Tuesday, January 25, 2011

The Tenants says "baaaaaa"

The tenant says “baaaa”

I went to see “Babe the Sheep Pig” at the Childrens' Theatre. Babe the pig saves himself from being Christmas dinner by learning to act as a sheep dog. And saving the sheep from being eaten by wolves.

My first day of Real Estate School we were told the public are “sheep” and we, the real estate professionals, are “wolves”. Now that I'm going to be a landlord, I've learned that Minnesota Landlord Tenant law takes the sheep/wolf concept to a whole other level.

Try out this quiz I made up to get up to speed on Minnesota Landlord Tenant Law. Answers are at the end of the quiz.

1) If the landlord enters the premise without giving prior notice, the tenant may:

a) Terminate the lease

b) Recover up to $100 per violation in court

c) Both A & B

2) The tenant owes rent and the landlord brings an eviction action. To “stay and pay” the tenant must pay the past due rent, plus interest, plus landlord paid court and service fees. How much does the tenant need to pay to cover the landlord's attorney fees?

a) $5

b) $100

c) Landlord's actual attorney fees

3) Not only does your deadbeat tenant leave in the middle of the night with rent unpaid, but he leaves his junk. What do you do with the tenant's stuff?

a) Sell it and apply the proceeds to the unpaid rent.

b) Store it, and return it to the tenant if he shows up to pay the past due rent.

c) Store it, and return it to the tenant when they reimburse you for storing their stuff – they don't have to pay you the back rent to get their stuff back.

4) Your tenant is found to posses illegal drugs or contraband valued at more than $100, which is seized from your property. After given notice, you have 15 days to evict the tenant. You're tenant does well in the drug trade and pays his rent on time so you don't evict him. Tenant gets caught again and the value of the controlled substances exceed $1,000.

The government can take your rental property.

a) True

b) False

5) You don't want to rent to kids. Can you discriminate against renting to families with children?

a) No. You can never discriminate based on “familial status”

b) Yes, only if its a “55+” building

c) It an owner-occupied house, duplex, triplex or fourplex.

d) Both B and C.

6) The tenant skips out and doesn't pay the last month's rent. You can apply his security deposit for the rent payment.

a) True

b) False

Answers to quiz:

1) B

2) A

3) C

4) A

5) D

6) A

How did you do? Are you ready to be a landlord? Any advise for me?

Friday, January 21, 2011

Size Matters

Size Matters

Looked at a townhome in an awesome Plymouth location in Wayzata Schools. It backed a wetland. The neighborhood was primarily single family. It was well priced, a bank owned.

I emailed the listing agent “Can you please send me the contact info for the property manager for the H O A?”

And she responded “Can I get back to you in a week or so?”

“What's the problem?”

The problem was the H O A had been run by the woman whose unit had been foreclosed upon! No one knew who was in charge of this 18 unit HOA.

An agent's mom was in an H O A for one building of 6 units. A big storm damaged the roof. While mom wanted to fix the roof, her neighbor's wanted to pocket the insurance money.

When you buy into an H O A and the unit has unpaid dues, the H O A can't require the new owner to pay the old dues. They can go after the deadbeats, and the bank is responsible to pay the dues for the period they own the unit, but banks can be deadbeats too. But you are paying those dues in future dues increases to cover uncollected dues. Money has to come from somewhere.

Say there are 3 deadbeat owners in the H O A. If there are only 6 units, that's 50% of the budget! With the 18 unit one in Plymouth, that's 17%. In the 90 unit development I'm buying into in Chanhassen, that 3%.

After 6 months of aggresively looking for a townhome to purchase as a rental property, I finally found one that I'm not looking for reasons to walk away.

Chanhassen is an excellent market. The average sales price for all homes sold in 2010 was $371,972, up 3.7% from 2009. I looked at a couple older units in a Chanhassen neighborhood with a good location, but bad vibes. And a subdivision farther west I won't even look at because there are too many rentals and the rents are too low. But this one meets or exceeds my long list of criteria.

Location: Next to downtown Chanhassan, at the northeast corner of Highway 5 and Powers Blvd. Its walking distance to Target, Byerlys, Cub--all with better than typical architecture. Chanhassan elementary school is close by in the highly rated Chaska Schools. And its is across the street from the Temple of Eck campus, 174 acres with 2 miles of walking trails and Lake Ann, open to the public. Which is next to Lake Ann Park, with a swimming beach and boat rental.

The home has 3 bedrooms, 3 baths, a huge balcony and a walkout basement to a patio. Those who are familiar with the area tell me that Oak Ponds has a good reputation. And the property manager is really terrific.

My hope, with the 3 bedrooms and proximity to Chanhassan Elementary School, is to attract a familiy that will be a long term tenant. The property manager told me there are a lot of kid and dogs. The 3rd bath with shower is also unique, as a prior owner had added it in the finished walkout basement. With the exception of some brand new townhomes (which are typically too costly to cash flow as rentals) , if you can find a 3 bedroom townhome, there is typically only one bathtub. Having grown up in a house with 5 of us, 3 girls, and one bathroom (unless you count the ½ bath in the cold basement with the spiders and pillbugs that no one wanted to use), I'm reluctant to buy a three bedroom without a second shower.

Thursday, January 6, 2011

Broken Promises

Broken Promises

Ten years ago MnDOT, with the assistance of a City, was upgrading a 2 lane state highway. Developer Dan owns 4 commercial lots along the highway. A right of access plus a trail easement was needed for the road upgrade.

City Manager tells Developer Dan “the cost for acquiring the access rights and trail easement appraise so high on your lots that it would hurt the feasibility of the road project. I'll tell you what. The City owns this nice 5 acre lot near your land. Why don't we sell it to you for $50,000 and your right of access and the easement?”

Developer Dan agreed to the informal deal. He as busy with his development business and wasn't in any hurry to acquire more land. Finally, in 2006, a purchase agreement was signed between Developer Dan and the City for the 5 acre parcel.

Time goes by and the deal hasn't closed. And the road and trail were improved without the proper rights to Developer Dan's lots.

The City gets a call from George wanting to build a residential treatment center for substance abuse patients. George was told to call Developer Dan about the 5 acres he had under contract to buy from The City for $50,000. They strike a deal, netting Developer Dan a nice profit, and the City rezones the land to R3. Residential treatment centers are a permitted use in R3. Though George still had to go through the approval process to ensure his building and site plan fit the ordinance.

In August of 2010 the City Attorney sends Developer Dan a letter mandating a quick closing on the 5 acres.

Meanwhile, the City notices the neighbors about the planning commission hearing for the residential treatment center. The neighbor's, who objected to a day care facility in a commercial zoned area, were, well, unhappy would be an understatement.

One planning commissioner was out, the vote was 3-3, and it was sent to the City Council.

The City Council had an emergency work session and invited Developer Dan and George. A councilor was missing, but the vote was 4-2 in support of the project.

The formal City Council meeting was held. One hundred twenty five neighbors attended. Recall, its a permitted use, so the Council can't reject the treatment center on its use. But they could vote to NOT sell the land to Developer Dan. Which they did on a 7-0 vote.

Meanwhile, George as $30,000 into the approval process. Developer Dan didn't want to get sued by George. Nor did he have the energy, after all this time, to sue the City.

So he settled with the City and George, receiving maybe ½ of the money he would have gotten in 2000 to just sell the right of access and the trail easement for the highway.