Ways to Make More Money by Doug Quattrochi, Executive Director of MassLandlords, Inc.

Ways to Make More Money by Doug Quattrochi, Executive Director of MassLandlords, Inc.

Resource Person:

Douglas Quattrochi – Doug

Moderator:

Richard Merlino – Rich

[Start 0:00:00]

Audience: [applause]

Doug: Thank you. I appreciate it. How many people saw the April Fools that we sent? Yes, not. Not everybody knows. It’s not real. Anyways, we always try to pair different types of topics. Tonight’s topic is if you have a property and you’re not looking to buy anything new or renovate anything new, then this presentation is for you, and I’m super excited about the hard money and financing presentation later because if you’re looking for something very new, that’s for you, but this is the first part.

My goal is that everybody walks away with one tip that they’ve never heard of before. This presentation segment is called Way to Make More Money with Existing Properties and it doesn’t exist anywhere as far as I know because it’s come from member tips. Every single slide is something here that a member here has taught MassLandlords staff or volunteers and we’ve collected it all. It’s not scam guy from the commercials, although some of these things might be kind of surprising.

First though, necessary disclaimer. Everything has been done at least once before but there is no guarantee or warranty that any of this will work for your business or in your jurisdiction. We know that the courts sometimes look at some things differently than the others, it doesn’t mean that it’s statutorily wrong. We would never do that, but just a question of is that going to fly with your local enforcers.

It’s not advised, particularly in your situation. I’m not a lawyer and I’m not an accountant, so if you have doubts about this, before you do it, you talk to someone who really is, and these are going to be online for members. If you are worried about a great tip that I go too quickly over, don’t worry about it. You’ll be able to log on and see it.

We’re going to talk with this formula which might be wrong, but maybe it’s approximately right. Maybe there is some truth in it. You’re wealth as an owner, is kind of equal to your cash plus the free time you have minus any possible future risk.

 We’re going to talk about cash in terms of income and expenses. We’re going to talk about time in terms of doing things that you have to do but no more, and we’re not going to talk about risks at all tonight because really that’s what we do an awful lot of ways like when the judge comes or when we have an attorney come, we’re talking about mitigating our biggest exposure, our legal risk. We want to try to focus on operations and the dollar side of the equation tonight.

We’re going to try to go in order of little to big ideas, so don’t groan on the first slide when I tell you about CFDs versus LED lightbulbs but that’s in here.

All right, let’s talk about cash first. This is actually from Jane. I think I’m quoting you correctly, Jane. “Math is money. You want it? Learn it.” Is that roughly right?

Jane: Right.

Doug: Yes. We kind of have to know that if we’re going to spend some money on an improvement or a process change, there’s supposed to be a return on it. I want to encourage you all to think about that, know what your rate of return is, and is constant of net present value. If you don’t know this, this is really valuable. It’s basically the idea that you can sum up all your future savings or income from that project, but stuff in the future is going to be worth less because you could have invested the money elsewhere, so there’s a kind of time factor in here.

Excel has a formula. If you’re not at all sure about this, just search for Wikipedia page or read the Excel document sign and you will see that it is pretty straightforward to calculate because of the big minus number upfront for your investment, you get smaller returns every time. I think we all know that.

Let’s start at the bottom and let’s cover expenses. Here’s the LED slide. LED lightbulbs. If you have a MassSave audit, you can get them free. Make sure you indicate when you book the audit that you have all the incandescent or CFLs, and they will give them to you as they go through. If you have a CREE or Philips bulb, we want you to know that those will meet warranty. If you buy another off-brand or less commonly known brand, you might have a warranty issue, which means you’re going to wish you saved your receipt. If you’re going to cheap, save your receipts.

As of like 2015, and the prices is a little better now, if you switch to an LED, it’s kind of like every time you put one in, it’s plus $50 if you’re paying for that bill. That’s an easy thing you can imagine having somebody go around to do that.

Water pressure is not commonly talked about, but I really like this tip. Low-flow shower heads, we know most of us don’t have submeters. We pay for that water, that’s one thing, but your mainline might be too high.

