by Stephen Michael White

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November 12, 2020

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Andrew Schultz: (00:00)
Hey everyone. Welcome back to another episode of the Rent Prep for Landlords podcast. This is episode number 337, and I’m your host, Andrew Schultz. On today’s episode, we’re going to be talking about how to handle rats. The idea of sharing equity in a home with a current tenant and how to handle utilities when a new tenant moves in. We’ll get to all of that right after this.

Voice Over: (00:22)
Welcome to the Rent Prep for Landlords podcast. Now your host Andrew Schultz.

Andrew Schultz: (00:26)
Before we jump into today’s episode, don’t forget to check out the Rent Prep for Landlord space book group. It’s a great free resource for you to network with housing providers from around the country. And if you have a question or a situation that you’ve never dealt with, chances are someone in that group has been there before and can lend a helping hand as of this recording word, 11,806 members, and we need your help to push to 12,000. Check it out today. Over at facebook.com/groups/rentprep.

Voice Over: (00:56)
Forum quorum, where we scour the internet for ridiculous posts from landlords and tenants.

Andrew Schultz: (01:04)
I don’t think it comes as a surprise when I say that not very many people like rats. Well, who’s responsible for dealing with them at a rental property. That is the topic of our first forum quorum for today. My gardener for my rental property just informed me that he found a dead rat in the yard and saw another running around the front of the house. My wife and I have lived in this home for two years and never had rodent problems. Tenants have not said anything, and I have not spoken with them about it yet, whose responsibility is it to take care of rodents like this? So we’re going to look at this question from two different perspectives. The first is going to be who’s responsible. And the second is going to be a few basic tips on how to try to mitigate an issue like this.

Andrew Schultz: (01:41)
So as far as who’s responsible, I would start with your lease document to see if it specifically mentions anything with regards to rat infestation. And who’s responsible for taking care of a rat infestation at the property. It sounds to me like this is an owner-occupied duplex. Um, so it sounds like there’s probably going to be some culpability on both of the tenants if you will being the owner and on the tenant. Um, but then I would move forward and look at state law and see what the state law indicates in terms of who’s responsible for rodent infestation. In some states you can make it a tenant responsible item, but in some States, they dictate that the landlord is responsible for rodent infestation. So knowing what your state law is in something like this is going to be kind of critical to knowing how you go about enforcing it.

Andrew Schultz: (02:27)
And then I would fall back to your lease from there, moving beyond just a lease and law thing here. I think we need to apply the third L which is logic. Do you really want rats running around the outside of the home that you are living in regardless of whether or not the home is shared with tenants? This is a situation that I would jump on and take care of just for the simple fact that I wouldn’t want rats living around my house. And I think that that makes a lot of sense logically. So what are a couple of things that you can do to try to mitigate having rats running around your house? The first thing you can do is eliminate sources of food water. And I understand that that’s not always going to be a possibility, especially if you live near a body of water.

Andrew Schultz: (03:04)
Obviously, you’re not going to be able to eliminate that, but trying to eliminate as much as you can, sources of food and water will help to deter rats from being in the area. There’s nothing for them to eat or drink. Obviously, they have no real interest in being there. The next thing I would do is do an inspection of your foundation, both inside and outside, looking for any signs of gaps that a rodent could get through and keep in mind that a rat might look very large, but they can fit through a hole. That’s a lot smaller than what you would anticipate. So anytime you find any kind of a gap or a hole where there could be any sort of infestation from outside, finding its way inside, that should be addressed right away. Another area that people don’t really think about as being a point of access for a rodent would be vents and things like that.

Andrew Schultz: (03:48)
Um, specifically I’ll mention dryer vents. I have seen rats that will pull off the, you know, the little flappers from the outside of a dryer vent, get in through there, and then just eat through either the flexible tubing or the, um, the, from tubing like IRAC can eat through that very, very easily. And now they have access to a home. Um, more recently we actually had a rat that went in through, so we’re in the upstate New York market. We have a lot of basements. They went down through the sewer vent in the front yard, ran through the sewer line, into the house, ended up climbing up the sewer stack, the inside of the sewer stack and around in the, in the toilet, the tenant woke up and went to use the bathroom and discovered a rat and our toilet and called us in a panic.

