast, have eviction laws that are so strict, it can take three months or even longer to evict a non-paying tenant. I’ve even heard of it taking as long as a year, especially if the tenant knows how to game the system.

For a rather extreme example, here’s how Global Property Guide describes the eviction process in the Netherlands:

“Landlords can only give notice in strictly defined cases, and it is extremely difficult for owners to evict tenants once they are established. Only the judiciary, and not the landlord, can terminate the contract, and only after the landlord has given notice of from three to six months. Where the contract is for a fixed period of time, he is restrained from giving notice except towards the end of that period.

“Limited arrears in payment of rent are in general insufficient grounds for a rescission of the contract; only an order for payment can be achieved. In the case of arrears of up to three months, rescission will be denied. Nuisances committed by tenants tend not to be a good basis for eviction; they tend to be denied by tenants, and the court procedure is costly.”

If there’s anyone from the Netherlands who would like to correct me on this point, I’m all ears. But for now, I’ll probably pass on investing there.

On the same note, HOAs can be similarly difficult and anti-landlord in some communities. We’ve all heard of the petty tyrants that have rises to power in some HOAs. Such properties are generally to be avoided.

Conclusion

To wrap it up, it’s once again critical to remember that there really is no such thing as a deal killer. After all, I for one would be willing to buy any property in the country if they paid me a billion dollars to do it. But there are major red flags that will kill most deals. When looking for rental properties, the above list are some of the big ones to watch out for.

Cash for Keys – Could it Work for You?

Cash for keys may soon be on the rise. It’s an idea that might appeal to many landlords who want to incentivize tenants to leave their rentals and avoid a drawn out eviction process.

Cash for keys, in concept, is a simple, straightforward process, legal in all 50 states. It’s exactly what it sounds like: an agreement, entered into voluntarily by a landlord and tenant, in which cash or other value is provided to the tenant as an incentive for them to hand over the keys and move out of the rental.

Some landlords are already engaged in cash-for-keys contracts. It’s perfectly legal to do so even while state and federal eviction moratoriums are in place, as long as it is done in a non-threatening, voluntary and non-coercive manner on the part of the landlord. To be safe, consultation with an attorney, or the MassLandlords Helpline, is recommended before initiating or entertaining any cash-for-keys proposals.

A renter may also suggest cash for keys independently, without any prompting from the landlord, which can result in a move-out agreement.

Cash-for-Keys Mortgage Foreclosures vs. Rental Evictions

Cash for keys gained popularity during the housing crisis in 2008. Real estate owners, who represented banks, offered cash to underwater and nonpaying homeowners by the millions in heavy hit communities, in Florida, Southern California and other regions. Offering the strapped homeowners cash to vacate their homes saved banks from going through the costly and time-consuming process of foreclosure.

Over the years, landlords have also begun using cash for keys as a way to entice nonpaying renters, for example, to leave their residences instead of filing eviction notices, spending months in housing courts, sitting on empty rentals and paying court and other costs. Some landlords have also used cash for keys to encourage paying tenants to leave a unit that they want to renovate or sell, or vacate for other reasons.

For the purposes of this article, we refer to cash for keys between landlords and tenants.

Now or Later

It’s important to note: cash for keys, while it may be the answer for some landlords, is not a panacea for those with problem tenants, for example, nor an arrangement to be entered into lightly.

Landlords embarking on cash-for-keys agreements now, while eviction moratoriums are in place and courts are not hearing most housing cases, will have no recourse in the event tenants don’t comply with the agreement. Make certain both parties are entering the contract in good faith, are well-informed of their rights, and of the contract’s stipulations.

In some cases, it might be in the interest of landlords to hire a mediator to work with both parties – landlord and tenant – to negotiate an amenable agreement that all will adhere to throughout the process. If you opt not to hire a mediator, make certain that tenants know their rights in a cash-for-keys agreement, to avoid them from backing out of a deal later when they’ve received advice from others.

Eviction Pileup

Potentially looming at the other end of the state and federal eviction moratoriums now in place is a significant number of evictions. This situation could be avoided if the state government were to take legislative action, such as that proposed by MassLandlords, to guarantee housing for the long term. But short of further legislation, the eviction backlog could become substantial.

Conditions may also be affected by pending bills, such as HD.4878, a bill in the state legislature, sponsored by Reps. Kevin Honan and Mike Connolly, that could effectively lead to rent cancellation for a large percentage of landlords.

Easy Math

Evictions are almost always expensive. The total bill for an eviction in Massachusetts can tally more than $5,000, considering lost rent, attorney, court and constable fees, repairs and cleaning costs. In the next couple years, that amount will likely increase as courts become backlogged and may delay summary hearings for months (i.e., more lost rent).

The math is simple in a lot of situations:

A) Wait months or more than a year for your eviction case to be litigated while a nonpaying tenant occupies your rental (and possibly degrades its condition), then forfeit thousands of dollars in court costs, lost rent and attorney fees?

Or B) Offer your tenant a few thousand dollars to move out peacefully and quickly? The savings between cash for keys and an eviction can range from the low thousands to five figures in some outlying cases, even considering attorney consulting fees.