How many people have a main line reducer? A few people. Okay. Leave your hand up if you have that because you’re worried about the pipe life or duration? Okay, that’s good. If you have high pressure, you can actually reduce your pipe system life and also if you have higher PSI like if you have 100 PSI and you’re supposed to have 60, every time that faucet turns on, you’re kind of getting 32 percent more than the average person expects out of that. Main line reducers can be very valuable if you’re paying the water bill.

[0:05:00]

You can buy this little thing you get at Home Depot. Water pressure testing gauge is what you search for at $10. You hook it up to like a garden spigot outside or you can get an attachment to your sink.

All right, I think we all know that you should separate your utilities. Even if you’re going to include utilities in the rent, it’s a good idea to meter it separately so you can observe who’s using what.

Repairs, this picture of a porch repair with crutches, you know you can make do with something really cheap, right? But if you do it right, you’ve done it once and it will last for a while. You should think about whether it’s worth patching a cast-iron pipe or just opening it all up and doing it properly because that will be good for 100 years.

Subfloor issues are another one. You’re kind of like, “Man, this is so annoying,” but if you take the time to rip it up and get it all cleaned up properly, that floor will be good for a long-term versus kind of patching it. Sometimes you can make do with this cement fill stuff, but just think about how long you’re going to keep the place and whether your repair that you selected like duct taping a rafter is really the right thing to do.

There is this idea. The technical term for it is procedural cost-shifting. I mean I know landlords who will charge a bounced check fee, such that the cost of the bounced check fee from the bank plus the administration or count for it and collect it is a moneymaker for them, so they’re happy when tenants don’t pay the rent. The more bounces they get, the more they’re collecting fees. That seems slightly questionable as an ethical practice to me, but you can do that and you can put that in the rental agreement, you can get people to pay.

You can have tenants shovel their vehicles. That’s pretty standard where you clear your own vehicles away. You can ask them to do the driveway. Make sure though because the sanitary code says you have to have egress that you have those two means cleared yourself. Jane, question?

Jane: I’m asking would they like to and that would be helpful, but you don’t want them to work you.

Doug: That’s a very good tip. Yes, you’re not going to give them pay for it. You’re not good thing give them reduced rent for it because that could make them look like an employee and then you could have a liability if you don’t have Workers Comp. Does that make sense? Okay.

Then there is this other big thing, which I feel like maybe we all know, but we don’t talk about. You always want your contractor to pull the permit because when they do, if there is an error or a mistake that has to be fixed, it goes on their insurance and if they go belly-up and they don’t have insurance anymore, they’re not in business, there’s a state guarantee fund as well. But if the contractor makes you go pull the permit, then if anything goes wrong with that job or the contractor, there is no recourse for you. There is no backstop. That’s the procedural cost-shifting. You want a written contract that says they’re going to pull a permit.

All right, shopping for insurance is a big thing. Insurance companies tend to, the way we tend to increase rent, they tend to increase premiums year-over-year just to see we’ll move. You can get a better deal by shopping around. You can get a better deal if you give a single company more business, and you can also be creative and say, ‘Hey, what do I have to do get lower premiums?”

Hardwired fire panel sometimes count, depends on the building size. Security system might count. You know that if you have knob-and-tube, you can’t get private insurance generally. You’re on the fair plan and that’s way more expensive. Think about what it is that you’re actually ensuring and is there a way that you can get that lower.

Let’s talk about the topline revenue here. We’ve got a couple of different options to look at. This is the section where it gets really interesting, I think but also tends to be controversial, so I will let you know when we get there.

Your rent is usually set in written contract. As far as I know, it’s perfectly fine to code in automatic rent increase. You can code in an automatic rent increase of 15 percent and every year negotiate it down. You can put in any number you want. Based on my understanding of this just cause eviction rent control because they didn’t actually talk to owners and they didn’t think about our perspective, the wording says, “You can’t evict someone for refusing to pay a rent increase they haven’t already agreed to.”

But if they’re already agreed to it when they first moved in an automatic rent increase clause, there is your protection against that form of control. If you want to be really fair and square, the recommendation is index it to something like the consumer price index or some other objective metric, so it’s not going up by 10 percent that you negotiate down. It goes up by whatever the CPI goes up by.

