Recently, I had the pleasure to participate in a national conference for landlords. During my presentation, I asked the question: “How many landlords think your tenants are your customers?” The majority of the room raised their hands. Then I dropped the mental bomb and made the statement “Your tenants are not customers!” After making this statement, I intentionally paused for a few seconds to simply observe the reactions in the room.

It was amazing. The expressions on the faces in this room full of landlords ranged from mostly confusion to one fella who absolutely refused to have an open mind even after paying a registration fee to attend a learning environment focused specifically to benefit landlords. This poor fellow reminded me of the selfish greedy child who has to win at all costs or pick up his ball and go home. He decided not to play and chose to leave, making a scene, slamming a chair, and stomping his feet. What an eye-opener to childish behavior on the part of a self-proclaimed 30 year landlord. (I’d expect this kind of behavior from some folks who’ve applied to become one of our tenants.) This was unexpected entertainment for attendees as well.

That’s why we have two ears and one mouth. We learn by absorbing information and new ideas. What’s the definition of insanity? Doing the same thing over and over, but expecting different results. I’m guilty of this myself. As investors, property managers, and landlords, we should understand the legal position of our role as landlords and the role of tenants. In addition to the legal definition part, we’re actually running a business. Our objective with our investment properties is to increase our wealth, cash flow and quality of life. It doesn’t matter if your business is small or large, it’s still a business.

Business Relationship

Here’s your challenge. From a business relationship standpoint, are your tenants customers? Seriously, think about it for a moment. Many landlords and experts say our tenants are our customers. Most retail establishments have slogans “The customer is always right.” Do you really want to adopt a slogan “Tenants are always right”? Hmm… did you hesitate a minute here on this one? Can you etch in stone or really think and believe tenants are always right?

Don’t pull the trigger yet on your mental knee-jerk reaction to these comments. If you operate a retail store, you’re at the mercy of your customers and the customer is always right slogan can apply. You must get them in the door to buy. If you operated a flower shop, would each customer have to fill out an application and sign an agreement? If you operated a stop and rob food mart, would your customers have to fill out an application and sign an agreement to buy beer, smokes, or lottery tickets?

Don’t get me wrong, there are businesses requiring customers to fill out applications and agreements such as rental car companies, loan companies, credit cards, and more. The point to understand is the wide range or scope of the word “customer”. There are cash-paying, no-agreement, always right customers one end all the way to the other extreme of qualifying customers after an application process. As far as the business relationship definition, try this on for size.

Tenants are Not Your Customers.

Try this mindset:

Your Tenants are Employees!

Think of them and treat them as highly valued employees. This should be a good thing. At the national conference mentioned earlier, the landlord who couldn’t accept this idea of tenants being employees vividly displayed his attitude that customers are more valuable than employees. Wow! What a horrible boss and leader.

Thinking of your tenants as your employees may generate a tremendous amount of very intense and emotional opinions. Your range of reaction to this comment is based on your experiences of the word “employee”. It’s great! Use it to your benefit. A very similar concept might be Dr. Stephen Covey’s paradigm shift of the position or role of boss vs. leader. If you are a boss and follow the stereotype role of boss as a dictator and the person who simply announces things to do, we can all grasp the tremendous amount of negative vibes associated with this kind of behavior.

On the other hand, if the “boss” has behavior more in line with a “leader”, the boss becomes more of a role model, a positive, respected, and friendly person. I’m not an expert on all of this stuff, but I’ve attended several courses on this subject and learned how to put these ideas and concepts into my real estate business. We can apply many of the same ideas in our world of real estate investing and dealing with tenants.

Keep an open mind here. Don’t fight or challenge this thought-provoking brainstorming session. On the surface, I’ll admit tenants are customers because we provide a product and/or service for a fee and they pay for it; however, how can you make it better, more profitable, more efficient? Here’s the education challenge. Instead of the typical landlord-tenant relationship, let’s make a relationship change to employer and employee. With your tenants becoming your employees, you become their “leader”. Interesting? Employees should be viewed as a great asset. Good employees enable your business to be profitable and should make your life easier, not harder. Try this exercise. Read the following statements and see if you can substitute the word “tenant” for the word “employee”.

