Month: February 2016

How To Work With Section 8


Spencer Sutton - Thursday, February 25, 2016

Retro style image of two business partners each placing one matching piece of puzzle on a textured wooden table. Conceptual of cooperation innovation and success.

Do you want to know how to work with Section 8?

There is a right way…and there’s a wrong way!

screen-shot-wayne

In this post I am interviewing one of our property managers, Wayne McGinnis. The great thing about Wayne is that he is not only a tremendous property manager, but he’s also a former Birmingham Section 8 Inspector.

This gives him what I like to call ‘Street Cred‘.

Here’s the transcript of our conversation where he will discuss ‘How to Work with Section 8‘ in depth:

Spencer: Back when I was involved in buying/selling houses as an investor, and eventually managing rentals, I had a love-hate relationship with Section 8.

When I would buy houses and keep them for rental, Section 8 always sounded great…but I always ended up jumping through a lot of hoops and waiting on paperwork.

I’m not a very patient guy in that regard, so it was tough.

But once I got the tenant in the house, I knew that subsidy is going to be paid every single month.

I even had a tenant on Section 8 where she was getting a majority of her $724 rent paid through Section 8. But slowly she worked herself out of the system and she was paying 95% of the rent herself.

I believe is the whole point of the program.

But Wayne was an inspector with Section 8, so I know that he probably inspected some of my houses back in the day.

There are a lot of questions that investors have when it comes to working with Section 8. So I’ve asked him to talk to us how investors need to work with Section 8.

Okay, Wayne…I’m an investor, I buy a house, what do I need to know about working with Section 8?

How can I best work with Section 8?

Hands Holding Teamwork Cooperation Togetherness Concept

1. Build a relationship with them – If you want to have any kind of success within Section 8, you’ve got to build a relationship with the caseworkers and inspectors. The inspectors you’re going to be able to get on the phone. They are your gateway to the caseworkers and how best to deal with Section 8.

Through that relationship, they’re going to be able to get you in front of those people first hand. They will line things up for you that you would normally not get lined up. So that’s first and foremost what I say, is have a relationship.

2. Do your homework on their guidelines – You can go online and you can research the guidelines. You can research what the housing quality standards are. You can research what the housing choice voucher is, and how it works. You can even research for your area what Section 8 is paying every February based on the bedroom size, based on the subsidy size, based on the tenant’s voucher. So you can see max subsidy averages, like the most they’re going to pay.

Students doing homework and preparing exam at university closeup of young man writing in college library

So if you’re working with Birmingham Section 8, you’re going to see federal guidelines that come out every February. When they roll out every February, you’re going to see the guidelines that the government has said is an appropriate standard for a two-bedroom, a three-bedroom, a four-bedroom, a studio, or one-bedroom. Whatever the case may be, you’re going to see what the maximum amount of rent is you’re going to get for that place, regardless of what the tenant’s income is.

So there is a cap on each one of those. But that helps you understand when you’re looking at what I could potentially get through my house through Section 8 subsidy. You’ll know there’s a max there, so if you get the right tenant maybe you’ll get the full subsidy.

Spencer: So does it depend on the tenant? That’s how you get the max amount, or does it depend on some other variation?

Wayne: Well, actually anybody will tell you there’s a formula that not even the case workers or the directors understand. You know, they plug it into a program and the program spits them out a number.

But the best rule of thumb is if you have a tenant who has money, who has income, Section 8 is going to pay at least 1/3 of what they have coming in. So let’s just say your house is $700 dollars, the tenant may pay $400 of it and the subsidy may be $300 of it.

Or the less amount of money that a tenant has coming in, the greater the subsidy. So sometimes a tenant who falls on hard times will go below that standard and the government will have to raise the subsidy, or the housing authority, in order to meet the tenants needs so that the two can come together.

I used to call it the magical formula. There is nothing dead set it stone about any of it. That’s why a lot of people get confused because when they receive a voucher from someone, they receive a RFTA (Request for Tenancy Approval) and see that the tenant has a two-bedroom or three-bedroom voucher. They may be asking $750 for the house but they don’t know if the tenant can come up with $750 for the house.

The main point is you always want to pay attention to the max rent subsidy for that tenant.

This prospective tenant will be able to show line item by line item how much they are subsided for utilities, how much they are subsidized for their portion of what the government is going to pay, and it will show you what their portion is towards the house contract. And they total that number up at the bottom so you see a max subsidy.

So if someone comes in and they say they want to rent a $1,250 house and they have a $1,250 max subsidy, then you know that there’s no way they’re going to be in the ballpark of that $1,250 that you’re looking for.

Then you have a choice. You can drop the price or you don’t have to work with them at all because Section 8 is not a protected class.

Spencer: I remember when I was renting out my own houses, Section 8 tenants would come to me and say, “I really want your house but I’m only approved for $650. Your house is renting for $750. I’ll pay you the additional $100 per month above and beyond the subsidy and what I’m approved for.”

Why is that not a good idea for owners to take?

Wayne: Definitely not a good idea for owners because it is illegal. It is breaking a federal law and you can be fined and you can serve federal prison time for breaking that law. A tenant cannot pay over and above what their subsidy is for anything.

Everything has to be clear-cut.

What the lease is and what’s in the HAP contract have to match. Everything you do needs to be upfront, ethical, and legal!

If you accept payment above and beyond the agreement, the tenant will lose their portion, they will lose their voucher, and you will end up with a tenant squatting in your house for a while until they find somewhere else to go.

And they don’t have anything to lose because there’s nothing holding them to the house anymore.

Spencer: What are you going to do if accept that extra $200 because you want a certain amount for their house…and then all of a sudden the tenant stops paying that extra $200 every month?

You really can’t do anything about it because it’s not in the lease, it’s not on record with Section 8, and it’s against the law…at this point you’ve got a problem. That’s when you go ahead and accept a lower payment every month because you can’t evict the tenant for non payment when it’s not reflected in the lease and HAP contract.

3. Make sure your house is rent ready before the inspector visits the property – There’s nothing that makes an inspector more upset than when an investor calls and says, “My property ready for inspection.” but it’s not near ready to be inspected.

A man in a hard hat standing in front of an old rundown house holding a clipboard in his hand.

The inspector will go out and the utilities are off. Any utility; gas. water, power, anything that’s going to be on in your name, the owner, has to be on at the time that they do the inspection.

Most inspectors, if one of those utilities is not on, is going to turn and walk away because they’re going to feel like you didn’t really take the time to do your job, so why should they take the time to when they know they’re going to have to come back three or four times?

Essentially you’ve just wasted their time.

There are so many inspections that need to be done by the section 8 inspectors. Some of them do 20 a day and they don’t have time to keep coming back to the same property over and over.

If your house is ready, even if it’s just 90% ready, they’re going to see that you are trying to work with them.

The main thing that offends a lot of the inspectors is when they really feel like you don’t care about working with them, and you treat them like they’re an unimportant piece of the puzzle.

Again, it’s going back to building a relationship. If you don’t care about their part of the puzzle, they’re not as likely to care about your a part of the puzzle when it comes down to it.

So make sure your house is ready.

We have Section 8 Pre-inspection list that we give all of our maintenance guys that simplifies what they need to pay special attention to when completing the work.

In conclusion

Here’s how you work with Section 8:

  1. Build a great relationship with your section 8 inspector and department, whatever municipality, whatever section 8 officer you are working with.
  2. Do your homework. Understand what is required of Section 8. Understand all of the max subsidy for your particular Section 8 offices. Do your homework. Understand these things on the front end.
  3. Make sure your house is ready before you ask an inspector to visit your house.

How Do I Know if My Landlord is Legit?


Matthew Whitaker - Tuesday, February 23, 2016

How do you know if your landlord is legit?

This is a serious issue that you need to resolve before you lease a house. In this video, Matthew Whitaker is going to walk us through three reasons why it’s important and then three ways you can tell if your landlord is ‘legit’.

How Do I Know If My Landlord Is Legit





Understanding if your landlord is ‘legit’ is a big deal. In this video Matthew will walk through three reason WHY you need to know and then three WAYS to tell if your landlord is legit.