There’s a picture of an evil landlord there because we’re always raising our rent, right? But that works.

Some folks are very effective with other income streams, and this is not necessarily for everyone, but vending machines, generally the company will pop it into the property and they will stock it, and they will collect the money and they will give you a cut of it. There’s no work involved in those sometimes.

[0:10:04]

Coin-up laundry more tedious, difficult, you have to maintain machines, empty the coin collectors, do the credit card swipe if you’re going that route.

Car cleaning companies, you may not know if you have a large complex. They will come to a place, and they will detail people’s cars. You get four units, the four of them want it, you have a detail to come, you get a cut of the four details. The tenants get their cars cleaned. That’s easy, right?

You can also offer cleaning service if you want to go that route. You can have somebody come in quarterly to steam carpets for an additional fee or a touch of paint or stuff like that. That doesn’t have to be covered by your agreement necessarily, the basic cleaning for the tenant. It keeps your investments safe, too. You get the mold out of the tub.

Okay, this is a favorite here, Jeff Taylor AKA Mr. Landlord runs a website. He has this great idea, anniversary upgrades. He is basically saying if somebody renews a long-term lease, you say, “Congrats for being a long-term resident. Pick one of the following: big improvements, new bathroom, ceiling fans, new appliances, kitchen cabinets.”

It’s an exciting way for the tenant to get something new because they signed up for another year. It’s a really great way for you to keep your property modern because now if you get a long-term tenant there, 5 or 10 years, it’s going to look dated when they move out but not if you can upgrade it while they’re in there.

Be super careful. The tenant has to feel like they’re getting a great deal out of it because you’re going to violate the sanitary code during that process for big renovation like they might not have a shower for a day or two if you’re going to retile something, so you need a contractor that can do that quickly and correctly, cleanly, make the tenant feel good.

This is a mistake that some folks have made trying this, you want to simultaneously negotiate that rent increase into the new lease singing, so say, “I will give you the new bathroom if you agree to a 4 percent annual,” or something like that so you get your return automatically in there.

Rich: Does anybody have any questions about some of the gems that Doug has covered so far?

Male Audience 1: Yes [unintelligible 0:12:08] on the net?

Doug: You have a what?

Male Audience 1: [unintelligible 0:12:10] on the net?

Doug: Yes, it’s going to be online.

Rich: That was actually one of my questions. I knew this was going to have some gold nuggets in it when there were disclaimers at the front.

Audience: [laughter]

Rich: Like I’m going to show you some stuff, but I can’t take credit for it if it doesn’t work out, so that’s when you knew there were some good things. If you like math, and have you read Frank Gallinelli’s book, A 101 Things Every Real Estate Investor Should Know About Cash Flow or something like that?

Doug: Okay, no, no.

Rich: It goes over IRR, internal rate of return; NPV, net prevent value; the future value of money. It is a math book. If you’re not interested in reading a math book, don’t get it or give it to one of your assistants or something, have them read it and give it back you highlighted or something. Brian has a question.

Doug: Say it again.

Rich: The author’s name is Frank Gallinelli. I think it’s Frank. If you will just look up Gallinelli or real estate cash flow book, it will come up.

Brian: The cook is really good. On the anniversary, something we’ve done in the past, we do that. We’re disciples of Mr. Landlord, Jeff Taylor. If a tenant comes to me before their anniversary lease comes up, maybe three, four, or five months in advance and they say, “Hey, Brian, that ceiling fan is looking junky or we got to replace the stove pretty soon,” I’ll use that as an opportunity to bring up the anniversary and say, “Mr. Jones, that sounds great. If you renew your contract increase, would you like a brand-new stove as your anniversary gift when you renew your lease?”

Then they start counting down the weeks. “Oh, I can’t wait to renew my lease.” What I’ve done is I‘ve just signed Mr. Jones up to pay me another $10,000, $12,000 next year. You can use that anniversary thing if you know something is going to be done in the apartment, you can presell it and try to lock them in.

Doug: Great tip. Thank you.

Rich: All right. Anybody else in the back of the room or do you want to wait until I make it to the front and then raise your hand?

Audience: [laughter]

Rich: It’s entirely up to you, guys. Okay, all right. Go ahead, Doug.