Andrew Schultz: (04:29)
So, you know, rats can get into places that you would not expect them to get into. It’s definitely worth it to take a quick walk around the outside and inside of your home and look for any obvious places where rats could be getting in. So if you’re able to get out there and shut it down before it turns into an issue, that’s probably the best way to handle a situation like this. So if you’re in a state that will allow you to self exterminate, and I know that there are some States that actually require you to hire an exterminator, you can’t even try to eliminate the issue yourself, if it’s a rental property, which I think is kind of ridiculous. But anyway, if you’re in a state that allows you to try to self eliminate or self exterminate the rats, I guess my suggestion would be, get some bait and set it out in areas where the rats would be looking to come into the home.

Andrew Schultz: (05:12)
So if you’ve maybe found a spot where there was some sort of an infestation or a place where a rat could get in and out of the property, that would be a good spot to set a bait trap. And the reason I say that is because if they’ve been using that access point for, you know, days, weeks, whatever, they’re going to continue to go back to that space to try to get into the home. And if they find a food source there in the form of, you know, deacon or a commercial-grade rat poison, they’re going to eat that. And then it’s going to take care of itself. The problem will eliminate itself over time. So that’s a good idea. And then obviously if it gets too severe, you might just have to bite the bullet and call an exterminator on something like this. It’s definitely a situation where you don’t want rats running around.

Andrew Schultz: (05:52)
And if you’re in a position where you’re getting them on a frequent basis, it might just be time to call an exterminator and have them come out. Generally speaking though, they’ll also assess those. See if there’s any easy ingress points for the infestation. And then they’re going to try to set you up on some kind of a recurring schedule where they come out and set Bay traps on a regular basis, which, you know, at the end of the day, hopefully, that helps to deter the issue. You know, rats can be a little bit of a tricky thing. It’s one of those situations where you may have to have somebody come out and treat multiple times. You may have to try multiple different tactics to eliminate the problem, but it’s definitely not something that you’re going to want to ignore because ultimately the amount of damage that a rat can do to your home, especially if it gets in the walls and starts, you know, knowing on electrical wires or something like that, it can become very substantial very, very quickly. So definitely jump on this, be aggressive about dealing with this situation and make sure that you have eliminated the problem. And ultimately this is about protecting your asset. It’s about making sure that you’re maintaining your home in a good fashion and making sure that the home remains in good condition over time. So definitely jump on this, be aggressive about it and get this problem dealt with as soon, as possible

Andrew Schultz: (07:00)
Consider giving equity to a tenant as part of their tenancy. That’s what one landlords considering let’s jump right into this one. I have a tenant who’s been renting for around three years, who recently approached me asking if he could buy a partial stake of the equity in the home, under the deal, he would be reimbursed his partial share of the net income of the property on a monthly basis. He’s a good tenant. And I think this would make sense since it further aligns our incentives, he will take better care of the property. And if he decides to move out for any reason, he will be incentivized to find a replacement tenant as quickly as possible. What do you all think? Is this something to consider? So I want to start by talking about the alignment of incentive here because I have a feeling that that alignment is not quite as large as what one would anticipate.

Andrew Schultz: (07:41)
If somebody really doesn’t have any skin in the game, how much actual alignment of incentive do they truly have in a situation like this? So if somebody and I’m, I’m kind of filling in some blanks here as to how they would be structuring this deal and stuff like that. But if somebody is coming in and essentially they’re only taking it in a negligible piece of the equity on a monthly basis, it doesn’t sound like there’s a down payment being made here or something like that. It sounds like this is kind of a, a slow, you know, buy-in of equity over the course of time. You’re talking about someone who has more than likely fractions of a percent of equity in a property. How incentivized are they going to be when they own less than 1% of the property at the onset of this thing to take.