Meanwhile, you could have your rental reoccupied with a paying tenant within a month or two. Not to mention all the headaches you could avoid.

A Tough Pill to Swallow

 For some landlords, paying cash to a nonpaying tenant who owes thousands of dollars in back rent and may have damaged your property is anathema. Like rubbing salt in a wound.

But providing housing is a business, first and foremost. And while it may be emotionally difficult to hand over a pile of cash to a tenant who has given you headaches since the day they moved in, it may be the wisest business decision.

Some landlords also question the ethics of a cash-for-keys agreement. They argue that the practice could have the long-term effect of increasing squatting and rent delinquency by encouraging bad players to force landlords to hand them cash just in order to get them out of their property and avoid legal fees and headaches.

That scenario is possible in a few situations. But in the wake of coronavirus, the overwhelming percentage of delinquent renters will be the result of the pandemic response and economic downturn. There has always existed a fraction of squatters and intentional nonpayers gaming the system. It’s impossible to say how much that fraction could increase because word spread that cash for keys is a way to extort some cash from landlords.

Creative Solutions

In the wake of the coronavirus pandemic and response, once eviction moratoriums have been lifted, many landlords will be positioned to serve eviction notices as soon as they can to their delinquent tenants. In many cases – especially for tenants who have not suffered a loss of income but instead have taken advantage of the eviction moratorium to get free housing – eviction might be the logical course.

But for many other tenants – such as those who stopped paying rent because they lost jobs and income during coronavirus and response – landlords might consider alternatives to eviction, especially for good tenants who have regained employment and resumed rent payment.

Alternatives might include working with tenants to come to a compromise that will extend the tenancy for the long term while forfeiting some back rent. You could renegotiate back rent payments, for example, or restructure payments with some owed funds added in. Partial rent forgiveness might also be a prudent solution if it saves the arduous process of eviction.

But if you decide as a landlord that the relationship with your tenant is untenable, then cash for keys may be the better alternative.

How to Offer Cash for Keys

The process can be simple, but it depends on a few specifics. At its simplest, cash for keys is a transaction directly between landlord and tenant. No courts, constables or intermediaries needed.

(When court-enforced evictions are possible, however, cash-for-keys agreements may be entered into the court record. This action would give you a back-up plan in case your tenant doesn’t comply with the agreement.)

As stated above, hiring an attorney or mediator, or consulting the MassLandlords Helpline, might be a prudent step, at least to avoid any misunderstandings or surprises, and to provide additional assistance in case the court becomes involved.

As much as possible, try to keep emotion out of your cash-for-keys communications. It’s a business transaction, and in most cases will be a win-win solution (i.e., the least bad outcome) for landlord and tenant. Focus on the benefits.

Step 1: Draft a plan

Jot some parameters on paper, or use the MassLandlords Agreement to End Tenancy form to outline a proposal. Include a proposed amount to offer your tenant to incentivize a quick move-out. Decide on an amount to offer beforehand (see below).

This step offers an opportunity to be creative and flexible within the agreement. For example, you could offer, as part of the payment, to cover moving costs for your renter. Or maybe your cash-for-keys offer doesn’t involve actual payment at all, rather you could offer to forgive all the back rent owed in exchange for a voluntary move-out.

You might consider two or three offers that correspond with faster move-out schedules. If you want your tenant to move out sooner than later, you’ll likely need to offer a higher amount of cash.

This is an abstract that could be shared with an attorney for those who work with one, as recommended.

Step 2: Initiate a conversation with your tenant, either in person or via phone

Present your case and proposal evenly and clearly, as you would with a business proposition. There is no need to mention eviction during this conversation, especially if your intent is just to empty the rental for renovation or sale.

Outline the cash-for-keys concept, emphasizing the benefits to your tenant (i.e., cash in hand, no eviction record to hamper future efforts to find rental housing, etc.).

Your tenant might try to negotiate or counter-offer. Keep negotiation to a minimum. If an extortionist tenant suspects that you are vulnerable or willing to pay more to get rid of them they may take you to the cleaners. Choose a fair amount to open with and try to stick close to that figure.

Assuming your tenant agrees to a cash-for-keys settlement, spell out the agreement with your tenant, or share the MassLandlords Agreement to End Tenancy, a brief and convenient form that provides fields for the essential information and signatures.

Include the amount (or services) you will pay renters to move out. Include the date and time they agree to be vacated from the apartment – meaning all possessions are removed from the unit and any common areas, keys have been delivered to the landlord or agent, and the unit has been left “broom clean.”

Both you and your tenant must sign two copies in duplicate so you each have a signed record of the contract.

Step 2a: Escrow the money

 Whether or not you hire an attorney or mediator to assist with your cash-for-keys process, we recommend that you set aside the agreed cash amount for payment upon contract completion. To keep it simple, landlords could place the cash amount in a separate account and pay it out to complete the contract. You could also have your attorney or mediator escrow the cash and oversee the payment at your direction.

This is a step that removes emotion from the payment process, which can be a difficult step for some landlords. It also assures that tenants, who have voluntarily moved out as part of the cash-for-keys agreement, won’t have to wait for payment or chase the landlord to receive the cash owed them.