Doug: Was there a question here?

Rich: Bill has one. Sorry, I didn’t see that. Good. That was kind of the direction I was generally headed anyway. That works out well.

Doug: Did you have a question [unintelligible 0:14:46]?

Female Audience 1: Yes. You can just—

Bill: Mine is more of a suggestion.

Doug: Sure.

Bill: I just had a new hot water heater installed this week and just before I came in, the tenant called the town, which I knew they were going to do anyway. They like to try to avoid paying rent. This company was a subcontractor of another company I was dealing with and I asked the subcontractor. I said, “Did you get a permit to do this?” “Yes, everything is all set.” They charged ne for it, and I’ve had this happen before, they charge you for getting a permit but they don’t get it, but luckily in this particular town, we have a person—

[0:15:34]

Rich: Can you hold this a little closer to your mouth?

Bill: Yes. We have a person on the board of health and the building’s department that follows up on these things. Anyway, they tried to make it my responsibility to get that permit.

Doug: Yes. Always work with contractors in writing.

Bill: Exactly. Yes.

Doug: Because then you have recourse. It’s a very good comment. Thank you.

Bill: Yes.

Rich: Because I don’t trust anybody, if the contractor says he pulled the permit, I’m calling the town, have them fax it to me. Most towns are pretty quick with it.

Doug: Pro tip right there. Jane?

Jane: You can simply request an increase from Section 8 or RCAP. We have this year and they all complied. You know not a huge increase but yes, they did agree to it.

Doug: Yes, that’s a good point for rent increase with subsidy administrators. They would much rather pay higher rent than have to place a tenant all over again. All right, that was a great natural pause.

Let’s talk about this idea of negotiating up and this is where we get into some really interesting stuff. Let’s assume that you have a lot of paperwork to run your business. If you’re a by-the-books kind of person, you’ve got an applicant qualifier that’s using the points system. So it’s not like, “I like the way this person talks. I’ll rent to them.”

This person got 70 points. We have this on the website. Let’s assume you’re doing that consistently for all the tenants and you have no track record of discrimination, so anytime anybody raised the issue, you have paperwork to show you weren’t discriminating and you’re not a discriminator.

Okay, you can do certain things that you might not have thought to do like ala carte pricing. You can say in your ad, “The lease price in the ad covers base rent,” and it is very common where utilities are extra. That’s no surprise to anyone.

You could offer to pay utilities with solar and then bill the tenant. That’s possible, too. You can charge extra for parking and extra for storage and if a parking space opens up, you can offer it to an existing tenant and you say, “Would you like to sign a lease addendum or new lease that comes with this free parking space?” That’s all pretty non-controversial, I hope.

Let’s take a deep breath for those of us who are keyed up on the discrimination laws.

You can charge extra for pets. Now be careful. You can’t charge pet rent. We know that pet rent is illegal, right? Pet rent is illegal. You can’t take a pet deposit. You can’t charge pet rent, but you can say something like, “The advertised rent assumes no pets,” and if you’re sure that they’re not a service animal or an emotional support animal, you can negotiate the rent up. That’s what we mean by negotiate up.

Negotiate the rent up to a higher price point that what you advertise to accommodate the additional animal or animals. We’ve had Judge Horan in the past say that’s how business works, the law is silent on negotiating. You can’t charge pet rent but you can negotiate. Does that make sense?

Okay, have I made anyone nervous? Raise your hand. Be honest. Have I made you nervous? Okay. I’m about to.

Rich: Oh, boy!

Doug: Let’s just start with the mechanism, though. The way to do this without discrimination is, modify the applicant qualifier, your point scoring system, and count for each animal you want to have, some kind of increased wear and tear. Maybe snakes and fish are different because they’re in an aquarium than dogs and cats but figure out how you want to do it and assign a dollar value to it.

It’s not in our default form, but if you do that for your own business, then anytime somebody says they’re discriminated against my emotional support bison, you’ve got the paperwork that says, “I was going to charge them because bisons are an extra $500 a month.” Question or comment?

Male Audience 2: I’d like to go look at the new lofts, the new Front Street apartments.

Doug: Yes, you looked at the lofts Front Street.

