In this week’s episode, Podcast Host, Andrew Schultz, discusses the importance of emergency funds for rental properties, how much to save, where to save and more.
Sometimes, tenants just don’t get along. As a landlord, it’s crucial to know how to deal with fighting tenants.
Last, but not least, we’ll go over our top tips for converting a single-family rental to a multi-family unit.
Andrew Schultz: (00:00)
Hey everyone. Welcome back to another episode of the Rent Prep for Landlord’s podcast. This is episode number 373, and I’m your host, Andrew Schultz. On today’s episode, we’re gonna be talking about what to do when tenants fight with each other, converting your single-family rental to a duplex, and how much to save for your rental emergency fund. We’ll get to all that right after this.
Voice Over: (00:24)
Welcome to the Rent Prep for Landlords podcast. Now your host, Andrew Schultz.
Andrew Schultz: (00:29)
Before we jump into today’s episode, don’t forget to check out the Rent Prep for Landlords Facebook group. It’s a great free resource for you to network with housing providers from around the country. And if you have a questioner situation that you’ve never dealt with with over 12,500 members, chances are someone in the group has been there before and can lend a helping hand we’re on the push for 13,000 members. So if you haven’t checked it out yet, do it today over at facebook.com/groups/rentprep. Don’t forget to mention the podcast when answering the questions. So we know how you found us.
Voice Over: (01:04)
Forum quorum, where we scour the internet for ridiculous posts from landlords and tenants.
Andrew Schultz: (01:12)
We’ve got three really great topics for you this week, and we’re gonna be starting with forum quorum this week. Our forum quorum comes to us via the landlord subreddit. And it’s a very interesting one, basically. What do you, when you have three tenants on a lease and one of the tenants just isn’t cooperating and creating a lot of issues, let’s go ahead and jump right in. I’m trying to help my friend, uh, get a handle on his new tenant situation. There are three tenants on the lease, but two of them want the last one off the lease. They say that the third person has been bringing a new boyfriend into the home, getting drunk and getting very aggressive and threatening to each other, as well as to others in the house, they called my friend and said, that said that they are scared for their safety neighbors in the area.
Andrew Schultz: (01:53)
Have also said that the house is loud, indicating parties, et cetera. The two tenants say that they want to stay and continue in the lease. But without the third person, what are my friends’ obligations, if a any at this point now that they say that they fear for their safety, what options should or must he consider? Roommates? Situations are very tricky. Uh, my general advice is to just not get involved in them, if at all possible, uh, the landlord is not the referee. The landlord is not a police officer and the landlord is not a psych. The best thing that you can do for your own mental sanity on something like this is to stay out of it as much as possible. Now, obviously, I understand that you’ve come here to ask the question. So chances are, we’re not staying out of it based on the information that we have available here.
Andrew Schultz: (02:38)
I think my first question would be what is the third tenant set about all this? So far, we only have the story from two of the three re roommates. And generally speaking, everybody’s gonna have something to say. So rather than getting involved at this point in the situation, I’d go back to the two tenants that wanna stay and tell them that they need to get in contact with this other roommate. And all three roommates need to come to a consensus here. If the third roommate wants out, the situation is likely gonna resolve itself. You have the third tenant, uh, relinquished control of the unit by signing a lease release, uh, it releases them from the tenancy, and then you make sure that the security deposit is addressed by the three tenants internally so that when the other two move out at the end of the lease term, you don’t have to worry about getting a portion of this deposit back to the third tenant, make sure to get everybody’s signature on that lease release on the front end so that you don’t have to run around and chase people on the back end.
Andrew Schultz: (03:29)
Also, don’t forget to make sure that the other two tenants can afford this unit without that third person go back and review your rental application documents to make sure that you do still have a viable tendency here, even without that third person on the lease. So if the third tenant does not wanna move out, chances are, this is gonna get a little bit messier. Um, at that point, if the other tenants are in fear for their lives, which you have indicated that they’ve given you or given your friend that indication they need to get in contact with the police department, you or your friend are not, and cannot be their defender in this situation. If there are threats of violence, they need to report it to the police. If there is violence, they need to report it to the police. And at the very least, at this point, the police can start a paper trail kind of taking reports and possibly help with getting a restraining order against this new boyfriend, which sounds like that might be the ball of the issue, to be honest with you.
Andrew Schultz: (04:21)
But, uh, I think that the tenants are gonna have to do that level of footwork. I don’t think the police are going to do much for you as the landlord directly because essentially you are a third party to whatever’s happening inside those four walls. Um, you are not directly involved in the situation. It is a dispute between the two tenants and the third. So I don’t know if the police would even do much for you at this point. The tenants have to reach out to the police department directly. Police reports can lead you to a point where you can at least issue some lease violations for noise or for parties or whatever the case may be, which can then lead to either a lease termination or an eviction. Legally, I think an eviction might be a little shaky unless you have some very solid proof of what’s going on.