• You should have a good relationship with good employees.
• Good employees are valuable.
• Exceptional employees should be rewarded for outstanding performance.
• Employees have responsibilities.
• Employees are expected to perform satisfactorily or suffer the consequences for poor performance.
• An employee who is a bad apple, can ruin the good apples.
• Allowing one employee to remain with poor performance can bring down performance and attitudes of good employees.
• Not treating all employees the same is not fair.
• Employee appreciation programs promote good performance, loyalty, productivity, and profit.
• Employee’s length of service should be a guideline of additional benefits to employees promoting employee retention.
• Outstanding or exceptional community service or personal achievements by employees or their immediate family members should be recognized.
• Employees with poor performance should be dealt with in a fair, consistent manner, including termination.
  Just like above, substitute the word “property manager” for the word “employer” and “tenant” for “employee”.
• Employer should be responsive to employees concerns.
• Employer should be a leader, not a boss.
• Employer has responsibilities along with consequences.

Got the idea? This attitude kind of opens a new attitude in dealing with tenants. Good, effective communication among responsible parties sets the stage for great results. I assume you really want to have the lifestyle of the successful real estate investor as played out on the infomercials on late night TV. Once again, it doesn’t matter if you have one or two investment properties or hundreds, this paradigm shift of thinking of tenants as highly prized valuable employees should really get you some long overdue results as seen on those infomercials.

Don’t keep this focus on tenants only. Spread it around. How about your own help? Office staff and maintenance staff should be treated as highly valuable employees. Your furnace person, electrician, plumber, roofer, lawn service provider, painter, carpet installer, carpenter, and so on. Here is an absolutely powerful and cheap way to reward your employees. Most investors I know have had a job or still have a job today. For those of you who are “unemployable”, go back with me for a moment to the days of punching the clock.

Think of the holiday season. From Thanksgiving to the end of the year, what happened to those folks (including myself) who have jobs in government or the corporate world? Holiday parties and more holiday parties were offered for the unit I worked for along with invitations to holiday parties for all of the other districts. It was almost a competition atmosphere about who could throw the most extravagant holiday party. The bragging rights for the best holiday bash usually went to the police district who had live entertainment, a dance floor, a huge hall, plenty of food, booze, beer, and even limousines! Sounds great doesn’t it?

Switch gears with me here for a moment. While I worked my full time job as a police officer and observed all of the free holiday events for me and my wife, I happened to hit the pause button and reflect on the holiday happenings of those who are valuable to me in my real estate investments. Remember my furnace person, electrician, plumber, garage killer, etc.? Most of these folks have mom and pop operations. (that’s why we use them because they are usually cheaper than the ones who have the full page ads in the yellow pages) What are they doing during the holidays and where are they going? Do they get invitations to any holiday bashes? I guess some do if their spouse has a job somewhere.

Here is what I do every year for my vendors, contractors, resident managers, and those who are an integral part to my real estate business. For the last several years I reserve the banquet room at a nice local Mexican restaurant for the Saturday before Christmas. We mail homemade full page simple invitations to the 8th Annual Vista Holiday Bash from 6pm to 10pm. They can bring their spouse or significant other. This banquet room also has a very small bar and we include an open bar as part of this annual holiday event. We’ve never had any issues of anyone abusing the open bar. In fact, my experience is just the opposite. These folks are not used to the extravagant holiday bashes and are very, very appreciative of this event to benefit them for free. In fact, every year they try to pay the bartender for their drink and are amazed when the bartender waives his hand and says “no charge”.