Male Audience 2: I was going to walk through whenever I saw the leasing stuff, I was [unintelligible 0:19:33] tenant, I was going to be  like rent whatever because I wanted to do a walkthrough, see the building.

Doug: Sure.

Male Audience 2: They have a thing that you can have two pets. You got one pet $100, second pet, another $100. I got two dogs for $200, nothing. How is that, you know what I mean?

Doug: The comment was it says in the agreement that pets will be $100 for a dog, so $200 for two dogs, and that’s pretty common for large organizations across state lines. I would not recommend that for Massachusetts. Negotiate everything before you get to the written paperwork part. Have a paper trail to say why you’re not discriminating, but in the rental agreement, don’t mention the pets are extra, so this is the rent and it allows you to have this many animals.

[0:20:20]

Okay, deep breath again. If you like that logic about charging more for pets, how about charging more for people?

You can say, “Advertised rent assumes one occupant based on utility usage and wear and tear. The maximum occupancy of this apartment is X people based on square footage and we all know the sanitary code: 150 square feet for the first occupant, 150 for each additional, plus you need 70 square feet of bedroom for the first occupant and 100 for two for each additional. So, 900 square foot without a bathroom being counted in that because that’s not how you do the square foot. You only count livable space, so no bathrooms, no hallways, no storage.

Occupancy, under the law, 900 feet is eight people. How many landlords here would comfortably rent to eight people in a 900-squaree foot apartment? Here we go. One taker. All right, so you’re a good person and you’re providing a lot of affordable housing for people, but most of us would feel like, “Whoa! Wow! That’s a lot of people.”

I just imagine, I would rather rent to smaller group of people, but that’s not fair for large families.

Male Audience 3: What if it’s their the apartments?

Doug: It doesn’t matter what the relation is. If the city allows us to have this many, if they’re related, the city says eight, so if it’s parents with six children, city says that’s fine currently. But you can still potentially charge more for it. Make sure, though, when you do your point scoring system, that you are really careful. You can deduct 5 points for each occupant for never for kids. Don’t put a separate value on kids because that’s super discriminatory. Never for anything related to marital status. Just each person above 1 and you put a dollar value on it, so there’s going to be an extra—I don’t know. This is a strawman number: X dollars a month for additional people.

The really nice thing about this is it shows a definite to rent to large families that often honestly have a hard time getting placed. Just make sure you’re saying in your ad what the maximum occupancy is and that you’re willing to go up to that, the base rent assumes one occupant.

Rich: So when people go online and they’ll look for communes for rent, they will find your apartment that will allow 8 to 10 people at it.

Doug: Yes.

Rich: Perfect.

Doug: Okay, so let’s be really careful here and let me reemphasize some points I made earlier. You’re going to have a clean business record. You don’t want to be in anyone’s sights already. You’ve got to do this for business reasons only. Same treatment for everyone, all disclosed up front. Remember, it’s not free money. You still have to be competitive. You have to be transparent with your pricing. If you’re not competitive and transparent, you can have a hard time convincing people to pay an extra X dollars for each occupant, but it definitely can be negotiated up.

The logic, it’s much more comfortable if we back off for a second and we think, “Well, maybe I’ll charge more rent for someone with bad credit. Well, they have a minor criminal history, but not enough that I really want to turn them away if they’re willing to pay extra for it, or they’ve been evicted but it was kind of a long-time ago and they’ve convinced mee that they’re okay. You can negotiate up for all of that.

You can see that all the time in the credit in the credit industry, right? If you have worse credit, you can still have get a loan sometimes, but you’re going to pay more interest for it. Makes sense? Sarah?

Rich: I’m waiting for the next slide. Is the next slide, does it mention the FCRA?

Doug: The next slide does not mention the FCRA.

Rich: Can I mention the FCRA?

Doug: Yes.

Rich: Okay. The Fair Credit Reporting Act.

Doug: Fair Credit Reporting Act.

Rich: If you change the terms of anything based upon someone’s credit report, even if you rent to them, you have to give them the disclosure form that tells them they get a free credit report and which bureau you pulled stuff like that.

Doug: That’s an important omission from the slide. Thank you.

Rich: Most of us are familiar that if you turn somebody down, that you have to provide that FCRA letter, right? But it’s not just if you turn. It’s even if you change the terms, so make sure you make a note of that, too.

Doug: Uh-huh. The idea here, again we’ve got a mechanism and you’re being objective about it.

Point scoring. Yes. Nobody is perfect, so this photographer is trying to get the penguin but the penguin is right behind him. In general your tenants won’t be perfect, but if you have an objective business-related mechanism for doing this and you’re FCRA compliant—thank you, Rich—this is fine.

If you’re going to embark on any of these roads down any of these paths, really you have to read 940 CMR 3, the Consumer Protection General Regulations. The attorney general has read Mass General Law Chapter 93A and he said, the following things shall be specifically very, very bad, and I will persecute the bejesus out of you if you do them, and there is a lot of stuff about disclosure of pricing and terms. If you put something in your ad and you get someone at lease singing and you’re springing surprises on them, that’s super bad. You’ve done it wrong. All of this has to be in your ad or upfront.

[0:25:17]

Also, you really want to look at case law and talk to local owners. Judges can dismiss eviction cases for surprising reasons or for no reason because they don’t like the way you run your business, and this is what we call a “tight follow,” so you’re following the law very rigorously but courts have the power to interpret and they also have powered equity to do things that aren’t specifically spelled out in the statute. You want to make sure that if you’re doing one of these tactics and you’re worried about your local jurisdiction, you might have to do cash for keys negotiation rather than rely on the courts, so that’s my business advice there.

There’s a question or comment about? No? Okay, in summary though, I mean if you do something like this, you will find tenants will be very happy. No one else will rent to me or to my large group of people or to my criminal record, and you can get higher rents to offset your risks.

It’s really a positive message. It’s not supposed to be about securing the law. It’s supposed to be making us aware about how to do things correctly in ways that are obviously not discriminatory. Makes sense? All right.

Let’s talk about time. I just want to leave you with a couple of ideas here under time. The first of these is opportunity costs and this is kind of morbid, but at the end of our lives, we all have money in our estate probably, but we will be all out of time, so let’s not dwell on that.

The basic idea of opportunity costs is if you’re doing something, you can’ t be doing something else. In any given day in our rental business we have a choice like what are we going to do, so here’s an example about time management. You have a to-do list. You have to screen some tenants to get an apartment lease started and you got to reconcile your accounts for taxes. Each is going to take you four hours. You get time to do one of those things. You’re the only one in your business who can screen tenants. The account couldn’t reconcile stuff for you, but you normally do it. If you ask them to do it, they’re going to charge you extra. This is an opportunity-cost math problem.

Here are your options. Screen now, get those tenants signed and task the accountant to do your reconciliation, so you’re going to earn let’s say a one-year lease, you have $100 probability per unit. That’s $100 of net earnings, and that’s obviously a made-up number, but let’s say you’re plus $1,200 for getting those tenants signed and you’re going to be out $400 for paying the accountant, so you’re out $800 on Friday. Monday, this is about time management, you’re going to start clean slate. You have nothing to do left over from last week. That’s option 1.

Option 2 is you can screen the tenants now and reconcile stuff on Monday. Same as always, you do everything. You’re going to have your $1,200 profit now, and you’re not going to have to pay the accountant $400 but you’re going to start Monday with a backlog, and think about all the pressures you have on your day, right? Can backlogs grow? Yes, they can.

The third option obviously the worst here. You do your taxes now. You screen your tenant Monday. You end the week with no actual income for that unit. We would never do that, I think we agree. But the math that you want to look at is about you’re trading time for money, so here you’re paying an accountant $400 to save you four hours’ worth of work is what we decided that we take you to do.

If your opportunity cost is greater than $100 an hour, you want option 1. If on the other hand, you calculate your opportunity cost, the value of your time, to be less than $100, you want to do everything as what you have done: screen the tenants now and do your tenants yourself Monday, or if you’re going to have less than $400 of extra cash at the end of the year, you can afford to hire an accountant anyways. You’re going to do that option 2. Make sense?