Andrew Schultz: (08:27)
Care of the property, you know, like where, where is their incentive to, to be vested in something when they don’t really have any, any skin in the game. So until you reach a point where somebody actually owns a percentage of the property, I just don’t think that there’s going to be that incentive there that you think that there’s going to be. But I think there are a couple of other ways that you could set something like this up. If this was the route that you wanted to go, such that a tenant could buy into a property slowly, of course, we’re going to preface this by reminding you that I’m an attorney and that you should speak to somebody with a legal background before you make any sort of a commitment like this. All of that being said, the first thing that popped into my mind as to how to structure this would be having an LLC that has one asset with that asset being the property.

Andrew Schultz: (09:10)
Um, and then that person could essentially buy shares of the LLC as they had funds available to do so. Once they get to a certain number of shares, they can, you know, buy you out or whatever the case may be, you know, purchase the property from the LLC directly, or just purchase the LLC outright. You could also set this up as some sort of a rent to own scenario. So I’ve seen these built out in a variety of different fashions, wherein some instances, the tenants coming in with a down payment, uh, and then a portion of every monthly rent payment is also getting applied to the principal of the property. And then after so many years, they have to go out and actually obtain traditional financing. Um, I’ve also seen scenarios where an, a rent to own where the tenant may be. They don’t have a down payment, but they’ll make a larger than market rent payment on a monthly basis with the overage portion going into a down payment against the principal of the property or something along those lines.

Andrew Schultz: (10:04)
So you’ve got a couple of options that way, too. You could also just go the route of selling the property to the tenant on either a land contract or using an owner hold mortgage. You know, it’s very possible to get super creative when it comes to the financing of a property like this. And the nice thing is even with something like an owner hold mortgage, and you’re definitely going to want to talk to a tax professional about something like this, but you may find yourself in a situation where there are some serious tax advantages to just selling the property to the tenant and holding a mortgage back on the, on the backend. So there’s definitely a lot of things to consider here. Is this something that I would be interested in, in the purest form, the way that the the question was originally written? Probably not to be honest with you, if it was a situation where, you know, a tenant was trying to purchase a property or wanted to buy equity in the property that they were already living in or something like that, I would probably look at a scenario where the property physically changes hands to them using either a land contract and owner hold mortgage, something along those lines, such that it’s a little bit more clear cut.

Andrew Schultz: (11:07)
I tend to look at things from that perspective of, I like to have things neat and tidy, I guess, is the best way to put it, uh, when it comes to paperwork and structuring deals and things of that nature. So I don’t like a lot of ambiguity in there, and that’s why I would probably go for something that was just a little bit more structured than a back of the napkin type of a situation,

Voice Over: (11:28)
Water cooler wisdom, expert advice from real estate pros.

Andrew Schultz: (11:36)
Have you ever run into a tenant and then found out a month or two after the fact that they never switched one of the utility accounts over to their name? It can turn into an incredibly aggravating process of trying to get the tenant to comply with switching the utility over and then back billing them for the usage that was incurred before they switched it over. It just turns into a mess. And that’s exactly the problem that one of our housing providers is having in today’s water cooler wisdom. What do you do to make sure that the tenant transfers over all the utilities? Is this something to insist on before they move in? Is there a way to verify with the utility companies or would that be considered a breach of data protection? So one of the things that we’ve done with our moving checklist, and we have a checklist that we run through on every move in to make sure that we’re not missing steps along the way.

Andrew Schultz: (12:19)
One of the things that we check is to make sure on the day of move-in that utilities have been switched over into the tenants’ names. So our utility companies will tell us if the utility has been switched out of our name, which typically between tenancies, they, they default back to our name. Um, or they’ll tell us that a new service account has been established as of a certain day or something along those lines. They won’t necessarily give us the name on the account. As a matter of fact, they almost never give us the name on the account. Um, nor will they verify if we give them a name, they won’t say, yes, that’s the name on the account, or no, it’s not. They wouldn’t even do that for us anymore. So they’re obviously doing what they need to do to protect their customer while still being able to give us the information that we need, which is, is this utility switched over or not?