Step 3: Complete the contract

The cash-for-keys contract is completed when the rental is vacated at or before the agreed upon time and date, satisfactorily cleaned, and keys are in your hand.

Do not hand over any payment or order release of escrowed funds until those conditions are met. If your tenant has not met those conditions by the designated time (i.e., they are still moving out or cleaning beyond the time you both agreed), you have the option of considering the contract void.

Once you have the keys, the unit is in your possession, you have inspected the apartment to your satisfaction and paid your tenant the amount you agreed to, the contract is completed.

How Much to Pay?

First, as a comparative exercise, calculate how much you project an eviction would cost you. You will need to build in more months than usual of lost rent because of the backlog of cases after the eviction moratorium is lifted. For example, if your eviction is delayed six months or more due to the backlog of cases, your costs will increase substantially.

Also think about how much an eviction would cost in normal times, with little or no court backlog. One rule of thumb is to halve that amount as a cash-for-keys offer.

Consider rents and move-in costs for similar apartments in your community. Would $2,700 cover first and last month’s rents plus security deposit? If so, that may be your starting figure, and could present a strong incentive for your renter to leave.

In early conversations, ascertain your renters’ needs. Could they be out in a week, or will they need longer? Would a higher cash offer incentivize an earlier departure?

You could consider a tiered offer with one amount for a 60-day move-out, another offer for a 30-day move-out, or a higher amount to move out in a couple weeks or less. Keep the conversation going over several days or weeks to allow both parties time to consider and address underlying concerns.

Contract Complete

On move-out day, once you’ve been handed the keys to the apartment and inspected it, have your tenant sign a final clause saying they have received the cash payment. If the payment was escrowed and distributed by the bank, be sure to get a record of that payment.

Before handing over or releasing the cash payment, be very sure to conduct that final inspection.

As a last step, it is recommended that you immediately change the locks, as usual with an apartment transition. Having the keys handed to you from the tenant doesn’t mean they didn’t at some point have copies made.

Thousands Saved

Cash for keys isn’t for everyone in every situation. It needs to be approached thoughtfully and thoroughly with all bases covered from a legal standpoint.

If you find yourself lamenting the pile of cash you just handed over to an undeserving tenant in exchange for keys to your property, consider revisiting your calculated eviction costs.

Focus on the potential thousands of dollars you just saved, and your freedom to now locate a better tenant.

6 Tips for Setting Rents, Winston Rowe and Associates

If your rent is set too high, the property can sit on the market and you will miss out on monthly rental income.  And if the rent is set lower than the competition, simply put, you will leave money on the table.

Whether you own or manage one rental property or hundreds of rentals across the country, you need to be able to set fair market rents confidently.

As we know, rents vary greatly from market to market, but can even differ from one street to the next within a single neighborhood.  Obviously, numerous variables impact the rent you can charge for your rental unit, including location, type of building (duplex, apartment building, etc.), size/square feet, age of unit, number of beds/baths, and amenities (i.e. parking, AC, pool, roof deck, and so on.)

Don’t be fooled that any one rent comp, property manager, or local real estate agent can tell you the perfect fair market rent for your property.  We recommend that you tap into a handful of resources to help you set rents confidently.

1. Find some rent comps to give you a starting point

Check local apartment listings using the local newspaper, online apartment guides, or websites like Craigslist and Rentometer to get a feel for the “going rents.”  Rentometer can give you historical rent trends for the area and a good starting-point rent.  You can further refine the rent from there by using some of the suggestions listed below.

2. Stay up to date on the economic and business activity in the local market

Is it thriving? Are stores closing down?  Economic activity is one of the key drivers of rental housing demand and it can affect the rental market in unique ways. For example the current economy in Boston, Mass., is hot! Rental housing is in high demand, leading many renters to forgo amenities and perks in favor of securing a lease. This means that landlords can afford to make fewer concessions when negotiating.

3. Check occupancy rates for your area

Are the occupancy rates trending upward? Good! The stronger the desirability of a rental, or neighborhood, typically the higher the occupancy rate – and higher market rent. It’s a question of supply and demand.  Factors that can affect occupancy rates include local millennial population, employment trends, housing supply, and new construction growth, rent prices, and the location and  condition of the rental property.

4. Chat with a local real-estate professional

Talk with an industry professional about their take on the market or a specific neighborhood. Local experts (property managers, brokers, agents, appraisers, and lenders) are especially good at identifying the drivers of housing supply and demand unique to your market – jobs, local ordinances, building permits, zoning for a new apartment building, etc.

5. Use “rent per square foot”

Whenever possible use square footage as a benchmark for searching rent comps. This allows you to encapsulate into a single number all the subjective variables of rent, and provides you with a basis for comparison across different units, locations, amenities, and so forth.

6. Check your local apartment or rental-housing association

These are great resources for research. They may provide information about local rent levels – past, present, and future. This is especially important for real-estate investors and developers.

Making sure your property is renting at (or close to) fair market rent is as much of an art as it is a science.  However, with the 6 tips for setting rents along with good current and historical rental data and a thorough understanding of the local market and market conditions, you can set rents with confidence!