Hey, everybody. My name is Matthew Whitaker, and I’m the Birmingham Team Leader here at GKHouses.com, and I want to talk to you about a question that I think the tenants need to be asking more is, “How do I know if my landlord is legit?”

I’m going to outline three reasons why first.

Why you need to know whether your landlord is legit.

  1. The first reason is safety. The last thing you want to do is move into a home where you don’t feel safe. And so one of the things that a property manager like us is very focused on is making sure that we’re providing a safe place for our tenants to live. Now, that may mean a safe place from a crime standpoint, it means a safe place from a system standpoint, like electrical systems, plumbing systems. Our goal ultimately is safety.
  2. The second thing would be maintenance. You want to make sure that maintenance items are taken care of in an appropriate manner. So that’s the second reason why. That’s the reason you’re going to leave a house is because of maintenance, if maintenance items aren’t taken care of quickly.
  3. The last reason is foreclosure. We live in a town where there’s a lot of people getting foreclosed on, and if you go with a reputable, legit property manager, they’re going to kind of insulate you from this whole idea of the owner is getting foreclosed on. Now, they can’t protect you from getting foreclosed on, from that house getting foreclosed on, but I think it’s very important that they’ll be able to protect you from the fact of disclosing things to you, giving you some of the appropriate information, and then also accounting for your security deposits so that a landlord that is getting foreclosed on doesn’t run off with your security deposit.

All right. The next thing we’ll look at is the how to tell.

What are three great ways you can tell if your landlord is legit?

The first thing is to go check with your real estate commission, with the State Real Estate Commission. Most property managers are required to be licensed brokerages of the Real Estate Commission. That means that they’re licensed agents, they have licensed real estate brokers. That’s a very easy way to find out if your landlord is legit.

The second thing I say is go to their office. If you’re worried about this, do they have an office? Do they have a place where you can go talk to somebody? I think that’s very important that they have a location where you can get in front of somebody if this is a fear of yours.

And the third way is testimonials. We’re connected via the internet these days. So I think it’s very important for you to be able to go out and find some information on these landlords whether they’re legit or not. Now, certainly landlords, we’re in a very conflicted business, so you’ll probably find some positives and some negatives about landlords, but the important thing is if there are testimonials about them, then you’ll know that they’re probably a legit landlord.

So again, this video is entitled, How to Know If Your Landlord Is Legit. We urge you to find out if your landlord is legit because I think safety, maintenance and protect you from foreclosure. So I think it’s very important for you to do that.

My Tenant is Always Late with Rent – What Should I Do?


Matthew Whitaker - Friday, February 19, 2016

Businessman breaking stone wall with karate kick

My Tenant Is Always Late with Rent…What Should I Do?

So you have a tenant that keeps paying rent late?

You may have a really big problem or you may have a really great tenant! This article will explore how to know the difference between a problem tenant who pays late and a good tenant who pays late.

Let me start with a story. . .

When I first got into the business I used to get really worked up about tenants paying late. It certainly would be much easier if they would just pay me the money on time and spare me the time and effort of collecting.

I grew more and more frustrated when one of my tenants, who was moved in my house from an insurance company, didn’t keep paying when the insurance company quit paying.

They kept telling me that their house wasn’t ready, like, “Hey buddy, I isn’t my fault I’m not paying your rent!” Nobody took responsibility and thus I lost out on a lot of money.

Truth be told, I didn’t know the difference between a good late payer and a bad late payer. Hopefully you will shortly so you don’t make the same mistakes I made.

Let’s take a look first at the benefits of a good late payer and what a good one looks like. First, think of how great it would be if you collected both your rent and your late fee every month.

Did you know that is what a good late payer does?

business, finance, saving, banking and people concept - close up of woman hands counting us dollar money

They know they are late and fully expect to pay the late fee for the benefit of being able to pay late. At gkhouses.com, we’ve had tenants who stayed years and consistently paid at or near the last day of the month. Can you believe it?

My point to them is that they should figure out a way to get one month’s rent and get ahead – I’ve even said to them, “You know we take money in advance of the first of the month, right?”.

It doesn’t matter, they will pay that day along with the late fee as long as they live there.

So how do you know if a late payer is going to be a good late payer? Here are a couple of pro tips:

 

  1. They pay predictably – I think this is the key indicator of a great late payer. They predictably pay on a certain day or a certain time of the month. Perhaps it is the last Friday of the month or the 15th of the month. Either way, they are very consistent about when they get the money to you.
  2. The communicate when things change – I don’t have a problem with people being late. If something unpredictable has happened, it is most important to me that they tell me what is going on. I think most people don’t do this because they are embarrassed. I think it is important for you to not look down on them if they are late. Perhaps someone got sick and they had medical bills, or their car broke down. There are a lot of reasons a perfectly good tenant may be late with their rent. The important thing is that they communicate with you.
  3. They live up to promises they make – Once someone communicates a date they will have the money into you, do they do it? If so, that is a great sign they are a good late payer.
  4. They take care of the home – You know you can tell a lot about how well someone keeps the rest of their lives by the house they keep. If they take good care of the home, you can imagine that they probably take the same care with their finances and this is just a hiccup along the way. I can’t recall ever having to evict someone who kept a neat and tidy house.

I’d use the above four items as a checklist if I was evaluating a late payer. If you can objectively answer to the tenant’s benefit in all four, you probably have a great tenant and should rest a bit knowing that your rent will be paid.

Let’s dive into the problem late payer.

I wish I had a percentage of the good late payers to the bad late payers, but I don’t. I think it is important to know what a bad late payer is so you can get them out quickly before you lose too much money.

So what does one look like? It is basically the opposite of the four above, but let’s look at it any way.

  1. Their payments aren’t predictable in either date or amount – A bad late payer pays $400 here and $250 there and then brings in a big amount of $2000 at another random time. Bad late payers are scraping money and when they do this they continue to fall further and further behind. They stay just enough in the grey area for you that they are hard to get rid of, but you spend a lot of emotional energy collecting from them.
  2. They don’t communicate – If you’ve attempted to call, text, email and carrier pigeon and they don’t respond, then you can bet they are a bad payer. It is very frustrating attempting to get in contact with them.
  3. I promise text concept write on notebookThey make promises and they don’t live up to them – When you finally meet them out in front of the house or call from your best friend’s uncle’s phone because they have all your other numbers, they will tell you exactly what you want to hear. They get paid on Friday and they are going to come see you first thing. Then Friday rolls around and you’re anxiously awaiting their arrival and they never come. This is a sure sign of a bad payer.
  4. You don’t recognize your home when you drive by – Remember how you turned the home over to them? Perfectly manicured grass and professionally cleaned carpets? Now you drive by and swear it can’t be the same house. If someone can’t keep their home life together, typically they can’t keep their finances together. They are directly related, but they are pretty dang close!

I spent a lot of time making poor decisions to get to the point of understanding what I’m sharing with you above. If you’ve decided after reading this article that you definitely have a bad payer, please see our article on how to get them out. If you’ve decided you probably have good late payer, congratulations! That is not entirely a bad thing.

The last thing I’d like to say is that we’ve had good late payers become bad late payers. Some things that may happen in their life that would cause this are:

  • Losing a job.
  • Getting into a toxic relationship – this could mean romantically or hanging out with the wrong friends.
  • Become sick for a long period of time.

Bottom line, just because you’ve decided today they are a good late payer, this doesn’t mean you need to take your hand off the wheel. Property management is a full time business.

You owe it to yourself to manage your property like a business and when a tenant is late with rent, understand if they are a good payer or a bad payer.

How To Make Sure Your Tenant Moves In Happy [VIDEO]


Spencer Sutton - Thursday, February 18, 2016

Walking through your rental property just prior to a tenant moving in is critical.

We have discovered that setting the relationship off on the right foot will determine how a tenant views you as a landlord for the remainder of the lease.

If they move in and there are several items broken or other problems, they will view you through that lens from that point forward.