Andrew Schultz: (13:02)
So we make that call every time we have a move in the morning of the move in to make sure that that utility has been switched over. So if we make that call and we find out that a utility has not been switched over the tenant does not get to move in until that utility has been switched over. It’s that simple. We also don’t credit them for the days that they can’t live in a property because they didn’t switch the utility over. If it’s a utility that’s tenant, responsible, their responsibility includes switching the account over to their name. So that’s kind of the way that we look at it. It’s worth noting that in some instances, in some States, there will be a utility that can become a lien if it’s not paid for. So for instance, in Western New York, it seems that most municipalities, because water is a public utility here, it’s either run by in the city of Buffalo.

Andrew Schultz: (13:47)
It’s the city, you know, in the County of Erie, it’s usually Erie County. Some municipalities have their own water departments as well, but essentially if a water bill goes unpaid, it turns into a lien against the property. And eventually, you can lose your property for something as silly as an unpaid water bill. So if it’s a utility such as that, we always recommend that the landlord leave it in their name and then backfill it to the tenant. If that’s a utility that needs to be back back-filled. So for instance, using our water example, if it’s a multifamily, we include the water service. If it’s a single-family tenants are generally responsible for paying the water bill, but the way we handle that as to have the bill sent to our office, we backfill it onto the tenant’s ledger and just have them pay it with their next monthly rent payment.

Andrew Schultz: (14:29)
And essentially that means that even if the tenant doesn’t pay the bill, we’re going to step in and make sure that bills paid to prevent the property from rolling to tax foreclosure over something as silly as a water bill. And then the tenant is still responsible for that bill. It just remains on their ledger until it gets paid in full. So that’s kind of the way that we go about handling that to prevent ourselves from losing assets for silly reasons. And one other thing that I wanted to mention is that some utilities will offer a landlord account. Um, here in Buffalo, it’s called a Livan for landlord account and that’s with both of our guests and our electric company. And essentially what that account does is you file the paperwork with the utility. And when a tenant moves out and calls the utility disconnect service, they automatically re-establish the service in your name as the housing provider.

Andrew Schultz: (15:15)
And then that way you don’t have a gap in service coverage, essentially, you don’t wind up with a situation where, you know, again, speaking to the Buffalo market or really any cold-weather climate, you don’t want frozen pipes. And this is a good way of preventing frozen pipes in the middle of winter is by making sure that that account rolls from the outgoing tenant back to the housing provider with no gap in coverage there. So that’s a pretty critical thing to make sure that you’re looking into as well. The one thing I will note is that they don’t actually convert it over to your name if the tenant’s account is disconnected for non-payment. So there is still a gap there that could result in some sort of an issue for you, but in a lot of instances, these leave on for landlord accounts are kind of a lifesaver.

Andrew Schultz: (15:55)
So it’s worth checking it out to see if that’s something that’s available and offered in your region as well. I think that most utility companies are offering that at this point, and it really could be a lifesaver in the event that you have a tenant that just decides to disappear in the middle of the night, or, you know, you have a tenant that moves out and you just, you forgot to make that call to the utility company. You know, this is one of those things that it seems very, very simple, but it could really save you in the long run. So that pretty much wraps up this week’s episode of the Rent Prep for Landlords podcast. Thank you all so much for listening. We really 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, you can help us to reach that goal.

Andrew Schultz: (16:32)
If you heard anything in this week’s episode or any other episode that will help someone that, you know, please 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 ownbuffalo.com from there, you’ll find a contact form that drops right into my inbox. So if you have a question, a comment, a story, or something to add head on over to ownbuffalo.com and share it today. If you’re looking for top-tier tenant screening services, head on over to rentprep.com, there are multiple products to choose from including a tenant paid option. And if you’re over 50 doors, ask about the enterprise-level programs and pricing. I have been an enterprise user of Rent Prep for years now, and it’s changed the way that we screen our tenants for real. Check that out today, over at rentprep.com. Again, thank you all so much for listening. We’ll be back next Thursday with an all-new episode you won’t want to miss until then. I’m Andrew Schultz with ownbuffalo.com for rentprep.com. And we’ll talk to you Next week.

Rodent Responsibility: Landlord or Tenant? (Podcast #337)

Can you do us a solid?

Resources Mentioned on this Episode:

Show Transcription: