This article is for landlords who are looking to improve their up front cash flow during the leasing process.
Landlords have no cash flow when the property is vacant
Rental properties are great, as long as they are leased. When a tenant’s lease is up, the landlord must get the property turned around as soon as possible so that it can start producing income again.
Sometimes, there is a lag between tenants. Perhaps the last tenant overstayed. As long as the tenant paid a pro-rated or commensurate rate for the additional time, there may be no loss.
However, if a tenant is uncooperative, and has to be evicted, then the landlord may already be at a double loss: first, for the loss of income due to the bad tenant; and second, for the costs associated with the eviction process.
Therefore, it is imperative to get the property cleaned up and on the market ASAP so it can be leased to a new tenant.
Generally, Landlords must spend money up front before leasing a property
As a professional property manager, you have costs associated with marketing a property for lease. First, you have to get the property cleaned up and ready to be put on the market. Couple that with the fact that while it is unoccupied, there is no cash flow.
Then, there are other expenses, such as hiring a leasing office or advertising costs. The biggest cost is the time you spend working to get it leased.
Once the property is leased, the landlord will start collecting rent again, but this is revenue that is already ear marked. It may not cover the funds spent prior to the lease, that were necessary to clean, market, and get the property in front of prospective tenants.
Landlords can recoup money spent on marketing a vacant property with up-front, nonrefundable fees to the new tenant
Here are a fee ways to increase cash flow in a property that has been cash-less for some time.
Once you have a tenant that signs a lease, he usually pays a certain amount down to hold the spot, on top of the rent. This is great as it generates much needed cash flow back into the rental business. What is even better is if you can stack fees during this process that adds to the amount of cash collected up front.
Application fees
All Landlords should charge a fee to review applications from inquiring prospects. These fees go toward the time (and resources) Landlords will spend reviewing the applications. Landlords may even spend money, such as on credit reports or criminal history/arrest record reports. All of this goes to the very important point that Landlords should have eligibility criteria for prospective tenants.
As a landlord, you will spend time reviewing applications, meeting with applicants, checking references, and showing the property. There is nothing wrong with charging for this time.
Application fees should be required prior to reviewing the application, or accepting any deposit. The application fee should be a non-refundable item.
Non-Refundable Fees
There are many types of nonrefundable fees that a landlord may charge. These fees can cover wear and tear, projected costs associated with pets, or just be an additional fee that is part of the lease package.
All fees are dictated by market values anyway, so if a tenant is willing to pay it — because of desirability of the property, general supply and demand, or just because — then the Landlord can charge it. This will vary based on the most important factor in real estate values: location, location, location.
These fees are different from security deposits. A security deposit is a form of bond, that is set aside in the event of damage. When the tenant moves out, if there is no damage or other liabilities due, the deposit is refunded. That is why it is called a deposit and not a fee.
Below are other types of fees that a landlord may charge at the time of the lease.
Move-In Fees
Landlords may charge general “move-in fees.” These fees can cover the time spent scheduling the move in, and perhaps the use of any personnel or equipment used in the move in. For example, if the building has an elevator, and the new tenant needs to use the elevator, the property manager may charge a fee to reserve the elevator for the new tenant.
Another example would be an apartment building that may have special equipment to lift furniture to a second story. The costs of an rental equipment would also be billed to the tenant.
However, there is nothing stopping a landlord from simply charging a one-time move-in fee to cover costs associated with moving in, scheduling the move-in, and time taken away from the property management’s office to deal with the move-in.
Pet Fees
In addition to a pet deposit, which would be similar to a security deposit, the landlord may charge a “nonrefundable pet fee.” This fee would be justified based on the general wear and tear on the property caused by animals.
It could also just be a fee based on supply and demand. If there is a lack of available apartments or rental units that allow pets, then the rental property that does allow pets will be able to charge a premium for such allowance.
Late Fees
In addition to the nonrefundable fees above, Landlords should also charge late fees if tenants do not pay rent by the exact due date. Late fees are incentive to the tenant to pay rent on time. But late fees also can add to cash flow if the tenant is misses the deadline on a regular basis. If a tenant is regularly late on paying rent, the landlords should be paid extra for that.
Unpaid fees can be charged to the Security Deposit at the time the lease ends
In the event that the lease term ends and the tenant owes a balance for any unpaid fees due under the lease, the landlord may charge said amounts to the security deposit. The landlord would then itemize those amounts in a written statement and send to the tenant along with the remainder of unused funds.
Hire a Landlord Lawyer to handle any evictions for your property
If you are a landlord in Oklahoma County and you need to evict a tenant, contact us to help. We represent landlords and we can help you.