\n<\/p>\n
First rental property<\/strong><\/a>?<\/strong> Security deposits<\/strong>, credit checks<\/strong>, and home renovations <\/strong>can seem DAUNTING when it\u2019s your first real estate rodeo. How much do you charge, which tenant do you select, and will refreshing the grout allow you to double your passive income<\/strong>? These are just some of the questions you\u2019ll have before you collect your first rent check<\/strong>. But don\u2019t worry about answering them yourselves; we have the experts to help!<\/p>\n Welcome to this week\u2019s Rookie Reply<\/strong>! If you\u2019re just starting your real estate investing journey<\/strong>, this is the place to be! Ashley and Tony go through some VERY common questions, such as what to do if your tenant terminates their lease early<\/strong>, how much to charge for security deposits<\/strong>, and how to run your first credit\/background check<\/strong>. For those who are a bit more experienced in the investing game, we also chat about HELOCs<\/strong>, rental renovations <\/strong>(and if they\u2019re worth the cost), and moving properties into an LLC<\/strong>.<\/p>\n Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Sonia: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: \u00a0<\/p>\n<\/div>\n Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds and instructions can be found here<\/a>. Thanks! We really appreciate it!<\/p>\n Interested in learning more about today\u2019s sponsors or becoming a BiggerPockets partner yourself? Email <\/em>[email\u00a0protected]<\/span><\/em><\/a>.<\/em><\/p>\n Note By BiggerPockets:<\/b> These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.<\/p>\n
This is Real Estate Rookie episode 332. How much should I charge for a security deposit? The first thing that you need to do is know what you are allowed to charge per your state laws. A really, really great resource is Avail.co. It will actually tell you what your state laws are.
Does this only cover damages for the security deposit? So, that\u2019s what you would put into your lease agreement. And one thing I highly recommend is putting into the lease agreement what somebody will be charged. So, actually, itemizing like here is your checklist of things of how we want the apartment to come back from us. My name is Ashley Kehr and I\u2019m here with my co-host, Tony Robinson.<\/p>\n
And welcome to the Real Estate Rookie Podcast where every week, twice a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. Today we\u2019ve got a Rookie Reply, which means we\u2019re taking questions from our Rookie audience. I say today\u2019s episode is a little Ashley heavy because we\u2019re talking a lot about tenants and long-term rentals. We talk a little bit about LLC structures and HELOCs, but lots of good information we\u2019re going to get into for you guys today. Yeah.<\/p>\n
Yeah. We also talk about what attorney you should use from which state when you\u2019re dealing with deeding properties, transferring title or creating your LLC and putting your properties under the LLC. So, lots of great questions today. If you have a question that hasn\u2019t been answered yet and you want answered, please go to biggerpockets.com\/reply.<\/p>\n
All right. Now, I want to give a shout-out to someone by the username of Dela Rogue. This person says, \u201cExposure to realistic real estate. The show is great for people like me who work a full-time job, but want to learn more about investing. Real estate investing seemed overwhelming at first, but Ashley and Tony listening to them every single week helped me get comfortable with all the terms being thrown around and investing in general. I\u2019m on the BiggerPockets forums now and learning as much as I can before I execute my first deal.
Thanks for all the tips guys.\u201d So, for all of our Rookie\u2019s that are listening, we\u2019d love to hear from you. Tell us your story by leaving us a review on Apple Podcast, Spotify, wherever it is that you\u2019re listening. But the more reviews we get, the more it helps the show grow and the more the show grows, the more we can inspire folks just like Dela Rogue. So, do us a favor, leave that review.<\/p>\n
Now, let\u2019s get in to your questions.<\/p>\n
All right. Guys, so today\u2019s first question comes from Gamba Lume Jessin. Gamba Lume, I hope I got the first name right there. But Gamba Lume\u2019s question is, \u201cHi, team, me again. Question, if rent is payable in advance by the first day of the month and the tenant doesn\u2019t do so and five days later they want to move out, do you demand rent for the month along with the late fees?\u201d So, Ash, it\u2019s probably more of a you question. All of my \u201ctenant\u2019s payment\u201d before they step foot of my property.