In this video, we will walk you through our typical move-in process and what we look for just two days before a tenant moves into one of our rental houses. Below the video is a full transcript.

Pre Move In Walk Through





Do you want to make sure your tenant is happy when they move into your rental house? Then you need to watch this video. After moving in thousands of tenants into our houses, we know what to look for a…

Spencer: All right, everyone. My name is Spencer Sutton with gkhouses. We are at a rental property that has recently been leased. And I’m here with one of our property managers, his name is Wayne McGinnis, and what Wayne’s going to be doing is giving a “move-in walk-through.”

So, the lease has been signed, deposit has been paid, first month’s rent has been paid, but the tenant is not moving in for another two days.

And so what we like to do is we like to walk-through the house, just to make sure everything is working, everything is the way it’s supposed to be, so that when they do move in in two days, it’s a very good experience for that tenant and that we’ve taken care of everything.

So, I’m going to get behind the camera and I’m going to just follow Wayne through this house and we’re just going to see exactly what he looks for, and he’s going to walk us through that whole process. So here we go.

Wayne: Hey, I’m Wayne McGinnis with GK Houses. I manage the eastern side of town, everything east of 65 and this is one of our houses in Moody, that we’re going to walk through today with Spencer, and we’re going to walk-through and make sure that everything’s good and ready for the tenant to move in.

All this kind of stuff that’s been left is not good.

Actually should have caught this previously but this why we do these walk-throughs, to make sure that any little things that got left get caught before the tenant moves in, because we don’t want them to move in and see stuff like this, that they don’t want to have.

Obviously things like tile that are used to replace in case there’s a crack in the kitchen floor, any paint that we’re using on the home that we want to leave if we can and doesn’t bother the tenant so that we can do proper touch-ups if we have to in the future.

Everything else, like this kind of stuff, is garbage, and we’re going to get rid of it today so that when the tenant moves in in two days, it’s not here in their way.

All right, now that we’ve disposed of the garbage and stuff that was in the garage, we’re going to look in here and check to see if it’s closet or bathroom, we’re going to make sure all the doors open and close properly without sticking.

Make sure all the lights are working. Make sure the fans are working. We also want to make sure that the toilet is secure, that it’s flushing correctly.

We want to make sure the cold and the hot water are working, and we give a minute to make sure the water gets hot.

And here we have the furnace. Everything is clean.

We do have some leftover parts that we’ll leave just in case the condensation line ever has any problems, we’ll have some pieces to work with. But all in all we want to make sure this area is clean. There’s no dirt piling up all over the floor.

We just want a clean room even though it’s a furnace room because it’s part of the house.

We always want to make sure that this is not caked up. The filter is not clogged before the tenant moves in, so that they have a nice used filter.

We want to check the thermostat and make sure everything is working properly.

And we’re going to check the sink, make sure everything is draining properly.

So when you hate it for the tenant to move in, and find that the garbage disposal is not working on day one. So we will make a list of this and have it repaired before the tenant moves in.

We want to check the refrigerator and freezer, make sure it’s clean.

Spencer: Okay. As Wayne is going through his move-in walk-through, really what we’re trying to do is cut down on any kind of maintenance costs that a tenant would have.

So as you can see, Wayne’s been checking the garbage disposal which we found out is not working, so we’re going to get somebody to have a look at that.

But to check the microwave, check in the refrigerator, look at the dishwasher, make sure the garage door is opening, all these things are very important.

Just every little thing that typically a homeowner would not really think about, I know I wouldn’t at my house, but we need to check to make sure everything is working properly.

Or else, we’re going to get a maintenance call that something’s not right and we’ll have to come back out and fix it. So we’re just trying to cut down on that because when a tenant moves in, if everything’s working, then they’re going to be happy.

They’re going to be excited to be in this nice house and we’re going to be excited to manage it for them.

Wayne: When the last tenant moved out, we had to replace the carpet on this area right here. And it shows that we tried to get as close a match as possible to what’s here, all this was clean.

So it still looks a little dark but I think we got a close match, which is really good.

That’s what you don’t want to happen when you’re dealing with electricity. Apparently there’s a wiring shortage in the ceiling fan, which I have now shut the power off to and we’re going to have to make sure that that gets taken care of before the tenant moves in.

All right, checking the door on the master bathroom. Coming in, a really nice bathroom here.

And it’s showing signs of water damage. This was not here during our move-out report, nor during our inspection, nor during our final punch list.

So I’m concerned that the shingle or something had blown off. Again, it’s why it’s great that we do these make ready move-in walk-throughs to make sure that the tenant doesn’t move in and have these questions before we do.

And like the bathroom, usually if a leak is going to happen, it’s going to be somewhere you can’t see it, nine times out of ten. No real explanation for that but if you don’t look it up in the closet, you’ll never see it.

We want all the doors to latch properly. We want them to open and close without any problems for the tenant.

Self Management vs Property Management


Matthew Whitaker - Wednesday, February 17, 2016

business, people, fail, paperwork and technology concept - businessman with laptop computer and papers working in office

Self Management vs. Property Manager – How do you know when it is time to fire yourself?

The title of this article makes me chuckle because of all the times I’ve wanted to quit managing properties and all the burned out owners I’ve discussed us managing their property when they’ve reached a point that they can’t take it any more.

We just took over management of 20 properties that had been self managed for a long period of time. At some point the owner (a local attorney) made the decision that his time was worth more than what he was saving by self-managing.

Property management is a hard business. Did you hear that? It may make you feel better to know that even a property manager thinks it is a hard business. Being a property manager means you are in the middle of conflict or something breaking all the time.

So, don’t feel bad, you just need to understand that this is what a property manager does for a living. The constant breaking (at the wrong time) or conflict (when you should be working at your day job) is enough to make any self managing landlord burn out.

So how do you know when self managing isn’t right for you anymore and it may even be costing you money (and not just in Advil)? Let’s take a look at the signs I’ve seen . . .

  1. You become way too lenient with the tenant paying rent. I heard a recent story from Nick in our owner sales department about a lady who was “friended” by her tenant on Facebook. She thought that accepting it was innocent enough.Then Christmas rolled around and her tenant was behind on the rent. Frustrated, she wasn’t getting communicated with, so she got on Facebook to instant message her through their system. Low and behold she did have money, but she spent it buying everyone Christmas presents – and she wasn’t hiding it because the pictures were all over her Facebook profile.Needless to say, she decided she didn’t have the emotional fortitude to be in the collection business any more and called us. This is probably the number one sign of things beginning to slip and you getting burned out. If a tenant is taking advantage of you and you don’t have the time or the emotional energy to do something about it, you probably need to hire a professional.

    Lastly, our Nashville Broker, Charles Jeter, says, “If you can’t evict someone on Christmas Eve, then you don’t need to be in the property management business.” This is probably a bit of a stretch, but you get the point.

  2. The tenant calls and you aren’t motivated to answer the phone. This is also a beginning of the spiral down. You look down at your phone and your heart sinks because you know you are about to deal with a problem. Remember tenants leave when their needs are being met. If you aren’t answering and handling maintenance calls, then you are going to create a problem for yourself. The tenant will leave and you will create more work for yourself.
  3. You get tired of handling prospective tenant calls and meeting them to show the house. This is perhaps the most dangerous of all, because I really believe that leasing homes is a “numbers game and a people business”. As soon as you get tired of showing the home, you are much more likely to just stick anyone in your home – and that is a problem. If you find yourself becoming slack on the discipline of the leasing process, you need to employ a professional manager (or sell the house)!
  4. Your time is worth more money than paying someone to handle it. Many times people get into self-managing to save money they need and money is so tight they really can’t afford to have the luxury of a property manager. But, as their income has improved, they take a step back one day and realize being a manager is actually costing them money. Losing money managing property is a crazy.
  5. Businesswoman climbs the stairs to collect money from the money tree.

    You can make more money doing other things. This is very similar to the one above, but this is speaking specifically to investors of rental homes. If you enjoy the “art of the deal” and would rather be in the market purchasing more properties, then self managing may be keeping you from finding all the deals. If you purchased one more house per year with your freed up time, then you would be financially way ahead of self managing. Particularly, over the course of 3-5 years.