The restaurant has a “buffet style” of presenting the food on a portable steam table. Nothing fancy, pick and choose what you want and how much. From tortilla chips and hot cheese dip to beans, chicken, beef, and soft flour tortillas along with several vegetables and sauces. This covers almost every food tastes including vegetarians making me politically correct again. Good music, fun, food, and drink set the stage for these folks to network and have a good time. I usually take the floor around 7pm or so and introduce each and every vendor by name along with their product or service and a little light hearted humorous story on each person. This is powerful. I’m fortunate to have a garage killer who has outrageous stories and he usually grows into the center of attention before all is over.

These folks come from all backgrounds and dress accordingly. My electrician starts talking about this annual event in June of each year and said his wife really looks forward to it, even though she’s not much fun (his words, not mine). Okay, now the bad news. This annual event cost approximately $600 total. That’s right, room, food, booze, and tip for the waiter and bartender. Believe it or not, this is a nice restaurant just two blocks from my office.

The rewards and paybacks can’t be measured. Guess where I am on their list of valued customers. I’m willing to bet I am probably at the top of their list. I might not be the biggest, but I am probably one of their best. We’ve had a rash of horrible storms and tornadoes recently and guess where my tree guy put me on the list of next in line? I didn’t even have to call him. He called me asking where to go first! In addition to the great business relationship this kind of event promotes, it makes me feel like a million bucks to see the wonderful feeling of appreciation and value of the skills, trades, and workmanship of these folks. Several vendors told me no one has ever done this before. This is a great way to let those who make your business successful know that you really appreciate them, their work, and relationship. Not only doing a good job for you, they are a walking, talking billboard for your business – by referring tenants, sellers, loan customers, etc.

Work on this one now and start planning for your own event for this holiday season. I’d like to hear how your event works for you. Here is a helpful list of those to consider. Invite your banker(s), furnace person, electrician, plumber, carpenter, lawn service, resident manager(s), office manager, bookkeeper, CPA, attorney(s), siding and gutter person, tree service, pest control, roofer, insurance agent, highly valued real estate agent, auto mechanic, Section 8 inspector(s), helpful service clerk(s) at local hardware store, paint store, supply house, newspaper for your classified ads, your painter, garage killer, trash/junk hauler, and the person who lets you place your dumpster in their rear parking lot for free.

This is just a small list to assist you in identifying those who might be important links in your strong real estate chain. So remember, good employees are a good thing and make your life easier and more profitable.

He was featured in Money magazine, June 2001, in the article “Can Real Estate Make You Rich?”. Mike Butler is a Kentucky licensed real estate broker, a realtor, member of KREE, and a charter member of NARPM.

There are over 80 million lawsuits filed every year in the United States. Landlords and real estate investors are especially susceptible to liability. Are you a target? Are your assets easy to locate? Is your real estate titled in your name?

You wouldn’t walk around with a financial statement taped to your forehead would you? So why would you have your most valuable assets exposed to public scrutiny? Anyone can go down to the county courthouse or recorder’s office and look up the owner of any property. Real estate records are now computerized, so all of your real estate holdings can be located at the touch of a button!

Any mortgages on your property will be recorded as well. Most recorded mortgages will state the amount of the original principal balance and the date the mortgage payments began. All one has to do is figure out the balance of your mortgage and subtract that amount from the market value of your house. Bingo! Now they know how much equity you have and hence whether suing you is worthwhile.

If a tenant or creditor is contemplating suing you, he will make an appointment with a lawyer. Unless he can afford an attorney by the hour ($150 and up), he will likely seek a “contingency-fee” lawyer. A contingency-fee lawyer does not charge by the hour; he charges a percentage of whatever he collects. Most contingency-fee lawyers will not take a case unless there is something upon which to collect. If you have no real estate in your name, then finding out your ownership interest will not be easy for a typical lawyer. It’s not that lawyers are lazy. It’s simply a matter of allocation of resources; lawyers focus on cases they can win and collect. If they don’t find any assets in your name (and there is no other apparent “deep pocket”), they probably won’t take the case. As you can see, appearing “broke” is the best lawsuit-repellent money can buy!