So, I don\u2019t have to deal with this as much. But how do you handle folks that want to leave? My assumption is that they still got to give you 30 days\u2019 notice. Typically, that\u2019s what\u2019s going to be in your lease is you can\u2019t just say, \u201cHey, I\u2019m moving tomorrow.\u201d But yeah, I guess curious Ashley to hear how you handle those kind of situations.<\/p>\n
Okay. So, for this in your lease agreement, there should be some clause that states if you don\u2019t give 30-day notice and you just randomly decide to move out that your security deposit is completely forfeited. With this, yes, I would still, if they didn\u2019t give proper notice according to their lease agreement, they would still owe. In lease agreements you can see clauses too where somebody will put in that if you move out before your lease ends or you don\u2019t give proper notice, you are liable to pay the rent on that property until somebody else moves in.
And as the landlord, you have to actively try to market and get somebody into the property. The hard part is trying to collect from that person no matter what your lease agreement says about them terminating the lease early or not giving proper notice, it is very hard to collect from that person. So, yes, you can still charge them for that month\u2019s rent unless you get somebody into the property right away. So, say maybe day 10 you get somebody in, you could charge them for the first 10 days. But then, since you already have somebody else in the property, unless it specifically says in your lease agreement that if they move out early, they have to pay a full month\u2019s rent and you retain their security deposit or whatever that may be.
That has to be written out in your lease agreement. In this example, let\u2019s say there is no clause about moving out early or not giving proper notice. In this one, I would try to charge the tenants for moving, vacating early and see what would happen if they would actually pay it. One thing you can do is you can\u2026 and a lot of property management software is putting this into their systems now, where you can actually send a tenant\u2019s information out for collections. And they\u2019ll be able to\u2026 from there, the collection agency takes it and they call and they collect and you may get the money, you may not.
But also the collections agency takes a large percentage. They also have very regiment rules as to was actually eligible for collection. So, in the circumstance they may say in your lease agreement, it doesn\u2019t say what the rule is for somebody terminating early. And we don\u2019t think that this is something we can actually collect on by law.<\/p>\n
Ash, let me ask you this question. I actually don\u2019t know the answer to this. But if you had your tenants banking information on file checking, routing information or debit card, credit card, if they violated your lease in some way, could you just automatically bill their card? Is that like a thing that long-term landlords do?<\/p>\n
The property management company that I used to use, they actually would take the tenant\u2019s information for their auto withdrawal and they would set up on their end. So, they would have the full account information whether there\u2019s credit card or a bank account. The software that I use, I do not see any of that that is completely in the residence control. But one issue when I let the other property management company go and took back over when we switched everyone over the property management company never turned off everybody\u2019s online payments. So, people\u2019s account had paid us the new property manager, but also then they got the money taken out of their bank account because the property management company never shut off those payments.
And it actually was a huge ordeal. Obviously people were really upset because they just double paid for their rent and it\u2019s like, \u201cOkay, how is it getting back?\u201d And then, it was a nightmare just figuring out, okay, who already paid the property management company and who didn\u2019t and things like that. But I don\u2019t like the responsibility or the aspect of me actually having that person\u2019s account information. I like it that it\u2019s a third party software that has security in place, cybersecurity in place where that information is protected.
So, just like with tenant screening, if you are actually going to do your own tenant screening where you\u2019re going to collect to the person\u2019s social security number, you\u2019re going to do all these different things. A lot of software company will actually do a check on you as in they send someone to your office to make sure you have a lock on your door, you have a filing cabinet with a lock that your computer is encrypted, all these different things just for you to collect somebody\u2019s social security number. So, with all of the internet things that go on and all of the scams and everything today, I would suggest if you can avoid.
And this is one of those situations where you can use software and you can avoid actually collecting your tenant\u2019s bank information or credit card information and somebody scams them, it could make you reliable because they say, \u201cWell, you don\u2019t have any kind of protection. Somebody could easily hack into your computer and get that information off of it,\u201d things like that. But Tony, I did have a question for you though, which it\u2019s more towards medium term rentals, but it\u2019s through Airbnb. So, there\u2019s been a couple of times where I\u2019ve had somebody saying for a long time, like three months say for example. And so, Airbnb will collect one month at a time.
So, if somebody books longer than one month, they don\u2019t collect the full amount. People can set up payment plans almost where they\u2019re in the property for a month and then month two, Airbnb will pull another payment from their credit card on file. I\u2019ve gotten the notification that the Airbnb cannot collect from this person. And it doesn\u2019t say what it is, but it\u2019s always been rectified within 24 hours. I get the email saying the person has paid, but have you ever had anything like that happen or not?
Because it\u2019s mostly short-term rentals. And what would be your suggestion of what to do in that circumstance? If you do have somebody from Airbnb in the property, they\u2019ve rented it for three months, month two comes and they don\u2019t pay and they shut off their credit card or whatever and Airbnb can\u2019t pull from it anymore.<\/p>\n
Yeah. We\u2019ve never had that issue because all of our properties are traditional, true short-term where folks are at most during the holidays we might have someone say 7 or 10 days, but never anything beyond 30. If I were in that situation where I had an Airbnb guest whose payment failed, I mean obviously, I try and reach out to them first. But if for whatever reason I couldn\u2019t get in contact with them, I feel like my next steps would be to try and get them to physically leave the property. So, I might try and call the sheriffs, I might try and call the local PD, whoever I can to assist in getting them to get out.
But then, it gets dicey and depending on what state you\u2019re in on, if they\u2019ve been there long enough, say that they\u2019re on whatever, a 90-day medium-term rental stay, even like a six month and you\u2019re on month four, when they stop paying, then you kind of get dicey around like, \u201cHey, what are your options?\u201d So, my first move would be to try and get them to leave the property physically and then if I can, I guess you got to start an eviction process or something.<\/p>\n
Yeah. Yeah. Maybe then they\u2019ll start throwing out squatter laws.<\/p>\n
Yeah. And that\u2019s why. I mean we\u2019ve had to call the sheriffs I think once or twice to help get people out on the short-term rental side. Typically, by the time when we tell them, \u201cHey, we just called the sheriffs, it\u2019s time for you to go.\u201d Usually they just leave on their own. But we\u2019ve never actually had to physically remove someone from one of our properties before.
So, fingers crossed I never have to. But yeah, I\u2019d be, I guess guessing a little bit on what I\u2019d be doing in that situation.<\/p>\n
Yeah. So, with that, was that during their stay and you had them leave early because they were in a party or was it because it was past their checkout and they weren\u2019t leaving?<\/p>\n
One of each, right? So, we had one guest, I think I told the stories like these two crackheads, like actual literal drug users. I don\u2019t say crackheads in a funny way, but they were actually doing crack cocaine in our property. But we had to call them because we knew who they were, we wanted them to leave. And then, the second time was someone that just stayed exceptionally late and they weren\u2019t super responsive.
And then, \u201cOh, I\u2019m sorry, we overslept,\u201d or something like that. So, those are the two situations. Never for a party. Most of our properties are smaller, especially the ones in Joshua Tree, so they\u2019re not even meant for a party. And then, our cabins in Tennessee, I don\u2019t know, it\u2019s mostly families and grandparents and grandkids. So, we\u2019ve never really had to deal with parties too much.<\/p>\n
Okay. Our next question is from Alfonso. \u201cIf I take out a HELOC on my primary residence, but I don\u2019t access any funds yet and just have it open, what happens if I decide to move? If I choose to access my line of credit, does the lender ask if it\u2019s still my primary residence? Will the lender close the account?
Can someone clarify? Thanks in advance.\u201d This is a great question. And our friend Tyler Madden, who\u2019s been on the podcast before has actually talked about how he did this with his primary residence. He was getting ready to purchase a new house and so he went and got a HELOC on his primary residence that he was going to keep a rental property.