Firing yourself can be a tough thing. Paying someone else to do something you’ve done yourself for a long time is also a tough thing. “What does a property manager even do?” you ask. We wrote an article describing what services a property manager does and the costs associated with it.

One of the truths I’ve learned in owning a rental property is that you should constantly be analyzing your situation. What are my opportunity costs? What I get property management done for? If you aren’t constantly re-analyzing your situation then you will end up in a place that you never intended on ending up. I suggest you take a hard look at your situation and decided if self managing over professional property management is right for you.

What Do I Need For My Rental Application?


Matthew Whitaker - Tuesday, February 16, 2016

Hey everybody, a question we get a lot is what do I need for my rental application?

We filmed a short video to share a short video, tell you what you need before you fill out an application.

What Do I Need For My Rental Application?





Rental applications can sometimes be confusing. And a well put together property manager will have a very disciplined underwriting process. In this video we walk you through exactly what you need to m…

First of all, you need to know there’s two ways to fill out an application with us.

  1. The one we highly suggest is to fill one out online. Obviously, you can do that right here from this page by just clicking the online application button.
  2. We do have paper applications. You can download them from our site, you can get them at our office, but we always say hey, it’d be much easier for you to fill it out online. It goes directly to the source that underwrites the application.

Those are our two ways to fill out an application.

We look for five things when we are underwriting an application. I want to hit those real fast. They are actually written here on this document, right there.

1. The first thing is we look at your credit score. We determine that based on the price of the house. If it’s an 800 or below house, we look for a 520 credit score. If it’s 800 or above, we look for a 580 credit score. There is a way you can submit an extra deposit if you fall below those credit scores, but look at the site for that for more information.

2. The second thing we look for is simply a favorable work history. We want to know that you have consistently held a job, and/or have a job today. We’re going to verify that employment. So one of the things you would need is to be able to tell your employer that we’re going to call. Give us the information, give us accurate information. Some people use the work number. Let us know when your employer uses that. It’s very important to get us the right information.

3. The next thing is a favorable rent history. Obviously, we want to know that you’ve been a great tenant, paid rent on time, taking care of the house, the last house, the last few houses that you’re at. We’re going to call one, possibly two, previous landlords. So we urge you to put the correct contact information for getting in touch with those landlords. Obviously, that’s something that holds up the process if we’re not able to call your landlord and verify. If it’s the wrong number, we can’t get in touch with them. That’s something that would hold up the process. So making sure that we have very good landlord information.

4. The fourth thing is showing ability to pay. This is where you would bring your check stubs. Very important for you to provide that information for us. If we have to go find it, that’s going to hold up your process. We look for three times the gross monthly rent and income. Let’s say, the house rent is for a $1000 a month. If the house rent is for a $1000 a month, we want to know that you make $3000 a month in income.

5. The last thing we look for is a criminal background check. We look for a history of violent felonies, and we want to make sure that there’s no consistent violent misdemeanors. If you committed a non-violent felony over 10 years ago, you’re fine, that’s not going to affect whether you rent from us. The other thing is we just want make sure there’s no consistent violent misdemeanors.

So the three things you especially need to submit with your application would very simply be a good way to get in touch with your current employer. The second thing would be a good way for us to get in touch with your landlord, and the third thing would be pay stubs, so that we can see how much money you make.

That’s it. I hope this is helpful. I hope you apply with us. If you have any questions, you can submit those to [email protected]. Thanks so much for thinking about being a gk tenant.

A Tenant’s Guide To Protecting Your Rent Payment


Matthew Whitaker - Thursday, February 11, 2016

a lock and us dollar financial concepts

As a Birmingham and Nashville property management company, we see and process thousands and thousands of rent payments each year.

And for most of us – tenant or homeowner – our rental or mortgage payment is our highest fixed monthly expense.

If for any reason, a rental payment were to be mishandled or misappropriated and not applied to the rental balance for that month, most of us would have significant problems coming up with the funds to make this payment again…especially if there’s no clarification as to where the previous payment went!

Because of that, it’s extremely important that we handle it with care and make sure it’s accounted for when we make a payment.

But we all know that sometimes accidents happen.

So how do you protect your rent payment so that it’s always accounted for and YOU don’t have to come up with additional funds?

 A Tenant’s Guide To Protecting Your Rent Payment

“I paid my rent and it is not reflected on my tenant statement!”

Although this scenario is uncommon, it is very possible that a tenant’s payment could be mishandled.

When you think about how many different payments a property manager receives from hundreds or even thousands of tenants each month, you can begin to see how this is a possibility.

So if 1,000 tenants make a payment over the course of a year by check or money order, that is 12,000 pieces of paper to be processed for payment. That’s 12,000 opportunities for a payment to be mishandled.

How can you, the tenant, protect your monthly rental payment?

Property managers and rental housing owners have traditionally accepted money orders as a means to get guaranteed funds for rent.

However, all too often we hear stories of property management companies dealing with significant amounts of rental dropbox theft and money order fraud…often totaling thousands of dollars.

The result: owners are not getting rent payments, and residents who paid their rent with a money order may be facing eviction for non-payment.

Below are a couple ways you can empower yourself and protect your rental payments.

  Reconsider how you pay your rent.

Bottom line. The most secure form a payment is from your bank account through an electronic payment solution provided by the property manager.

This form of payment cuts out the middle man handling your money. Paying online is quick and will be reflected towards your balance immediately.

For your convenience, you can also set up a recurring payment to directly draft from your banking account.

  Myth or Reality?

If I, the tenant, make a payment using my checking account, the landlord now has access to my money directly at any time. MYTH!!

The landlord can not access any funds directly without an agreed upon transaction taking place between the tenant and the landlord/property manager.

At gkhouses.com, our most convenient and secure way to pay your monthly rent is to make your payment online through our tenant portal. There is no additional cost or fees for paying online using your banking account information.

If paying online is not the best option for you, any method of payment that is easily tracked and potentially cancelled is recommended..

Reach out to your property manager regarding your payment.

Again with understanding, thousands of payments can potentially be processed and it is likely that 1 out of 1,000 could get mishandled over time.

If you are unable to track the payment of your rent (i.e. you haven’t paid online through the secure tenant portal), don’t panic.

One of the quickest things to do is to get written confirmation from your property manager that rent has been received. If you deposited rent in a drop box, you should always keep a receipt of the money order.

In the case you have made your payment, but your payment is not reflected, confirm with the landlord that the funds have not been deposited on your behalf, then return to where you received your money order and retrieve your unused funds. Your property manager should also be understanding to your concern and can walk you through the steps to tracking your funds.

In conclusion…

With today’s advanced technology, it’s easier and safer now than ever to make payments online. The days of property managers and mortgage companies accepting checks or money orders will be coming to an end in the near future.

For your safety and peace of mind, contact your property manager and set up an online method to pay your rent electronically so that your check or money order will never be mishandled.

My Tenant Has a Dog Against The Lease


Matthew Whitaker - Wednesday, February 10, 2016

Happy dog bowl is a very happy hungry eager and excited dog asking to have his meal

What do you do if your tenant has a dog living in your house against the lease?

Many of our owners don’t mind allowing pets and we have a special pet deposit for them in our lease.

But it’s ok if you choose not to allow a dog live in your home because it does have its drawbacks. Some breeds shed constantly (like my Black Lab) and if they’re a puppy, they can have the occasional accident and possibly chew on parts of the house that you’d like to keep their teeth OFF!

In this video, Matthew and I discuss what you do when your tenant has a dog living in your house against the lease.

My Tenant Has a Dog Against The Lease





This video is about My Tenant Has a Dog Against The Lease

Full Video Transcript:

Spencer: All right. Spencer Sutton and Matthew Whitaker here with GK houses.We are back to talk about pretty common problems that we have seen over and over.

Matthew: Unfortunately it seems like everybody has a dog these days…It’s just at the end of the day whether they’ve disclosed to you that they have a dog or not.

Spencer: And whether the owner agrees to allow the dog or not. I know I had a rental house. This was several years ago. And I had expressly said no dogs for this house. I had just had the hardwood refinished. It was such a nice house. Probably six months into the lease, I needed to go to the house to talk to the tenant about something.

I didn’t really announce I was going to come by. I was just going to drop by. I was in the area. So I went. I knocked on the door. I’ll never forget about it seemed like 20 but literally it was probably seven little Chihuahua-type dogs came streaming around the corner, barking in the window right by the door. When the tenant left, the hardwoods were totally destroyed.

Now, I didn’t know. What can I do? How can I handle this situation? If I find out that my tenant has dogs against the lease.

Matthew: You just didn’t have a dog owner, you had a dog breeder in your house.

Spencer: Yeah, that’s right.

What Do You Do?

Matthew: Hopefully, that’s not the situation that you find yourself in. But what do you do if you have a dog in there and you absolutely want them out? The first thing I would say is you have a decision to make. This is a decision that we’ve gone both ways on based on the circumstances.

Is this the decision where you want to send them some sort of lease violation letter to let them know that, “Hey, you’re in violation of the lease. I’m going to allow this to go on.” The only reason I would do this is if I felt confident that the tenant would be able to repay anything that was wrong with that house. That may be your correct decision. You may get the most money. One of the things we want to focus on is how do you get the most money in the door?

Spencer: Well, let’s say that happens. Let’s say you send them a letter. At that point do you also say, “I’m going to charge a deposit to have that dog here?” Like in the middle of the lease, is that common?

Matthew: This may be too late for you if you are watching this video. But it may be something you would want to include in the future. That really ought to be addressed in your lease. It’s addressed in our lease. If we find a dog that is in violation, we actually charge them a fine for it, a non-refundable fee immediately for that. Then they also have to give us a pet deposit.

Again, maybe, they got a dog two months, three months. Maybe, they didn’t lie to you on the application. but they, unbeknownst, just got a dog. Then that’s the kind of thing…a lot of it depends on the relationship you have with your tenant. How confident you feel that they are going to be able to pay off whatever happens with that dog.

Spencer: So one option is to send them a letter, allow the dog to stay. Have them pay a fine possibly but definitely a pet deposit.

So What’s Another Option?

Matthew: The other option would be to evict them. This would fall under a material breach of the lease. Because certainly you need to have it in the lease whether they do have pets or they don’t have pets. If you don’t, you may find yourself that they are not in material breach.

If that’s not in your lease, you may be forced to just suck it up and deal with it. Because if it’s not a part of their lease, then you can’t, obviously, evict them. If it is a part of their lease, it’s called a material breach or a breach of the lease for material reasons. This is basically they are in violation of the lease for something other than rent. Then you have to go through the eviction process.

We shot a video on the eviction process. It would start with a seven-day notice. And maybe a seven-day notice would be enough to get them to get rid of the dog. The seven days basically says, “Hey tenant, you’re in violation of the lease, and you have seven days to cure that violation. And if you don’t, I’m going to deem the lease terminated.” But it gives them seven days to get rid of the dog.

Are Certain Breeds Dangerous?

Spencer: Now, let me ask you another question. Not all dogs are created equal, right? In my case, they are small little tiny dogs. I personally have a Labrador at the house. Are there certain types or breeds of dogs that owners should be hesitant to allow in their house?

Matthew: Yeah, that’s a great question. There are types of dogs or breeds of dogs that insurance companies deems dangerous. So you can imagine those that are on there, the Rottweilers, the pit bulls. There’s a list of about 10 or 12. You want to make sure before you even put a tenant with a dog in that that dog isn’t in direct conflict with your homeowners insurance policy. Because if the dog bites a child, if the dog bites anybody, it could come back on you.

Spencer: Meaning your insurance wouldn’t cover it?

Matthew: Correct. We have had incidences where an insurance company will allow a tenant to get renters insurance that actually covers those types of dogs and then they are allowed to move in. The scary thing about that for us is what if they let the insurance lapse?. If a child gets bit by a dog, nobody is going to win. So it’s a very scary thing.

Spencer: Plus we have property managers or maintenance crews that come to these houses. So we want to also look after their safety as well.

Mathew: That’s right, that’s right. We’re big on safety. Only as a last opportunity would we really want one of those violent breed dogs in one of our houses.

Spencer: Anything else we should know?

Matthew: No. I just think it should be something that is best addressed on the front end. I think it’s very important to have this type of information in your lease. If you haven’t leased a house yet, this is a great time to make sure it is a part of your lease. If you find yourself in this situation, you have some decisions to make.

You need to decide based on what your lease says. Is this something I can allow to go on that I think I will get money for in the end if something bad happens? Or, hey they’re already a problem. This would be a good reason to get rid of them.

Spencer: Also, I think if you’re dead set on not allowing a dog into your rental home, have that conversation on the front end. Don’t let it just be a check box on your lease. Have the conversation when the tenant comes to sign the lease to talk about what will happen if a dog is found in the house.

Consider This a Warning…Clean Your Gutters


Spencer Sutton - Tuesday, February 9, 2016

We sent an email to all of our owners a couple of months ago urging them to either send us out to clean their gutters or hire someone else to make sure that job is done before serious damage can occur.

This video was shot just a week ago after we received a call from a tenant about water damage inside their home. Watch the video to see what happened when these gutters weren’t cleaned.

Consider This a Warning…Clean Your Gutters!





Regular maintenance and care for your rental house is extremely important. In this video we talk about how something as simple as allowing your gutters to become clogged can possibly lead to greater d…

Transcript:

Spencer: So we got a call from a tenant that they were having some water damage in one of their downstairs rooms. We came out to check it out and this is what we found.

The issue is, is that we’ve got a lot of clogged gutters, there are leaves, and so, these gutters haven’t been cleaned in, from what it appears, probably two, three, four years.

And this is a result of clogged gutters, as you can see, all of this, the water drains down, it comes off of the gutters, and it creates this ditch that now has to be filled up and repaired, along with the gutters cleaned, along with the basement damage that needs to be repaired.

So you’ve just seen, outside, how the gutters are full and the water comes off the roof into the gutters and overflows on the ground, and then this is the result of what happens, so we’ve got to…

This is a room, this is a basement in a house, a row house, and the tenants typically don’t come down here a whole bunch, but when they started coming down here they noticed that some damage had been done to the house.

And this is what has happened just because the gutters were full and the water overflowed. So, you see here, all of this, water is coming through, (we cut this out to take a look and see what’s going on), and the carpet is now damaged. So what we’re going to have to do is, we’re going to have to cut out and replace all this sheetrock around here, all because we didn’t take the time to clean the gutters, and this is part of the issue.

How Do I Evict My Tenant?


Matthew Whitaker - Monday, February 8, 2016

Sometimes tenants need to be evicted.

It doesn’t mean they’re bad people or that they are intentionally taking advantage of you, the homeowner. But unfortunately, it’s sometimes necessary.

In this video, Matthew Whitaker and I discuss the steps necessary to evict a tenant in Jefferson County, Alabama. This is where we have the most experience dealing with our own tenants.

How do I evict my tenant?





This video is about How do I evict my tenant?

Here’s the transcript of our conversation:

Spencer: Hey Spencer Sutton and Matthew Whitaker here with GK Houses in Birmingham. And today we really want to handle a very sought after topic, one that we get asked about all of the time. When we get a new owner, especially if they’ve never rented their house before, a lot of times they want to know, well, “What happens if I have to evict my tenant?” And so…

Matthew: Or we even get a lot of owners that their tenant’s in the eviction process and they want to know “Hey, I put this person in. You know, give me an idea of how long that’s going to take to get this person out.” And so this video, you know, if you’re in this process right now, I mean, this video ought to help you kind of understand the process.

Spencer: Yeah, absolutely. And just to let you know states are different, right? So different states are different. We’re going to specifically be talking about Alabama.

Matthew: And even more specifically, about Jefferson County, Alabama.

Spencer: That’s right, yep.

Matthew: Which is where we have the most experience where Birmingham, pretty much the majority of Birmingham’s located. We have Jefferson County, Alabama then Shelby County. And to some degree, this applies to Shelby County, too.

Spencer: So start us off with a quick story.

Matthew: So even though I’m a property manager, my mom actually had a rental house and she didn’t use her own son as a property manager.

Spencer: A lot of confidence in you.

Matthew: Yeah right, in my own home. But she basically rented to an attorney. And this is a really nice area. It’s in Vestavia Hills. She rented to an attorney and his wife’s a stewardess.

So it was one of those things. They had great paying jobs. She thought everything was going to be great. My mom would underwrite applications just based on her gut feeling, how she would feel about the people.

Spencer: Mistake number 1.

Matthew: Yeah right. Which should be the lesson here, right? But basically she got into it and the attorney moved in, gave the security deposit and the first month’s rent and almost never paid again. And so she got me involved.

And so I know firsthand how emotional that can be when, you know, my mom, she didn’t necessarily need the money but it was very important to her. It was a lot of money for her and she obviously had a corresponding mortgage with it.

So this can happen to anybody. It even happened to my mom. So this is a subject I don’t like to talk about, it’s certainly not a fun subject to talk about. But it’s something that does happen.

Spencer: It’s necessary for this business. So if you rent houses long enough, this is a scenario that you will run into sooner or later. So let’s start. And I want to kind of start. I want to kind of paint the picture.

Here at gkhouses.com, we have a very processed out collections process that we walk through. So it’s very disciplined. We follow it every single week but sometimes people get behind, they stop corresponding with us, they don’t return emails, they don’t call us, we try to reach out to them. So I want to fast forward us to that point.

Matthew: And this even happens with good people. I mean, people lose their jobs, people have medical expenses. And sometimes it’s not that they don’t want to pay but it’s also their problems should not become your problem. And so that happens a lot.

Spencer: So let’s start with it’s time to start the eviction process.

Matthew: So the eviction process actually starts with posting a notice. And so there’s really two things in Alabama landlord-tenant law that you can evict for.

  1. One is for material breach, which means there’s something in the lease that they’re doing wrong that’s not rent. Which, rent is the second. So material breach would be like they destroyed the house, they have too many dogs, they’re punching holes in the wall. Those types of things are a material breach.
  2. And then rent is obviously the second and that’s pretty obvious. That’s what we typically evict 95% of our tenets for. And so the notice is different for each. So that’s very important. It used to be that the material breach was a 14-day notice. Now both of the notices are a seven-day notice. So basically, what you’re essentially doing is putting a notice on the door and saying that you’re in violation of the lease.

Spencer: What’s really rough is I had my own personal. When I was managing my own property. My very first eviction, they stopped paying. And so it was a breach of nonpayment. And I went up there to the house, I knocked on the door and it seemed like 20 or 30 dogs started barking inside the house. So it totally destroyed my house. So it’s not good if you have to do it for both, but you can. I could have put either letter on the door

Matthew: Right. Or both. And we have put both on the door. So basically, what happens, ideally what happens is you give them this seven-day notice to cure. And they have to cure that breach in seven days. If they don’t cure the breach in seven days, on the eighth day, that is basically when you can file a lawsuit against them to get them out.

Spencer: I would imagine that there are attorneys that you would just contact.

Matthew: Yeah and it’s probably something we ought to say. Hey, we’re not attorneys so we highly suggest…you know, even though I told my wife I was gonna be an attorney, I’m not one.

I highly suggest verifying all this information with an attorney. But yeah, so at that point, if there’s an LLC or a company on the lease, you’re actually required to have an attorney, would take over at that point.

If you are an individual on the lease, you can actually do this yourself. And the people at Jefferson County courthouse are pretty helpful getting that started. So basically, what you would do is you’d go down and you’d file this lawsuit. And at this point, most of the attorneys that do this would actually charge you the full amount for the eviction. And those are in the hundreds of dollars and can range from attorney to attorney, but you also have to pay the filing fee. So you’re going to go down there and the filing fees are all based on the number of occupants on the lease. So you’re basically filing this lawsuit against them.

Spencer: What would you say the average cost…basically, based on your experience in the business, what’s the average cost to evict somebody?

Matthew: What we tell our clients is that it’s going to be somewhere between $800-900. And we have a very reputable firm that handles that for us here in town.

Spencer: And so how long does that…you tell them 800 or 900 dollars. But then also, I’m imagining there’s going to be a loss of income, loss of rental income. So what is that all…?

Matthew: Well, I’ve heard some really amazing stories. People in Texas, people in Tennessee, that this is only a thirty day, you know, from the time the notice is posted till the time the person’s out.

That’s just not the case here in Alabama. What we tell our clients is to expect 90 days. From the time we post the notice until the time…and it has gone further than that. I mean, sometimes it’s a little less. So you know, it’s a long time in Alabama until the set-out.

Basically, after the lawsuit’s filed then, it’s presented to the tenant and they’re given a chance to answer. I would say the majority of tenants don’t answer. I mean, they know they’re in violation. But there are some tenants that understand the process and they know that if they answer then they get their day in court and that basically extends the process out.

So I would say 80%…this is just a guess. 80% of the tenets don’t answer but the other 20% file some sort of answer and then a trial is set at that point. The trial is not anything to be scared of, though.

It’s a very simple process. It’s not like Matlock or one of those things you see. It doesn’t span days; it literally could go 15 minutes. But I will tell you the majority of tenants don’t show up at trial because they know they’re going to lose. And the last thing they want to do is be embarrassed in front of a crowd.

But I would say there’s 80% that doesn’t answer, and then after that, the next 10-15%, only 5% total will go all the way to trial and actually show up at trial. So one in twenty who you’ll actually have to try. It’s been our experience.

If I’m a homeowner, what do I need to bring to trial?

Matthew: Yeah. So that’s very important. You want to bring pictures, you want to bring an application, tenant register, you want to bring everything you have.

Spencer: The lease.

Matthew: Yeah, absolutely. You want to bring everything you have that may be presented as evidence. Like, hey, this is what they were supposed to pay.

You also want to bring a copy of the notice that you put on the door. It’s very important that the notice is correct that was put on the door. So it’s a very simplistic process but you need to make sure that you get it right. Because the last thing you want to do is show up at court, not have your stuff together, and lose. And then have to start the process over again, which does happen.

Spencer: That would be unfortunate.

Matthew: That would be really unfortunate. So let’s just say you go to trial, worst case scenario, you win. If they don’t show up, you get a judgment in you favor anyways, you win. Well, then the next step is the sheriff has to set the tenant out.

And that could take awhile in Jefferson County. You know, it’s understaffed, undermanned, that area. That is included in that 90 day period. But we’ve had them take 30, we’ve had them take 60 days. A lot of it depends on the season of the year. So just be prepared for a long drawn-out process.

Spencer: Does the sheriff give you a notice? Like, hey we’re going to be there this day and this is when we’re going to set them out? Because I would imagine as a homeowner, I would want to be there to take over possession of that house and make sure I change the locks, those types of things.

Matthew: Yeah, I don’t know the answer to that for a homeowner. But I can tell you the sheriff does give our attorney a heads up that it’s happening. And then our attorney gives us a heads up that it’s happening.

So it does go with us. I don’t know exactly how they contact the homeowner. One thing I would say which is very important, so hopefully you don’t get into this.

But particularly in Jefferson County, it’s going to be a lot cheaper to figure out a better solution. And I’m not talking about a legal solution, or taking their front door off the hinges. But it’s going to be cheaper and quicker to figure out another solution. Some of the things we’ve done in the past are cash for keys.

What is cash for keys?

Matthew: Cash for keys is for us is saying “Hey look, we know that you lost your job. And obviously, you can’t pay. But one of the things that we want to do is give you this money in exchange for the keys.”

To some degree, you have to swallow your pride. To some degree, you can kind of feel like they’re taking advantage of the situation. But this really comes down to a business decision. It’s very important that you look at this objectively as I’m trying to get the most money in the door for myself.