Andrew Schultz: (05:03)
That’s gonna be state by state, sometimes municipality by municipality, but keep in mind that in some states you will have to evict everyone living in the unit, which means all three tenants have to go in some states you can pick and choose. Um, so if you wanted to Rere to the two tenants after the third party left, you may just need to put a fresh lease and put place. Finally, if you’re on a month-to-month lease with these tenants, I would just terminate it for all three and then Rere to the last two tenants that you want to have the unit. Once the third tenant is gone, it’s definitely gonna be a messy situation when roommates no longer like each other, I wish you the best of luck as you go through and navigate this situation,
Voice Over: (05:40)
Water cooler wisdom. I expert advice from real estate pros.
Andrew Schultz: (05:48)
There’s a pretty common saying out there that you can do it right, or you can do it twice. And I think that that’s kind of the situation that our next question is going to find themself in this one comes to us via the landlord, sub it as well. Uh, we’re gonna go ahead and jump right in. It’s a very short question. I’m converting a single-family home into a duplex to have two rentals. Will I be able to have two mailing addresses for this? Has anyone done this before? So I’m gonna skip talking about making sure that you are actually able to subdivide a property, making sure that you have the correct zoning, making sure that you have, uh, done all the things that you need to do to ensure that you can actually have a legal two unit on the property. But I think that you may be missing some key pieces to the puzzle here, because if you had all of that, I think your question would already be answered.
Andrew Schultz: (06:35)
Uh, you may be surprised to find out that the post office does not actually assign addresses here in the United States. That’s actually handled at the local level by the zoning department or building department in your area. So for instance, if you were going to build a new home, they would assign you the address for your home, probably during the period of time when you’re getting your plans reviewed and getting those approved and getting your permits pulled and things of that nature in doing a little research on this question, I found that addresses are actually determined based off of the distance from an established zero point such as a city center. And then from that zero point, if you will, there’s a few different ways that numbering actually occurs. House numbers can increase by a certain amount based off their distance from that zero point. Uh, in some instances there’ll be a block and grid system in place, which is typically more common in urban areas.
Andrew Schultz: (07:24)
That’s where you’re gonna find all of your buildings in a certain block being like the 100 block, for instance, the 100 block of main street, and everything on that block starts with one XX. Uh, in some situations, addresses are determined based on surround addresses. So for instance, going back to our 100 block example, you could have a property at one 10, and you could have a property at one 30 and those two lots could have an adjoining lot line. So let’s say that one 10 splits off a portion of their property and sells it to someone who then wants to build a new home. Chances are that property’s going to get labeled as one 20 as it’s gonna be between one 10 and one 30. Typically, that’s what you’re going to see. Of course, there’s always vanity addresses that don’t make sense at all, and don’t fit in any sort of typical, um, addressing scheme.
Andrew Schultz: (08:11)
A good example of this would be here locally. We have the Highmark stadium, which is where the Buffalo bills play. Technically the us PS address of that is one Bill’s drive-in orchard park, New York. The property actually sits on Abbot road in orchard park, New York, they got a custom address, and the way that they were able to get that is because they worked with the municipality. Uh, probably the county in this instance, considering the stadium is built on county-owned land to get that vanity address that they wanted. So going back to the root of your question, if you’ve gone through the process of getting this change approved for a single-family to a multi-family, if you’ve gone through that process and had it approved by your local government, chances are this question would already be answered either. They’re going to assign you another whole address number such as 12 main and 14 main.
Andrew Schultz: (08:58)
Uh, they may assign you some sort of a designator such as upper or lower apartment or front and rear. And in some instances, I’ve even seen where they’ve used half addresses such as 12 and a half main street. So really it’s gonna depend on what the numbering system is in your area, as well as the local policy. When it comes to structures, the post office does still have some interest here. The post office actually maintains a system called AMS or address management system, which is actually how the post office standardizes addresses across the nation. So if you’ve ever gone to a website that will correct your address, when you go to submit a form, when you’re signing up for something that website, the pulling information from the AMS, from address management system and comparing it to what you typed in the whole purpose of that system is to help you correct errors and to make sure that your mail actually gets where it’s meant to go, but it does not assign addresses.
Andrew Schultz: (09:49)
It’s strictly a database of deliverable addresses. So going back to the root of the question here, go talk local municipality and make sure that you’re actually able to do what it is that you’re trying to do legally. And I think that they’ll be able to answer your question with regards to how you go about getting another address designated for your property, Les, but not least. We have our final question of the day. This one is also pulled from the landlord Subrena and this one is all about having maintenance reserves. I’m currently sitting at 18,000 in maintenance reserves for my $190,000 owner-occupied triplex built from the income of the property and savings that would’ve gone into rent. So it sounds like it’s owner-occupied duplex, excuse me, Trix. And he’s he’s charging himself run. He’s doing a good job. At what point do you feel safe, longer funding this and moving future earnings into future property purchases?