And he did this before he closed on his new house. And he actually used the same mortgage broker. I have a friend who\u2019s in a situation where they have a duplex or house hacking and they are buying a new primary. And they need the cash from the duplex to put towards their down payment. I told them about what Tyler did as to he actually just got the line of credit and they could draw off the line of credit and they could use that for their down payment on the next property.
Tyler had said he used the same mortgage broker to do his line of credit and to do his new mortgage. So, this broker was fully aware that it wasn\u2019t going to be his primary anymore, but it was right there in that time, which was completely legal to go and get a line of credit. And so, they worked out the closing. So, he closed on the line of credit before he closed on the mortgage of his new property. And having that kind of timeline is important.
And so, I have a line of credit, but they\u2019re all on investment properties. I\u2019ve never actually done one on my primary residence. As far as I know when you pull off a line of credit, it\u2019s usually like a form you fill out that you just send into whoever your loan officer is and say, \u201cI want to take $20,000 and please put it into this bank account.\u201d And then, you sign it or you get a checkbook, you get a regular checkbook and you can literally write money or write checks from your line of credit instead of a bank account. So, you could always ask for that option too when you go and get the HELOC.
And then, there\u2019s nobody asking you if you have a renewal term, like say your HELOC is up in three years and they go to renew it, they may ask you then if that is still your primary when they go to actually renew the line of credit.<\/p>\n
Yeah. And so, a HELOC is what you\u2019ll hear is some people refer to it as a second mortgage. So, in the same way that when I look up county records for a specific property, you can see who has a lien, who has a mortgage for that property, right? Like Bank of America has a loan against 123 Main Street for Tony Robinson. When you go out and get a HELOC, and I\u2019m almost certain that this is correct, they\u2019ll also technically put a lien on your property as well. So, say that you do go to sell Alfonso and the same way that your title or escrow company or whatever kind of entity you\u2019re using in the state that you\u2019re in, they\u2019ll go and check to see what are all of the liens against this property.
They\u2019ll see your primary residence and then they\u2019ll see your\u2026 I\u2019m sorry, they\u2019ll see your first mortgage that you used to purchase the property. Then, they\u2019ll also see your second mortgage or your home equity line of credit. So, they\u2019ll pay off both of those with the proceeds from the sell before they release any funds to you. So, it couldn\u2019t be like, \u201cHey, I\u2019m going to go out and get this HELOC against my primary, then I\u2019m going to turn around and sell it.\u201d And then, the bank that gave the HELOC wouldn\u2019t be aware of that.
Your title escrow company will make sure that it gets paid off. So, that\u2019s how it works in the backend. And that\u2019s the whole reason why you use these third parties like title and escrow to make sure all the paperwork is good. Because say that you tried to do this outside of title and escrow, there\u2019d be no paper trail of this lien against the property. So, the banks are going to want to make sure that they\u2019re protected.
They\u2019ll have some kind of mortgage security document that you\u2019re signing that ties the debt they gave you to the actual property. So, to answer that first part of the question, if you sold the property, your HELOC should get paid off during that sale process and then you walk away with any proceeds there afterwards.<\/p>\n
Our next question is from Graylin Herd. \u201cHey, Rookies, I hope everyone is doing great. I\u2019m closing in on renting my first property. And with the current state of the world, it\u2019s stressing me out what I should charge as my security deposit and clauses I should implement to protect me as an owner. Everything in my property will be brand new and I put a lot of hard work and money into it.
What you charge for security deposits and does this only cover damages? Are you charging your charge first and the last month\u2019s rent at the beginning of the lease? And if so, this is separate from the security deposit, correct? What service do you use to run background and credit checks on applicants? I have heard rent prep and my rental are good.
Thoughts? Thanks for help in advance.\u201d Okay. So, let\u2019s go back to the beginning and let\u2019s start there. How much should I charge for a security deposit? The first thing that you need to do is know what you are allowed to charge per your state laws.
A really, really great resource is Avail.co. Okay. They\u2019re actually a property management software and they have, if you go to, I think it\u2019s tools and resources, I\u2019m trying to look right now. It will actually tell you what your state laws are for each state. So, you click on your state and then you can go through and see if there is a security deposit law, if there is you have to charge a certain amount or not.