And sometimes that’s swallowing your pride and giving them some sort of peace offering to get out of your house. So I think that’s very important for you to understand that that’s a possibility.

Spencer: OK. What else?

Matthew: The only thing I would say is just reiterate how important it is to get the process right. Again, this is probably everybody’s biggest fear. It’s not fun but it’s something that you can do. And it’s something, if you can’t do it or want some help, I mean certainly we’re willing to help you through that process.

Spencer: And I would just reiterate the incredible importance to tenant underwriting. Again, life happens, circumstances happen, job loss, those types of things.

But you could mitigate a lot of your risk if you do a fair amount of underwriting on the front end, tenant screening on the front end. Take you time, find the best tenant you possibly can. I know we’ve written a lot of articles about that. So feel free to check those out. Anything else?

Matthew: No, I think we’re good.

Spencer: Alright. Thanks for joining.

How To Collect Rent From Your Tenants


Matthew Whitaker - Thursday, February 4, 2016

How To Collect Rent From Your Tenant

We get asked “How do you collect rent from tenants?” all the time from homeowners who are considering gkhouses as their Birmingham, Nashville, Chattanooga, or Little Rock Property managers.

Collecting rent from tenants is extremely important and the only way to do this successfully is to have a system.

We actually believe that light and steady pressure is better than “Hey, where’s my rent, it’s the 10th and I haven’t seen it.”

I was able to sit down with Daniel Gable the other day and interview him about our tenant collection process. Here’s a transcript of that conversation:

Spencer: All right, I’m here with Daniel Gable.

It’s January 18, 2016, and today we’re going to discuss the gkhouses collection process. So, this is something that is extremely important to the property management business and for anyone who owns rental property, whether you have one house that used to be your personal house that you’re renting out, or whether you’re an investor and you have 10 or 15 houses, collections is really the lifeblood your business.

So, I can remember how I first realized this. It was the very first time I owned any kind of rental property.

I was buying and selling houses here in Birmingham as a HomeVestors franchisee, and I bought a 10-house package from another investor. And of course, I had driven a lot of houses, I had done all this stuff, but I was pretty young and pretty naïve.

But I knew that rent was due on the first, late after the fifth, according to the leases that they had signed. And when it came time to collect rent, I had already sent out letters to everybody. I think maybe 5 of the 10 came and paid rent. So I thought, “Well, I guess it means I’ve got to go and knock on some doors.”

And so the very first house I went to…I remember the street, it was on 15th Street (I no longer own the house).

I pulled up to the house, and I went to put a letter on the door and on the front porch were two gigantic pit bulls. And so I looked at the pit bulls. They looked at me. I didn’t think that it would be a good meeting if I went up on the deck. So, instead, I turned around and drove away, and proceeded to mail them another letter.

So that was my very first experience collecting rent from a delinquent tenant. And it’s not the best-case scenario. I’ve learned a lot since then. That was back in, I want to say back in 2005, and so it’s been 11 years since then.

And the great thing about what we’re doing here at gkhouses is we have specialized departments that handle different aspects of our business.

daniel_gableDaniel is here with me because he is one of our operations coordinators, and his day-to-day task involves communicating with tenants. And you can imagine if we have 800 tenants then that is quite a task. And he stays busy all of the time.

So, what I’m going to ask him to do is walk us through how we collect our rent. And then I’m going to ask Daniel to take us a step further, what happens if a tenant doesn’t pay, because a lot of people want to know that.

So, if a tenant has signed on a gk lease, rent is due on the first. It’s late after the third. And by the first of the month, every tenant has already received some type of notification that rent is due.

And so that’s a either a letter mailed to their house or an email. Essentially it’s just a statement. It’s a reminder…just a touch from us saying, “Hey, Dear Tenant, Hope everything is going well at your house. Just a reminder rent is due. Here’s the amount. It’s due on the first, late after the third.” It’s really just a friendly reminder. It’s either a letter or it could be an email.

And so they get that notification, and when it rolls around the first of the month, we have drop boxes outside, right here on the door. Tenants can pay any time. We have a number of tenants who pay electronically online or have it automatic drafted.

But there are some instances where tenants are late, and if you’ve owned rental property for any amount of time, you realize this is just a part of the business. It doesn’t mean tenants are bad. It doesn’t really mean that you’ve done a bad job. This is just a part of the business.

And so Daniel not only communicates with our tenants, whether they have questions about certain things or need his help in certain areas. But he also really manages our entire collections process.

And so Daniel, I’m going to let you talk now, and just take us through. Let’s just say today is the 10th of January and a certain tenant didn’t pay rent. Take us through the collections process and what happens.

Daniel: I couldn’t agree with you more when it comes to monies not received. This doesn’t mean tenants are bad. This doesn’t mean you’ve done a bad job. That’s completely correct. Life happens.

And I actually tailored our collections process in order with that understanding in mind. The very first touch you get outside of just that normal statement would be our first green bucket. I broke them down into buckets.

The Green Bucket

The first green bucket would be a kind of just a very friendly, warm reminder that rent is due and is late. It’s almost like I assumed that they didn’t know that they had missed the payment.

It is more along the lines of, “Tenant, I hate to tell you this, but we have not received your rent payment.” And they’ll get this in the form of an email. And they’ll also get this in the form of a pre-recorded message sent to all of their phone numbers…we send out once a week on Fridays.

phone red flat icon telephone sign

 

So it’s going to be a phone call as well as an email, both of which say the same thing. It directs them to email us back and communicate back with us. But it just lets them know the exact amount that is owed, plus the late fee. And that’s within the first 30 days.

Spencer: And when does this happen. So due on the first, late after the third, when does that first reminder go out?

Daniel: The first reminder will go out the following Tuesday.

I receive a Collections Report, and it breaks down everyone by buckets. The first bucket is within the first 30 days of that payment being delinquent.

The Yellow Bucket

If this hypothetical person let payment lapse past that 30-days they would fall into a yellow bucket, which is between a month and a month and a half.

And this is based off the percentage rent that is due. So if they owe anything below $700 they’re going to be in the green bucket, but the moment that it tips over owing that amount, it will push them into the yellow and the orange and/or the red bucket.

The yellow and the orange are similar but different.

The yellow is a little harsher reminder. We’ve already touched them once with a friendly and now we believe they’re intentionally not paying and they know this but have not communicated with us.

So this is more of a “Hey, we’ve not heard from you. And I would hate to have to move forward with posting a notice of eviction.”

The Orange Bucket

In the orange bucket, which is between a month and a half and two months, owed. That’s when it’s stated that if we don’t hear from you, you’re going to receive a notice of eviction on your door, and we will move forward if this continues.

Spencer: Okay, so at this point, it’s really a matter of communication.

Like, we want to hear from you. Whether you call us and say, “Hey, I’m sorry, I got behind. I want to start making it up,” or whatever. We’re really looking for some type of communication. So to move them into the orange bucket it means they haven’t communicated with us.

Daniel: It means that their balance is worthy of being in that bucket, and it also means that there’s been no communication.

Business People Man and Woman Talking Discussing Chat Communication Flat Vector Illustration

And I tell tenants all the time, communication is almost as important as the payment. If I know you’re behind, and I know that you’re willing to move forward, I will help you set up a payment plan.

And then I created a bucket specifically for people who have communicated with me, that have a payment plan and are actively working toward getting down to a zero balance.

And I actually will color them in a different bucket so that they get a completely different email. It’s not threatening. It actually is very appreciative.

It’s intentionally supportive and positive reinforcing. “Thank you for your payment arrangement. Please understand that communication is important. And I expect to hear from you this week,”

It’s really just a reinforcement of that correct attitude coming toward us.

The Red Bucket

So, in the event that there is no communication, then they fall into what’s called a red bucket. And anything that is left in that bucket gets sent an email saying, “Unfortunately, either due to either a breaking of a payment arrangement, lack of payment, or lack of communication, we’re going to be posting a notice of eviction on your door. And this notice gives us legal right to send you to the attorney within seven days.”

Spencer: Are they receiving phone calls these times as well?