Andrew Schultz: (10:41)
I feel that 10% is pretty healthy, but please sanity check me. Okay. We can help sanity check you. Um, there are a ton of different opinions on what needs to be kept aside for property reserves. And honestly, I don’t think that there is a one size fits all answer to the question. I do think that there’s absolutely a wrong answer and that’s to have zero reserves in place. Um, but as far as how much you feel that you need to have in place for reserves, every investor is a little bit different on this. I tend to look at it from two different perspectives when I’m analyzing an investment property for purchase. I tend to factor regular maintenance at roughly five to 10% of the monthly, uh, the gross monthly rents factored on a yearly basis. So gross, yearly rents, I guess I should say five to 10% of the gross yearly rents is what I look at for regular maintenance.
Andrew Schultz: (11:29)
I understand that’s a very broad range and it’s gonna vary a lot, depending on age of the building, how many units are in the building? If there’s a ton of maintenance that’s been deferred when we purchase the building and we have to catch up things of that nature on top of regular maintenance. I also like to see a set aside for capital improvements. And again, when I’m doing the, an analysis on an investment property, I will typically put 5% of the gross, yearly rents into a capital improvement account. Now we all understand you don’t need a brand new roof every year, but you do need one every 20 years or so. And you should be setting aside money on a regular basis to ensure that you have those funds available when the time comes, same thing when it comes to a furnace or a hot water tank or any of those larger purchases, those are not an every year replacement, but you do need to have cash set aside so that you have funds available, uh, when that hot water tank or that furnace inevitably does stop functioning.
Andrew Schultz: (12:22)
When you have a roof replacement or you need to replace a hot water tank or a furnace, that stuff that should come out of your capital improvements account. When you need to fix a faucet, replace a blower motor in a, a furnace replace, a thermal couple, and a hot water tank. Those are items that would be considered common maintenance, and those should be coming out of a completely separate maintenance budget. You don’t wanna keep too much on hand in that account. You really don’t need to have too much on hand in that account. Having 50,000 on hand for one single-family residence, it’s, it’s gonna be too much money. Obvious. You may have a capital improvement account. That’s large because you’re close to a capital improvement that needs to be completed. That’s fine. That’s a completely separate situation, but for your regular maintenance account, it’s likely that you only need a few thousand dollars in it at any given time.
Andrew Schultz: (13:08)
And if you really think about it, if you have a really bad situation that requires more than a few thousand dollars in repairs are, there’s also going to be an accompanying insurance claim to go along with that. So you’re probably not gonna be bearing all of that repair cost on your own. Hopefully your insurance company’s jumping in as well last but not least I will leave you with this. This is kind of the standard that we use for our management company over at Own Buffalo. So when we bring on a new client for third party management, we collect a $1,000 maintenance reserve, plus two 50 for each additional unit. This gives us the funds that we need in order to affect emergency repairs typically, um, or at least get the ball rolling while we contact the property owner in the event that we do need additional funds.
Andrew Schultz: (13:48)
And typically speaking, we’re not really going over that maintenance reserve total, but we also have net 30 terms with more of our vendors, which means that we may not get the bill for a few days after service has rendered. And then we have 30 days to get funds from the owner to actually pay that bill if it’s above and beyond our reserve amount. Again, it’s the only wrong answer here is to have no reserve funds available, have reserve funds. That’s the most critical thing you’re going. What makes the most sense for you as you get deeper into investing, but there’s a couple of guidelines that you can kind of go by until you feel comfortable with the amount that you have in reserve kudos to you for being forward-thinking and taking the time to think about having reserves in place and good luck on finding your next investment property tenant screening.
Andrew Schultz: (14:34)
Doesn’t always have to be a tee DS process in run. Prep’s latest guide. We’ll go over how to effectively automate some of your tenant screening tasks, visit rentprep.com/blog today. For more information that pretty much wraps things up for this episode of the Rent Prep for Landlord’s podcast. Thank you all so much for listening. We truly do appreciate it. Our goal with the podcast is to help as many people as possible make educated decisions when it comes to real estate, and you can help us to reach our goal. If you heard anything in this week’s episode or any other episode that will help someone, you know, do us a favor and share it with them. If you’re looking to get in contact with me, I can be reached over at whatsdrewupto.com from there, you’ll find links to everything going on with me over at Own Buffalo, as well as other projects that we’re working on.
Andrew Schultz: (15:18)
Now, we do try to keep politics out of the podcast as much as possible, but if you own a rental property, anywhere in the state of New York, I do encourage you to learn more about good cause eviction. There are links to my videos on the topic, as well as a petition over at whatsdrewupto.com. If you’re looking for top-tier tenant screening services, head on over to rentprep.com, there are multiple products to choose from including tenant-paid options and if you’re over 50 doors ask about their enterprise-level programs and pricing. We’ve been enterprise users of Rent Prep for years now, and it’s definitely changed the way that we screen our tenants. Check that out today, over at rentprep.com. Again, thank you all so much for listening. We’ll be back in two weeks with an all-new episode you won’t wanna miss until then. I’m Andrew Schultz with ownbuffalo.com for run prep.com and we’ll talk to you soon.
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