So, in New York State, you can only charge equal to one month\u2019s rent. So, if they\u2019re renting the unit for 750, you can only charge 750. You can\u2019t charge any more than that. You also in New York State cannot charge for last month\u2019s rent. So, that\u2019s another thing that you should look for in your landlord laws.
So, here in New York State, when somebody moves in, you can charge them the first month\u2019s rent because they\u2019re moving right in and then you can charge them security deposit equal to one month\u2019s rent. You cannot charge anything more and you cannot charge last month\u2019s rent. Okay. You can charge for pet fees, different things like that upfront that are non-refundable. So, we do a $300 non-refundable pet fee at move-in, if you are bringing in a cat or a dog to the property.<\/p>\n
Let me just ask a few questions on that piece. Right. So, you said that you charge a $300 pet fee. How did you land on 300?<\/p>\n
When I started as a property manager, it was 200 and for the first ever building that I managed, that\u2019s what they did. And then, it was another $10 per month. And I quickly realized that was not really enough to cover some of the wear and tear that pets did and that people were actually willing to pay more. So, over the years it\u2019s just increased to 300. So, it\u2019s $300 no matter how many pets you have.
So, if you have a cat and a dog, it\u2019s $300 and then it\u2019s $30 per month per a pet. So, if you have two dogs, it\u2019s 60. If you have two dogs, one cat, it\u2019s 90, but we do cap it at three pets. And then, for some properties it\u2019s even less than that. And then, also you have to know what the town codes are too. Your town may even cap how many pets that somebody can actually have living in a household too.<\/p>\n
Is there any level of competitive research that you\u2019re doing to gauge either the pet deposit or even just the general security deposits? Or are you just going based off your knowledge of your own properties?<\/p>\n
Well, the security deposit, no matter what for everybody in New York State has to be one month\u2019s rent.<\/p>\n
Oh, so it can\u2019t be less or more?<\/p>\n
I mean it could be less, but I\u2019ve never ever seen anybody charging less ever. That is 100% like the going rate is one month\u2019s rent. Yeah. And then, as far as the pet fees, I haven\u2019t done a ton of research on that to be honest. But we\u2019ve never had anybody say, \u201cNo, never mind, we\u2019re not going to rent it.\u201d
But every once in a while look at what\u2019s listed in the area. And I mean recently it\u2019s actually very hard to find listings in the area because apartments are just going so fast. But usually around the 200 to 300 mark is what I\u2019ve seen in there. I mean before I\u2019ve seen even $500, but then there\u2019s no monthly additional fee too. So, there\u2019s a change in what the upfront fee is and then what the monthly fee is.
And a lot of times it\u2019s easier to have a higher monthly fee because that first upfront fee, sometimes it\u2019s hard for somebody to come up with the first month\u2019s rent, the security deposit, and that large chunk of money for the pet fee too.<\/p>\n
Got you.<\/p>\n
Okay. So, let\u2019s see. The next question was does this only cover damages for the security deposit? So, that\u2019s what you would put into your lease agreement. And one thing I highly recommend is putting into the lease agreement what somebody will be charged. So, actually itemizing like here is your checklist of things of how we want the apartment to come back from us\u2026 come back to us when you move out.
So, it\u2019s broom swept, it\u2019s the fridge is cleaned out, the oven is clean, there\u2019s no holes in the walls. And then, you start putting, if we need to pay our cleaner to clean the oven, it\u2019s a $20 charge. If we have to have somebody clean the fridge, it\u2019s $10. You itemize what those cleaning charges will be and do the same for any repairs that are the tenant\u2019s responsibility. So, if there\u2019s a hole in the drywall, what\u2019s going to be the charge for something like that?