There is another problem with owning real estate in your own name. If a judgment is obtained against you and filed in any county in which you own real estate, all real estate in that county will have a lien attached to it. You cannot sell or refinance any property in that county, since no title insurance company will guarantee a clean title. You’re stuck until you pay off the lien.

Some people use a corporation or limited liability company to hold title to their real estate. While these entities will protect you, they will not protect your property. If you own all of your properties in one corporation, a judgment against the corporation will create a lien on all property owned by the corporation. Furthermore, the directors and officers of a corporation are public record, so a corporation will not hide your ownership.

The solution for holding title to real estate is a land trust. A land trust is a revocable, living trust used to title ownership of real estate. Title to the property is held in the name of a trustee, who is forbidden to reveal the beneficial owner. The beneficial owner or “beneficiary” can be an individual, corporation or other entity for further protection. Land trusts were first used in Illinois, hence the nickname, “Illinois Land Trust.” In nine states (AL, FL, GA, HI, IL, IN, ND and VA), land trusts are specifically recognized by statute. In most other states the validity of land trusts are supported by common law and general trust principles (land trusts are not recognized in TN & LA).

A land trust, if properly setup and implemented, will hide your name from the public records. No one will know who owns the property but you, your attorney and the trustee. If a judgment is entered against you, a lien will not automatically attach to the property, since title is not in your name.

A transfer of realty into a land trust virtually no income tax consequences. A land trust is considered a revocable “grantor” trust under the Internal Revenue Code, so it does not require a separate tax identification number or income tax return. Thus, you continue report the property for income tax purposes as though you still own it. Furthermore, a transfer of property into a land trust will not usually trigger the “due on sale” clause of your mortgage.

A land trust will allow you to assume an FHA or VA loan without recourse. Anyone can assume an old FHA or VA loan without qualifying, but few investors realize that such an assumption is with recourse. If the investor sells the property and the buyer assumes then defaults on the loan, the investor (and anyone else who previously assumed the loan) may be held liable. If a land trust is established to take title to the property and assume the loan, there is no recourse against the beneficiary. Furthermore, the loan will not appear on the beneficiary’s credit report as a liability. So What are your waiting for?

Get that Property Out of Your Name!

William Bronchick, CEO of Legalwiz Publications, is a Nationally-known attorney, author, entrepreneur and speaker. Mr. Bronchick has been practicing law and real estate since 1990, having been involved in over 600 transactions. He has appeared as a guest on numerous radio and television talk shows including CNBC Power Lunch. He has been featured in Who’s Who in American Business, Money Magazine, the Los Angeles Times and the Denver Business Journal. William Bronchick has served as President of the Colorado Association of Real Estate Investors since 1996.

Q: We’ve come across some problems we thought your readers might also be encountering, hence this note to you for your consideration in possibly addressing the below subjects in your newsletter. The past 2 weeks have been really frustrating as I have been stood up by prospects at scheduled showings 8 times. We try to prequalify interested prospects over the phone, explaining our screening process, up front money needed, the lease/option as a way to become a homeowner, etc. We always ask if they have driven by the property and also tell all prospects when scheduling a showing to please call if they need to cancel. Of 11 scheduled showings, I actually had one show up, two had the decency to call me and cancel, and 8 just failed to show.

Let me start by saying that you’re doing one major thing exactly right: having the applicant drive by the property before you show it to them. This policy has really cut down the time I spend standing on the porch, waiting to be stood up. Part of your “no show” problem might be your pre-screening process. I’ve noticed that most prospective tenants will not say to your face, “I can’t afford that payment” or “I don’t understand the lease/option”. So rather than tell them about your requirements, you should ask them about their qualifications. For example, when you say, “You have to earn $2,000 a month to qualify”, the caller is unlikely to admit that they don’t, because they’re embarrassed. Ditto when you say that they have to have $1500 up front. Instead, they’ll go ahead and make an appointment they have no intention of keeping. So a better plan for you is to ask a series of questions: “What is your total household income before taxes?”, “How much do you have to invest?”, “Why are you moving?”, etc. (For fair housing reasons, it’s a good idea to print these questions out, have them put into a pad, and actually fill out the form for each caller. This avoids the appearance that you are trying to dissuade some callers and not others).

