Podcast 326: Construction on Occupied Rentals

Let’s say you want to upgrade the kitchen in your rental. Currently, you have a tenant living there. What are the rules and regulations when it comes to construction on rental properties that are occupied? Find out in this latest episode.

Plus, we’ll chat about the most popular ways to structure bank accounts for your rental properties. Should you have a separate bank account for each property? Listen below.

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Check out this episode of the RentPrep For Landlords podcast

Show Transcription:

Andrew Schultz (00:00):


Voiceover (00:04):

Welcome to the rent prep for landlords podcast. Now your host Andrew Schultz.

Andrew Schultz (00:08):

Hey everyone. Welcome back to another episode of the rent prep for landlords podcast. This is episode three 26 and I’m your host Andrew Schultz. On today’s episode, we’re going to be talking about construction on rentals while they’re occupied structuring bank accounts for rental properties and the tenant who complained about their own pet. We’ll get to that right after this

Voiceover (00:33):

Feet on the street. Real stories from real property managers

Andrew Schultz (00:41):

Today’s feet on the street segment comes to us courtesy of the property management subreddit. You can find that over at reddit.com/r/property management, the title of the thread is what’s your craziest residents story. I had one resident complaining about a dog urinating in our parking deck. It was the same pillar being peed on every day by a small dog. We cleaned up the mess every single day. And I finally got fed up and decided to review the security camera footage. It turns out that the complaining resident’s dog was the dog peeing on the column every single day. I never told her I knew, but I made sure to let her know that this sort of behavior is disgraceful and downright rude. There’s a couple more of these that I want to share as well. The elderly lady who moved in with a single service animal, a schnauzer, her neighbors eventually started calling us to report that she was likely breeding.

Andrew Schultz (01:29):

Uh, there were more than 11 schnauzers in the yard. At one point also the group of college guys who got mad when we evicted them. So they peed in their fridge in the freezer. That was a real treat to clean up. We also have one here about the family who was super polite and always paid rent on time. When they moved out, their landlord found remanence of a marijuana grow up in one of the bedrooms. Uh, the dude who was using his garage as a marijuana greenhouse, but the property manager couldn’t prove it because every time they went to inspect, they had to give 48 hours. Notice the tenant would rent a U haul, move the plants into the U hall setting in the driveway and throw a couple of potted tomato plants in the garage. It was so obvious what was going on, but it’s not like they could search the U hall.

Andrew Schultz (02:07):

So he got to keep doing his thing. I mean, that’s a situation where you should probably be talking to law enforcement. If you’re in a state where it’s not legal and you want to pursue it, that’s a totally nother level thing. I would not be jumping into the middle of a situation like that. So what is your craziest, uh, tenant story head on over to the rent prep for landlord’s Facebook group at facebook.com/groups/rent prep, fill out the brief questionnaire and join that group. Share with us your craziest tenant story and network with some of the other amazing landlords and property managers from all over the country who called that group home

Voiceover (02:41):

Water cooler wisdom, expert advice from real estate pros.

Andrew Schultz (02:50):

So what do you do when there’s a major problem with your property and the tenant is still living in the property while you’re trying to sort the issue out that is the topic for our first cooler wisdom today, this comes to us via the landlording subreddit. Uh, there was a leak and water damage occurred because of this. Some parts of the cabinets and the hardwood flooring in the kitchen had to be ripped out to determine exactly how far the water damage went. The kitchen is still fully functional, but the place looks like a construction zone and there is sub floor instead of hardwood at some location. Do I illegally need to reimburse my tenants for any money or offer them a hotel or something along those lines? What is considered habitable? So you mentioned in the post that the kitchen is still fully functional. Um, if the kitchen is still fully functional, I don’t think that you would be hard pressed to be required to provide the tenant with either some sort of a rental discount or put them up in a hotel or something like that.

Andrew Schultz (03:45):

Um, they could certainly contact the renter’s insurance to see if their renter’s insurance would be willing to put them up in a hotel during the situation. But I think that even the renter’s insurance would probably decline given that the property is fully functioned. It might not be the most aesthetically pleasing thing in the world. And I recommend that you get the leak taken care of and get the place restored back to its original condition as soon as possible. But I think that anything regards to a rent credit or, um, you know, displaced tenant, voting them into a hotel or something like that, I don’t think that that would necessarily apply here unless you wanted to step up as a landlord and say, yeah, this is my problem. I’m going to do this, um, to make sure that you have a good experience as a tenant, uh, more than it being a legal requirement for you to do.

Andrew Schultz (04:27):

So. One thing that’s definitely worth noting is that you do need to make sure that the property is safe to live in while the construction is going on. So if you have a situation where maybe you’ve got uneven floors, like you mentioned, you have sub floor in some areas and hardwood floor in other areas, it sounds like there’s probably going to be kind of a, a gap or a step up between those two styles of flooring. That’s something that you want to make sure that is not a trip hazard. Um, you don’t want there to be open or exposed electrical or, you know, opener exposed plumbing, something like that. Obviously you don’t want to leave any, any holes or gaps where someone can fall into or fit a finger into or something like that. Just make sure that the work site is kept safe at all times while you’re working.