Close up of the fingers of a business adviser dialing out on a land line telephone pressing the number keys on the keypad in a communications concept.

Daniel: Each bucket receives…the green, the yellow, and the orange all receive one phone call a week. Once you fall into the red bucket, you’re receiving four phone calls a week. You’re actually going to be receiving them at periodic times throughout the week. And it’s just a constant reminder. It’s just letting them know that they’re one step closer to eviction.

Once we’ve either posted notice or just before, we contact the owner of the home and let them know the tenant’s current balance.

Unfortunately, if we must go through that process of eviction it roughly costs around $850…sometimes as much as $1,500 depending on the circumstances.

And that typically takes around 90 days in Alabama.

Spencer: Okay, I remember the first time that ever started collecting a lot of rent.

I didn’t have a system at all. Instead I would call all of my tenants and mail them letters.

I had no system…so the system we have here at gkhouses.com is great.

But I’ll never forget the one house that I actually had to go through the full turn of eviction. It wasn’t a pleasant thing, because not only had they not paid for 3 months before I finally decided to evict them, but they didn’t pay the other 90 days.

And the sheriff actually came and put their stuff on the street. And it’s just not very good, because typically the house is not left in a very good state. And it cost me several thousand dollars to get that house back up and running.

Daniel: That’s why we start this process well before we ever get to that point. By the time…if someone has to go all the way through that process of eviction, we will have sent them over 100 emails, or there would have been over 100 touches, between emails, phone calls and physical letters.

The good news is that most of the time, people want to pay, and that’s the good thing. And that’s the reason we don’t start off with accusing them of being delinquent.

Carrying off. Pleasant youthful lady sitting cross-legged with opened mouth and pointing up with her arm on isolated background.

That’s the reason we start off very warm and very understanding of their situation, because again, life happens and we understand life happens.

And we’re very willing to work with someone who is willing to communicate that with us and create a payment plan. We have found great success with that. We have…I think our eviction is less than 1% of what we actually manage currently. And so that’s…I think that’s a phenomenal average.

I would say that our biggest collections success comes from assuming that people want to pay versus the opposite.

Coming at it from a very positive standpoint, assuming their best intentions until proven otherwise, I think just treating people the way you want to be treated is probably the best way to receive rent on time.

Spencer: What percentage, do you think, get caught up and back on track, versus, “Hey, it didn’t work out.” They either moved or they got evicted?

Daniel: I would say over 50% of them get caught all the way back up to zero. Some of them stay behind until they move out and then get on a payment plan to pay it off.

And then others have to be sent to collections, but the debt is much smaller and the owner doesn’t take on the debt of having to evict them.

So any time that we can get away from having to send someone to the attorney and save that $850 is always a better solution.

Spencer: And just a side note, we actually offer what we call an eviction protection plan for owners. It’s a part of a new Gold Package we are rolling out for homeowners.

The Gold Package not only includes the Eviction Protection Plan, but also a quarterly inspection/HVAC service and gutter cleaning once a year.

The entire package is a great value and covers an owner for all of the attorney fees, court costs, admin fees, and Sheriff set-out costs involved in an eviction.

And should your tenant go to a full eviction, it’s totally covered. And like Daniel said, the minimum is around $850. It can go up to $1,200, $1,500 for an eviction.

Daniel: Absolutely. I think it’s well worth the money.

Spencer: And I think this is good because when you’re a homeowner and you’re renting your house, or whether you’re an investor and you’ve bought a few houses and you’re managing those properties and you’re the one collecting, it tends to be more personal.

And so, it’s harder to be as objective as we can be, as we manage a bigger portfolio, so everyone goes through the same process. And like Daniel said, over 50% end up getting caught up, just because of life circumstances happened or whatever the case. So great overview of that process, Daniel. Thanks so much.

Daniel: Any time.

What Happens When A Section 8 Tenant Wants To Move?


Spencer Sutton - Tuesday, February 2, 2016

section-8-move-out-houseI had the opportunity to spend some time in the field with two of our property managers (Wayne McGinnis and Mark Byers) as they performed a Section 8 Move Out Inspection.

This happens when a Section 8 tenant puts notice in that they would like to move.

Moving is a normal part of managing rental property…but because a tenant is in the Section 8 program, they must follow certain rules and regulations.

The following is the transcript of an interview I conducted in the car with Wayne McGinnis who happens to be an ex-Section 8 Inspector with the Birmingham Housing Authority.

Spencer: Now, Wayne and Mark are two of our property managers. And we’re out looking at some different houses. I wanted to come along with them today because they were conducting a Section 8 pre-move out inspection…or what we call ‘walk through’.

So about a week ago one of our Section 8 tenants put in a notice that she would like to move. In order for that to happen, we need to inspect the property and sign off that this tenant is good to move.

In other words that the house is in a good condition or satisfactory condition and we’re okay with them moving.

So, walking through the house was really interesting.

We couldn’t really film inside the house but I wanted to tell you a little bit about that process and I’ll ask Wayne to fill in wherever I may need his expert opinion.

Here is the process:

  1. The tenant turns in a move out notice
  2. We schedule a time to walk through the property
  3. We look for any damage to the house that is out of the ordinary or beyond normal ‘wear and tear’
  4. We inform the tenant on our findings and let them know if we can or can’t sign off on their move

In this case the tenant filled out a notice to move and it was sent to us. We went out there and Wayne walked the entire house with a pen and a paper in order to make note of any out of the ordinary damage. Really, he’s looking for r any kind of issues with the home that are beyond normal wear and tear.

Is that right, Wayne?

Wayne: Yes

Spencer: As we were walking through this particular house, we noticed a few holes in the wall. We also noticed that the carpet that was clean when they moved in, just around 12 months ago, was damaged.

Wayne: It was worn well beyond normal wear and tear and it was clean and in good condition when they moved in a year ago. Simply put, it’s not been taken care of.

So that would be something they would be charged off for beyond normal wear and tear issues.

Spencer: Okay. So, we walked through the house and not only were there a few holes in the wall, there were light fixtures that were missing.

They had also replaced an interior door in the home and had not installed a doorknob. So it wasn’t really a door because you couldn’t lock it.

And then of course the carpet like Wayne mentioned, the carpet was a bit messed up more than normal wear and tear. After we walked through the house we had a conversation with the tenant and let her know that we could not approve her request to move until these things were taken care of.

And so what that means is, she can either find a reputable company to fix and repair those damaged areas and then we would sign off on it. Or she could have us do it and pay gkhoues for the repairs.

We have our own maintenance department to repair those things. Is there another option? So we either fix it, she finds somebody to fix it, or she made a suggestion. What was that, Wayne?

Wayne: She asked that we create an itemized estimate of everything that we saw that was beyond normal and tear.

And we can definitely do that but we couldn’t do it today because she had too much in the house and against the walls. She will need to move everything to the center of the room (in all of the rooms). So, in our owner’s best interest, we have to be able to see those areas and make sure there’s no further damage.

Because once we do this itemized estimate, we will be sending it to Section 8 as well as the tenant and letting them know that these repair items need to either be paid for or completed before we can approve her to move out of the house. She must have a zero balance before she can move.

Part of paying for the damage can also come out of her security deposit which we keep in a trust account.

We just want to make sure we have the money to cover all the repairs that are beyond normal wear and tear. Now, there’s a lot of things that were normal wear and tear or things that were not in her control that we will not be adding to the list.

But for the items we just mentioned, we’re going charge her and turn that list into Section 8 so that she cannot move until this is taken care of and resolved. This is something we do to protect our owners.

Spencer: Right, so essentially she wanted us to come back with an estimate of all things were over normal wear and tear and then she was going to pay for that work to be done.

Now, the interesting thing is once we have those funds…if she wanted to pay us to do that once we had those funds, we could go ahead and sign off on her move documents for Section 8 and allow her to move and then it would much easier for us get in and take care of those items along with anything else that the owner wanted to take care before the house was marketed again.

So that’s just a little insight into Birmingham Section 8, how a Section 8 move, like a request to move process happens.