Okay, so you should be thinking about this. I know a lot of us get stuck in this trap where we used to be the only person who could fix stuff and we were really good in it and we are still, but our busines has grown to the point where our time is really valuable, so at some point we have to ask ourselves why are we doing these things still. That’s going to online. You can look at that in detail later.

The last piece we want to leave you with is about using technology to avoid labor costs altogether. The dream tenant is a rich, I guess they look like a member of the royal family there. They always pay three days early.

Rich: Hold on.

Doug: What?

Rich: Is that an emotional support leopard in the passenger seat?

Audience: [laughter]

Doug: Yes.

Rich: Okay.

Doug: They are the dream tenant. The leopard will also clean the toilet, highly trained. Basically they have always money and it costs you nothing to get it. But in actuality, it’s like Rent the musical where your tenants are singing how are going to pay last month’s rent. We’re so behind here.

There is this idea here that there’s a live administrative work in chasing tenants for rent and if you’re a businessowner, maybe it’s not even worth your staff to do it if technology can. We want to leave you with some real concrete ideas for how to automate your rent collection tonight.

[0:30:00]

Option 1, automatic recurring bill pay.

Basically you can like we’re talking about being harsh with your screening criteria. You can refuse to rent to tenants who can’t use a computer, who can’t figure out bill pay. That’s allowable. Every bank with online banking has it. It’s a free check that gets mailed automatically every month and it’s easy. It’s predictable and it works as free, but fewer works will do it. They need to have a balance in their account where they’re never worried about that bill pay hitting at a bad time. It’s generally not easy to reschedule that. You have to go and cancel the bill pay and start a new one, and if there’s any kind of overdraft because paper checks are weird, it’s $30 on each side potentially. The bank start to use high fees. It is cheapest though if  everything works well, so you should think about requiring in your rental agreement automatic bill pay.

Option 2, we have five options here and we’re done. Option 2 is manual ACH.

It stands for automated clearinghouse. Think of it as an automatic check. Anyone can become what’s called NACHA originator and authorized to move money through a bank to other banks via ACH. You have the written authorization to debit like on the back of the pink support form, and all you have to do is talk to a bank that does business services and ask for the person who handles ACH, and they can set you up with that.

It can cost very little money. It’s predictable. You have flexibility on timing, but you have to do things manually. You have to log in and the interesting thing is there is no bounce fee for the owner, for the recipient of the funds. There will be a bounce fee for the tenant. You’re going to have to pay a monthly fee as the owner and you’re going to have to always compliancy to make sure your tenants aren’t using your rental operation to launder money, which is a strange thing to think about, but there are laws about called Bank Secrecy Act.

Rich: How much extra do you charge in rent if they’re laundering money?

Audience: [laughter]

Doug: I don’t know and I don’t even know if you want to put that in the rental agreement.

Rich: I don’t want to make this any longer, but do you have any idea of what the monthly fee is for the owner to have like arrange it all?

Doug: Twenty-five dollars to $100 a month, depending on the bank.

Rich: Okay, so if you just have a duplex, it doesn’t make sense, but if you have a bunch of apartments, it’s probably good.

Doug: Right.

Rich: Although I take it back. If it saves you a quarter of an hour to $100 an hour, then makes sense it’s $25.

Doug: Yes, it might. Credit cards, we know you can take a rent with credit card. It’s $30 to $60 per $1,000 collected. That’s a lot. You can get the money even if it’s not there. It’s the major pro. Think about that, if the tenant is bankrupt, you know it and you have that credit card option, you can potentially get a month’s rent that you wouldn’t otherwise have had, or maybe two month’s rent, but the tenant had to have adequate credit at the start of that, so they have their credit card and they’re still going to have to do all the communication on that, and it will cost as much as a bounce check just to get the money, but that’s a good payment of last resort.

You can look at property management software. It combines kind of all of the above options. There are some real big ones if you’re growing you want to look at, you want to be aware of. Buildium, Appfolio, Yardi. PayNearMe is amazing. A tenant can stuff cash into an ATM and it can land in your bank account directly. Some of those are really good. They have a host of other features like maintenance requests and portfolio management.