If the faucet is ripped off or there\u2019s other damage that can be done, there\u2019s tears in the rug. I once had a tenant that cut a piece of the rug out of the closet and then put it where his dog had ripped up the carpet. We wouldn\u2019t notice that he put a patch in the carpet.<\/p>\n
You got to give him points of being creative though. That\u2019s funny.<\/p>\n
So, try to itemize everything specifically that they\u2019ll be charged for. Going back to New York State. So, New York State, you actually have to offer your tenants a pre-move-out inspection two weeks before they actually are moving out of the property. So, they give their 30-day notice, you send them a letter saying, \u201cHey, you are entitled to a two-week pre-move-out inspection. You can opt out of it if you don\u2019t want it, but it\u2019s here.\u201d
And the purpose of it is so that you can show tenants, you\u2019ll be charged for this, you\u2019ll be charged for this. And it gives them two weeks to go ahead and repair it themselves. And I say that with the air quotes or to hire a contractor to go ahead and do the repairs before their move-out inspection. So, one downside to that is tenants will go and try to make the repairs themselves and it just ends up being even worse than what it was. But this is something by law you have to offer to let them know.
And then, other times it turns out great, the apartment is turnkey and ready to go when they move out and you can get it rented right away. So, to wrap it up, make sure you\u2019re itemizing what the charges for a security deposit could be as far as using it for them to cover rent that was unpaid. Be very careful with how you word that in your lease agreement because you don\u2019t want a tenant to give a notice that they\u2019re moving out in 30 days and they just say, \u201cYou know what? We\u2019re not paying less rent month. Just put the security deposit towards it.\u201d Well, now you don\u2019t have a security deposit to cover any damage.
So, usually in our leases we put the security deposit cannot be used as last month\u2019s rent. And then, obviously, if they don\u2019t pay and the apartment is perfect condition, we will apply the security deposit to that last month\u2019s rent. But you want to make sure you have that security deposit available for damages. So, try to get them to pay any rent that they are\u2026 that\u2019s due before they move out. Okay. Next part of this question, Tony, I feel like these are all geared towards me.<\/p>\n
Yeah.<\/p>\n
What service do you use to run background and credit checks on applicants? So, pretty much any property management software will have this integrated into their software that you can use. TenantReports.com is one that\u2019s separate from any kind of property management software. So, you can just go in there and you could use that to screen your tenants. But then, if you use AppFolio, Buildium, Avail.co, Rent Ready, they all have background and credit screening services built right into them that you can use.
As far as the rent prep and my rental I\u2019ve never used those ones, so I\u2019m not sure. But I\u2019m sure they\u2019re all pretty similar too.<\/p>\n
Yeah. And that\u2019s just one thing to add, right? I know in California. This is from the very brief period of time that I worked at a property management company here after college. There were even I think limitations on what kind of things could disqualify someone versus something else. I guess is there any information that you can use in someone\u2019s credit report, background check, et cetera, to disqualify them from being a tenant?
Or are there certain things that are protected that you can\u2019t use? How does it work in New York? And I\u2019m sure it varies from state to state.<\/p>\n
Yeah. It does vary from state to state. In New York State, you can\u2019t deny someone because they have an eviction on the record. That can\u2019t be the sole reason, which sounds ridiculous. I know. But yeah, there\u2019s definitely different things.
And then, there\u2019s also Fair Housing Laws across the board where you can\u2019t deny someone that maybe they have the same exact everything, but one person has a 700 credit score and the other person has a 550 and you end up going with the person that\u2019s 550. Okay. Then, the next time, which I don\u2019t know why you would do that, but just say you do that person that\u2019s 550. Then, the next time you rent as the similar unit, whatever, maybe it\u2019s the upstairs or something, you deny someone who has the 550 or whatever. You have to be very consistent as to what your criteria is.
So, we have a checklist and it\u2019s baked right into our software where this is our minimum credit score. This is our minimum debt to income. You have to make at least three times of what the rent is for the month. So, having that all listed out to protect you from Fair Housing Laws that you are being very fair and not discriminating when you\u2019re screening tenants. And that would be the biggest issue.
There are so many free resources to know what your landlord laws are, the Avail.co I mentioned earlier, but also if you go to your local housing authority. So, even if you just Google Buffalo New York Housing Authority, some will come up. So, homeny.gov is one that\u2019s in New York State. Belmonthousing.org is the actual Section 8 voucher association for Buffalo.
So, a lot of times they have free classes, they have handbooks or the classes are like $10 or very low cost. And since COVID they do a lot of them virtual. Now, you don\u2019t even have to go to them in person, but they\u2019re a wealth of knowledge. They\u2019re usually an hour long and you just get like, \u201cHere\u2019s what you need to know to be a landlord in your state.\u201d<\/p>\n
Yeah. When I worked at that property, they were an all-in-one house anyway. They were one of the largest department complex owners in this little pocket of California that I\u2019m in. And during our initial training process, they talked about what you said about the fair housing and all this stuff, and they said that there were actually people out there. I don\u2019t know if these people were attorneys or just professional tenants. But they would basically look for these big apartment complexes that were violating some of these Fair Housing Laws.
And literally just trying to apply, not even with the goal of getting the apartment, but just to try and catch some of these bigger apartment complexes and companies like red-handed. So, as the leasing agent, we had no discretion over approvals. We would literally just take all the information the person put into their application, key it into the whatever software that we were using, and it would spit out either a yes or a no. And once it happened, we had no control over trying to fluff the numbers or change this or make it easier. It was all automated with no human interaction outside of us just keying in the information.<\/p>\n
Okay. Mantas has a question about an LLC. \u201cCan you hire a real estate attorney in order to place your properties under an already established LLC? Does the attorney need to be located in the same state as the property? For example, if my property is in Oregon, does my real estate attorney have to be in Oregon even though I currently live in Maryland or could I do it with a Maryland real estate attorney? Much appreciated.\u201d
So, what this question first, let\u2019s address what it means to actually place properties under an already established LLC. So, you\u2019ve already created your LLC, you\u2019ve filed the documents for it and it\u2019s an operating company and you want to put your properties in this LLC so that they are no longer owned by you personally and they\u2019re now owned by the LLC that entity. So, in order to do that, you have to change the title, you have to change the deed of the property to state that the owner is the LLC and now they are under the LLC. So, in order to do that, usually you\u2019d hire an attorney to go ahead and do a quick claim deed is what I\u2019ve done and deed it from your name to your LLC. And there\u2019s no title work or anything done because you were the previous owner and now it\u2019s going into an LLC that you own too.
And you already had title work done when you purchased the property. And if you as the owner didn\u2019t change anything, then there\u2019s no reason to go ahead and do a new survey and to do the title work again. So, it\u2019s just called a quick claim deed. As far as having that attorney do it in the state that the properties are in or the state that you live in. Another question I would ask is what state is the LLC in?
So, is the LLC the same as your properties or is the LLC the same as where you live too? So, Tony, I honestly don\u2019t know the answer to this question as to where the attorney has to be from.<\/p>\n
I think the answer is that it doesn\u2019t even necessarily have to be an attorney. Right? I\u2019ve filed some of these changes myself just because you can just walk into the county and say, \u201cHey, I need to update the deed for my property. What paperwork do I need?\u201d And I know here in California, or at least in the county that I live in, I need what\u2019s called a PCOR form, which is like primary change of ownership form. And then, I also need to update the grant deed.
And as long as I fill out those two pieces of paperwork and I get them notarized, I can myself turn those pieces of paperwork in. I\u2019ve had my attorney do it for me here in California. I just had my escrow company do it for me here in California. So, I\u2019ve had three different types of folks manage that process for me and only one of them was an actual attorney. So, I think the question is does it even have to be an attorney?
Could you just go to the county yourself and fill that paperwork out? But I would think as long as the attorney is at least versed in what the correct paper trail is for your state, for your county, for your city, it doesn\u2019t really matter where they\u2019re at or where they\u2019re located.<\/p>\n
Yeah. And I think that right there is the key point is to maybe that the only reason you want an attorney that\u2019s in the state where the properties are is because the actual work to put them into the LLC is to do the deed process do that little bit of title transfer. And so, just having an attorney that already knows how to do it and that state actually might be way cheaper too than hiring an attorney where you live and them just figuring out that process, maybe just an extra step that they\u2019ll bill you for that.<\/p>\n
But actually, let me ask you because everything has to be done through attorneys in New York. So, do you have to hire an attorney to fill out like a change of ownership paperwork or could anyone do it?<\/p>\n
I honestly don\u2019t know because I\u2019ve just always had my attorney do it, but there\u2019s nothing on the paperwork that says my attorney information on it. It\u2019s the seller\u2019s name, the owner\u2019s name, the property information, the description. So, if you already have the existing deed, I think you can probably just go right down to the county clerk office and file yourself to change the title.<\/p>\n
Yeah.<\/p>\n
Last question we have here is from Carrie Molina. \u201cI just purchased a multifamily home and one of the units is going to be available this month. How do you balance upgrading with just renting it out quickly? Should you do your upgrading in the beginning or try to recoup some of your down payment first? Trying to see if I should upgrade this kitchen and bathroom and then raise the rent or just rent it out right away to get some reserves.
If I renovate any recommendations for that ugly bathroom grout, I might be able to raise rent only $75 to a $100 after renovations. Thanks in advance.\u201d So, I\u2019ll tell you a little funny story about that ugly grout. I actually-<\/p>\n
Bathroom grout.<\/p>\n
Yeah. I did a property over COVID with my son. He was I think six at the time. And so, we, me and him rehabbed the whole property and one thing that was not in the budget was in the kitchen, the backsplash to redo it. The tile was in great shape, but it just had these gross yellowish grout lines throughout the tile in the back splash. I actually ordered I\u2019m pretty sure it was on Amazon, like a grout pen, and it was almost like a white mark.<\/p>\n
Like a Tide pen or something? Oh, yeah.<\/p>\n
Yeah. Yeah. It was like a Tide pen, but it was white-out and we just went along and we did that along all of the tile lines to make them white. And it actually turned out so beautiful and it was way more cost-effective than actually going in and ripping out all the tile and putting it back in. But that actually worked really well.
So, it depends, I guess as to how extensive maybe it is and how you want to do where this was not an area where we were doing really nice upgrades in the property because we just couldn\u2019t get that much rent for it. So, there was a little DIY hacks that we did in the property to still make it look really nice, but not going over budget where we couldn\u2019t recoup what we could get in rent for it. With this one, let\u2019s see. Should you do the upgrading first or rent it out first? Tony, what do you think? What would your answer be?<\/p>\n
I mean, I always want to try and get the rents, right, especially if the unit is vacant. In my mind it makes sense to go ahead and do those upgrades now. Still to Ashley\u2019s point, you don\u2019t want to over upgrade and invest more money into the property, then you\u2019ll be able to get out as rent.
But if the property is vacant, use that as an opportunity to increase those rents, even if it\u2019s only a hundred bucks, if you\u2019re able to start doing that across, we don\u2019t know how many units it is, but say you\u2019ve got a small multifamily with four units, four times 100, it\u2019s an extra 400 bucks per month, you\u2019d be able to pull in by doing those as each unit turns. So, assuming you have the capital, I would prefer to do it now as opposed to waiting. But what\u2019s your approach, Ash?<\/p>\n
I would just say run the numbers and look at almost what your cash on cash return is based off getting $75 to a $100 more. So, if you\u2019re going to be dumping $30,000 into renovating the, what was it, the kitchen and the bathroom, then only getting $75 to a $100 more might not be worth it for you. But if it\u2019s only going to cost you a couple $1,000 to do these simple things that will add that a $100 value and rent, then yes, go ahead. So, I think take a look at the numbers and if they make sense or if you\u2019re actually getting better value of keeping it at what it is now and not even doing the renovations. Okay.
Well, thank you guys so much for joining us for this week\u2019s Rookie Reply. If you have a question that you would like answered, you can go to biggerpockets.com\/reply and put your question in there. You\u2019re always welcome to leave your questions in the Real Estate Rookie Facebook group, or you can send us a DM on Instagram at Wealth from Rentals or at Tony J. Robinson. Thank you guys so much for listening, and we will be back on Wednesday with a guest.<\/p>\n