Any applicant who does not pass this pre-screening should just be told so, right then, by you. If you want to soften the blow some, you can use the line that my assistant always does, which is, “The owners have a very strict policy about income, and you don’t meet the guidelines. I wouldn’t want to waste your time or your $20 on this house, but would you like me to call you about others?”

I have been told by fair housing advocates that, before giving this little speech to any caller, you should double check that they do not have additional income that they’re not mentioning. Also, if the caller insists on seeing the property anyway, it’s a good idea to show it to him…just tag him onto another showing that you already have (see next question for more details).

Another good question to ask is, “Have you ever lease/optioned a home before?” If the answer is no, you can do your little spiel about how a lease/option works, then end with “Well, I’m not sure I explained that very well—I’ll have some information about how it works at the house” (and, of course, have the information available when they get there). This way, you take the blame for the fact that they don’t understand, and assures them that they WILL understand prior to making a commitment. If you’re concerned about asking questions about people’s income and motives, get over it. The ones who get offended are the last people you want to make an appointment with, anyway.

We considered blocking out a set period of time each week (say Saturday from 11 a.m. to 1 p.m.) but I’m trying to be customer friendly and I’m afraid that the work schedules of our prospects would preclude them from making it to the set “open house.”
There is a way to accomplish both: when a caller sets an appointment at, say, Wednesday at 6:00 p.m., tell the next caller that you’ll be there Wednesday at 6. If that time doesn’t work for him, set up Friday at 5 (or whatever). Now you have two times during the week when you know you’ll be at the property anyway, so try to plug everyone else into those times. Being “customer friendly” is always a good idea, but making your schedule around those of the your potential tenants is a very bad one. You can appear to be accommodating them without inconveniencing yourself by offering several appointment times. Believe me, they don’t appreciate you any more because you jump when they say jump. In fact, it sets a tone for the rest of your relationship that you probably don’t want to encourage.

A suggestion on an internet site suggested that I require a prospect to call to confirm an hour prior to any scheduled showing, but I’m not comfortable doing that—to me it sends the message that I regard all prospective tenants as being too immature to keep appointments. Clearly, they are too immature to keep appointments, so I don’t know why you’d feel bad. But if it makes you feel better about this policy (which is a great one, by the way), tell prospects that you always forget appointments, so they need to call you an hour before to remind you to show up. Remember, the point here is to save your valuable time, NOT to make the lives of your prospects easy. Another issue we have come across is prospects who take an application and never return it. They seem excited about the property when they leave, and promise to get the completed application back to us in a day or two, then we never hear from them. We had an open house and had 4 couples that seemed to have genuine interest, but none returned the apps. Should we be doing follow-up calls?

Yes, you should be doing follow-up calls not only to the people who took applications, but to the people who didn’t. This is the best way to get feedback as to what your customers like and dislike about your property. I can speculate all day as to why your folks aren’t returning the apps, but the only ones who can really tell you are, well, the folks who aren’t returning the apps! My guess in the case of the open house is that each of the 4 couples believed that they had no chance of getting the house because 3 other people were clearly interested in it. And, by the way, it’s a good policy to try to get people to fill out the application onsite rather than return it to you. In your pre-screening, you might tell potential applicants to bring a driver’s license or photo ID and a $20 application fee in the form of a certified check, money order, or cash. This way, they can actually apply before they have second thoughts, see another property, or just get distracted.

One final concern is the quality of applicants. It seems like from mid-December through January (now), the only applications we are getting are from people with Beacon Scores of 500, awful references, and recent felonies. Are things usually slow this time of year? Is it the economy? The phase of the moon? My haircut? —WHS, Cincinnati, via fax. You didn’t mention whether you are dealing with one property or several. Nor did you say what the condition and price range of the property is. These sorts of details would tell me a lot about why you might be having bad luck with applicants. Lower priced properties, particularly those in not-so-great condition, draw the types of applicants who stand you up and who aren’t worth having. Dirty or smelly houses in any price range do the same.