Cozy is actually free to collect rent and that’s an automated system. Buildium is $45 a month for your first unit, $150 for 100 units, so there is some pricing in there. They’re generally are not set up to do rent collection. Timing is hard. Partial payments are hard. It’s not their primary business. They’re mostly about managing maintenance. We’ll just say MassLandlords gets commissions from Buildium if you like that one. You’re helping us out, the others not so much, but pick whatever one is best.

Option 5, we have a RentHelper Pilot, which we wanted to show here. That’s actually Sandra. It was designed with Sandra’s tenants in mind. She had a tough group of clientele. It’s like a management software, but it’s a light version of it, specifically for rent collection. It’s text message controlled, bank debits, so the default is it’s going to be debited, but if they don’t want to, if they don’t want the money, they don’t have to log into a computer. They can just text back. It’s kind of stress-free chasing payment, and it’s reported for credits.

All of Sandra’s tenants are now building credit with this if they’re roughly on time. The rule is if you’re within 30 days, it counts for good credit, so all the tenants love it and are eager to sign up. Sandra gets all the communication. Most repairs are fast. She doesn’t have to do money orders anymore, and all the rent goes individually into her owner’s accounts.

This one is between ACH and credit cards in prices, $6 per 1,000, not $60. It’s $6, so there’s a fee associated with that. You get a free trial for a year if you’re a MassLandlord’s member. It’s run by programmers out of Fitchburg here, but it’s worth trying if you’re all interested in this specially if you have a tough payer.

Peter, I put you up on the slide here because we did this interview a couple of years ago and you said basically, “Hey, we changed my renter. This was giving a hard time. We changed them to weekly payments. They became my best tenant.”

[0:35:00]

There’s a lot of potentially revenue lost from bad rent collection and there’s a lot of potentially time loss, so we want you to think about that and hopefully these five options have given you something to consider.

That’s the end of rent collection and it’s also the end of our presentation. I hope everybody walked away with something new that they had never heard of before. Can you show up hands if you did learn something? Okay, great. Super. Well, thanks for letting me share with you the aggregate of all our tips, and if you have other tips, just let us know. We’ll add them in.

Rich: We have time for three quick—Doug, are you going to be around after the meeting?

Doug: Yes, I’ll be around.

Rich: Okay, terrific. We have time for three quick questions right now before we move on to our next speaker. Who can get their hand up the fastest? Over there, one. Okay, terrific.

Doug: Okay. By the way, on the lease, this is the RentHelper thing for the free trial. It’s the blue paper.

Male Audience 3: I don’t own any buildings, but I was just thinking from rent collection standpoint. Could you take Venmo?

Rich: You can take anything?

Doug: Yes, you can and you know—

Male Audience 3: There is no fee there.

Doug: Yes, until 6 months ago, Venmo was a disastrous idea because the tenant could always reverse the rent payment. Venmo was designed for friends to send money, but now they’re much tighter around that and it’s a really difficult process unlikely to work.

Rich: You mean they can reverse it after the money had been sent?

Doug: Yes. It’s been in your account for three months. They can pull it back.

Rich: That’s terrible!

Doug: But that’s fixed. That’s fixed now.

Rich: That’s not a good idea.

Audience: [crosstalk 0:36:30]

Brian: Hi, Doug.

 

Doug: Hi.

Brian: My comment is also on Venmo. We’ve been using it for the past three months. I think I spoke to you about that and you told me about that reversal thing, so religiously now when it pings through my phone, I open it, I hit the button transfer funds and within 20 seconds of me receiving that notification, it’s on its way to my bank account. Three months? How many landlords would let your rent sit in the mailbox for three months?

Rich: No.

Doug: It happens.

Brian: Okay, nobody rose their hand. I like them more a lot. It’s free.

Doug: Great. Thank you. Everyone should try Venmo then.

Rich: Cool! I actually use Buildium. I have 24 apartments that the rent all gets collected whether it’s weekly, biweekly, or monthly, and it’s $0.50 per check transaction.

Doug: Super cheap.

Rich: Super cheap [unintelligible 0:37:30] and the residents pay the $0.50, so I don’t even pay it and it’s worked that well for me.

Doug: Great.

Rich: So—

[End 0:37:34]

This is part of the Worcester Rental Real Estate Networking and Training series.

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