Andrew Schultz (05:11):

And certainly while you are off site, you don’t want the tenants to be in a situation where their safety is compromised while you’re still working on getting the place back up to a hundred percent. That’s where I would be at on this. I don’t think that there’s a legal requirement here for you to put them into a hotel or to offer a rent credit. Because as you mentioned, the kitchen is still fully functional. I think that anything like that would be the option of the landlord and the tenant can certainly avail themselves of their renter’s insurance. By calling the renter’s insurance, to see if the renter’s insurance policy will pay to have them put up in a hotel while you’re doing that work. Our next bit of wisdom also comes to us via the landlording subreddit. The question is, how do you structure your bank accounts as a landlord?

Andrew Schultz (05:54):

Do you have a separate bank account for every property? So you may find that the answer to this question lies somewhere in your state statutes. Uh, some States have very particular ways that you need to handle security deposits for instance. So if you have one single family, you may find that you just have to keep that security deposit in a savings account. Whereas if you have maybe a 20 unit apartment complex, you may discover that they want you to have either a separate account or a separate sub-account for each individual security deposit, um, so that you can keep track of all of those funds individually. So that’s something that you’re going to want to check your state statute with regards to your second bank account should be your operating account. This would be the account that you deposit your rent funds into. This should also be the account where you’re writing the bulk of your expense checks out of.

Andrew Schultz (06:41):

So if you need to pay for a repair at the property or something like that, you should be writing that out of your operating account. For the most part, that’s a pretty straightforward account. That’s where the bulk of your transactions are actually going to be happening. But the actual purpose of the account is straightforward. It’s an operating account it’s meant for you to use, to operate the property. The third account that I would recommend would be a longterm savings account for capital expenditures. So when you’re doing an analysis on a property, you should understand that you need to set money aside for large scale capital expenditures, such as roofing, hot water tanks, furnaces, air conditioners, appliances, you know, rehabs, things like that. You should be setting cash aside every single month to make sure that when the time comes and you need to write a big check that you have the funds to be able to do it. I would personally move those funds from operating over into that longterm savings account, that cap ex account on a monthly basis,

Speaker 3 (07:36):

So that you always have a good idea,

Andrew Schultz (07:37):

Just how much money you have set aside for a rainy day. Trust me, when I tell you those rainy days will always come. You don’t want to get caught with your pants down by not having some funds set aside. Uh, so definitely make sure that you are operating with some reserve funds and understand that when it’s time for you to use those reserve funds, there really shouldn’t be much hesitation in cutting that check. That’s why those funds are there. You can always replenish the funds in that account, um, but definitely make sure that you have funds in that account so that you can take care of situations as they arise, rather than kicking the can down the road, because eventually it will lead to your property degrading if you just ignore major capital expenditures like that. So on a little bit deeper level here, I can understand why someone may want to have a separate set of accounts for every property that they operate.

Andrew Schultz (08:26):

But if you’re using a good piece of property management software, you don’t necessarily need to do that because that software is going to be able to track the accounting on a property level and track the banking on an account level so that you don’t have to sit and break everything out into its own separate individual bank accounts for each property, you can continue to use, you know, a three account strategy or whatever your state allows for, um, when you’re running your properties and that’ll help to make your life a whole lot easier in the long run. So even when you’re just starting out, even if you only have one or two doors, I always recommend making sure that you have strong record keeping. And I would certainly recommend a good piece of property management software. There’s a lot of good options out there, some paid and some free, but definitely look into that to make sure that you’re keeping your records on track.

Andrew Schultz (09:14):

That’s one of those things that’ll save you in the long run. Should you ever be investigated or audited by, you know, a state licensing agency or by the IRS heaven forbid nobody wants to be audited by the IRS obviously, but having good property records, having good accounting records is critical to making sure that you come out. One of those situations coming out that situation on the other side, relatively unscathed, that pretty much wraps things up for this week, but if you can’t get enough, there’s always more to check out. If you’re looking to find me head on over to own buffalo.com for links to all of our social media, our YouTube and Facebook pages are where we post the majority of our content. If you’re looking for excellent tenant screening services, head on over to rent prep.com and take a look at the services being offered over there. And don’t forget to check out the best free landlording resource on the internet, the rent prep for landlords Facebook group. That’s a private Facebook group for landlords and property managers coming in at almost 12,000 members strong. You can find that group over at facebook.com/groups/rent prep. Thank you all so much for listening. We really do appreciate it until next week. I’m Andrew Schultz with owned Buffalo for rent prep.com, and we’ll see you next time.