I can’t speak to the effect of your haircut (although if it’s bad enough to merit consideration, you might want to think about a change), but I can tell you that good applicants at this time of year are few and far between. Think about it: what kind of person moves just before Christmas? Answer: the kind of person who has to. Who moves around the first of the year? Answer: people who spent their December rent on Christmas presents. I kid you not—this is a tough time to find good tenant/buyers, and a common time to lose existing tenants to the commercialization of Christmas. It seems as if you are mostly doing the right thing, but you need to get over this idea that the prospective tenant’s time is more valuable—or even AS valuable—as yours. When you give people that impression, you’re giving them permission to take advantage of your time now and in the future. Repeat after me: “I am in control here… I am in control here… I am in control here…”

Vena is a frequent guest lecturer at real estate investment groups throughout the country, and particularly enjoys working with new investors. Vena frequently authors articles on real estate investment and the regulatory environment for various newsletters and publications, including The Real Deal, her own monthly newsletter. She has been a guest speaker at the Cato Institute in Washington, D.C., lecturing on the effects of lead-based paint regulation on small investors. And in her spare time, Vena hosts a popular weekly call-in radio program on public radio. Real Life Real Estate Investing can be heard throughout the Midwest and throughout the world on the Internet (WNKU.org) Wednesdays from 5:00-6:00 PM EDT.

Vena Jones-Cox is a past president of the Real Estate Investor’s Association of Cincinnati, the Ohio Real Estate Investor’s Association, and the National Real Estate Investor’s Association. She intends to form the International and, eventually, Pan-Galactic Real Estate Investors Associations so she can be president of those, too. Vena Jones-Cox has been featured in publications such as The Cincinnati Enquirer, Smart Money Magazine, Money Magazine and Reader’s Digest in articles about successful real estate entrepreneurs.

However…

If you are not certain whether the tenant has abandoned the property, you should not change the locks. If you have the keys, you could enter the premises, but knock first. Whether or not the tenant has abandoned is often a judgment call, looking at a combination of factors, such as:

• Did the neighbors see them move?
• Are the utilities shut off?
• Did the tenant put in a change of address at the post office?
• Is there any significant furniture left?
• If you have access, are there sheets on the beds?

In some cases, the tenant has been arrested or is in the hospital, which would explain why he hasn’t been around. Or, maybe the tenant has moved, but left behind some furniture to pick up later on. Even if the tenant is not sleeping there, they are still “in possession” if they have their personal belongings in the unit and have not shown an intent to abandon these items.

Some states have specific laws regarding presumptions of abandonment. For example, Connecticut law states:

Sec. 47a-11b. Abandonment of Unit by Occupants. Landlord’s Remedies.
(a) For the purposes of this section, “abandonment” means the occupants have vacated the premises without notice to the landlord and do not intend to return, which intention may be evidenced by the removal by the occupants or their agent of substantially all of their possessions and personal effects from the premises and either

(1) nonpayment of rent for more than two months or

(2) an express statement by the occupants that they do not intend to occupy the premises after a specified date.

If you do intend to claim abandonment, take pictures, gather evidence and cover all bases to prepare for a possible wrongful lockout claim. If you have any doubts, call your landlord-tenant attorney and do the proper legal eviction proceeding.

by Bill Bronchick

William Bronchick, CEO of Legalwiz Publications, is a Nationally-known attorney, author, entrepreneur and speaker. Mr. Bronchick has been practicing law and real estate since 1990, having been involved in over 600 transactions. He has appeared as a guest on numerous radio and television talk shows including CNBC Power Lunch. He has been featured in Who’s Who in American Business, Money Magazine, the Los Angeles Times and the Denver Business Journal. William Bronchick has served as President of the Colorado Association of Real Estate Investors since 1996.