It is unfortunate, but perhaps not surprising that most landlords make mistakes. The nature of landlording guarantees that all landlords no matter how knowledgeable, experienced, and careful they might be, will occasionally make mistakes. These can result in (1) significant reduction in rents, (2) greatly increased expenses, and (3) lawsuits and/or fines. Some mistakes only cost a month or two of rent. Other mistakes can potentially cost (1) many thousands of dollars, (2) loss of a property, or (3) even one’s entire net worth.

Some landlords make many relatively minor mistakes on a regular basis and some landlords occasionally make serious mistakes. Fortunately for these landlords, they do not have to pay for most of their mistakes. This is for a number of reasons, but mostly due to the fact that most tenants don’t recognize the mistakes and if they do, they choose to ignore them.

However, we should expect the odds to change as tenants become more knowledgeable about their rights and as government continues on the road to increasing tenant rights at the expense of landlord rights.

Many problems experienced in acquisition of and even ownership of a particular rental property could probably have been reduced, maybe even avoided altogether if adequate contingencies had been included in the purchase offer. It is very important that the right contingencies be included in the purchase contract. It is equally important that they be properly written.

Adequate contingencies allow a way out with, hopefully, return of your earnest money deposit if it turns out that the property is not worth what you offered to pay for it. Alternatively, contingencies may provide an opportunity to negotiate a lower price than you originally offered. It is recommended that you include contingencies to cover every issue that is a material issue regarding your decision to purchase a property.

It is important to provide adequate timelines for performance of due diligence. The commencement of each contingency period, the length of each period, what constitutes notice of passing or failing, and other issues must all be clearly defined. Things that must be taken into account when setting up timelines include vendor availability and scheduling, report analysis and decision-making times, and even holidays and potential weather conditions.

“Caveat Emptor” – that is, “Buyer Beware” – no longer applies in the U.S. for most purchases. This is particularly true regarding real estate transactions, whether buying or leasing.

Over the past several decades, the legislatures and courts have put more and more burden on sellers and landlords to fully disclose defects in the real property they are selling or leasing. However, this has not totally, probably not even significantly, reduced the degree of care that buyers or tenants should devote to making sure that they are getting what they are paying for.

And, for sellers and landlords, adequate disclosure is far less time-consuming, costly, and stressful than is litigation.

Many issues apply to both sale and leasing transactions, while some are more relevant to one or the other. Some apply to both sale of owner occupied and rental property, while others apply primarily to one or the other. Some apply to both residential and commercial properties, while others apply only to one or the other. As would be expected, disclosure is much more critical when sales and leasing transactions involve residential properties compared to non-residential.

Although many landlords try to avoid the employee relationship by considering all workers to be independent contractors, there are tasks for which it is preferable to hire employees and there are tasks for which workers cannot legally be independent contractors.

The penalties for categorizing an employee as an independent contractor can be quite substantial and can come from the IRS, state and local taxing agencies, the state worker's compensation board, and your own insurance company.

Just as there are Fair Housing laws that apply when selecting tenants, there are also anti-discrimination laws that apply when hiring employees, both at the federal and state levels, and in a few locations even at the municipal level.

Carefully selecting all employees, clearly spelling out their duties, and providing sufficient training are all important, but an employer also has a legal responsibility to provide adequate supervision as well. If an employee does their job improperly, you pay the bill. If they commit a crime, or their incompetence results in injury, you may be held financially responsible as well.

Screening of tenant applicants is arguably the most important task related to managing income property. Over the past few decades it have become increasingly important that landlords verify information provided by applicant for rental vacancies and for employment and investigate various issues regarding those applicants. Also during those decades the federal government and many states have increasingly sought to (1) protect privacy, (2) improve the accuracy of information collected and disseminated, and (3) better ensure fair treatment.

The backbone of tenant screening is the use of consumer credit reports. The Federal Credit Reporting Act (FCRA) regulates the collection, dissemination, and use of consumer credit information.

The FCRA was enacted in 1970 to promote accuracy, fairness, and the privacy of personal information assembled by Credit Reporting Agencies. The FCRA provides important protections for credit reports, consumer investigatory reports, and employment background checks.

Violation of the FCRA and similar state level laws can result not only in financial penalties via fines and/or lawsuits, but, in certain cases, can lead to criminal prosecution. To minimize risks of violating the FCRA and state equivalents, it is important that landlords understand the laws, develop good written procedures in place, follow those procedures, and maintain adequate records regarding all matters affected by the laws.

The federal Fair Debt Collection Practices Act (FDCPA) requires that debt collectors treat consumers fairly and prohibits debt collection abuses and invasions of individual privacy.

Rental property owners acting on their own behalf or represented by their employees or property managers to collect past due rents or other debts or to file eviction notices are considered creditors and are not usually subject to the provisions of the federal FDCPA. Involving an attorney or even implying that one is involved can subject a landlord to the notification procedures of the Act.

While the FDCPA does not usually apply to landlords who collect their own debts, common courtesy would require that most of the rules be followed anyway. Furthermore, they must consider that some states have laws that regulate creditors collecting their own past-due accounts. Accordingly, landlords must research their own state statutes and fully comply with applicable laws.

We all know that maximum profit comes from buying low and selling high. Although you would like to buy a property for the lowest price possible, the important thing is that you don’t pay more than it is worth. Similarly, although you would like to sell for the highest price possible, the important thing is that you get at least what it is worth, with management during the period of ownership having great impact on that worth.

Investors must understand valuation principles in order to properly evaluate potential purchases (1) upon initial consideration, (2) when writing an offer, and (3) after performing all due diligence during the contingency period.

The three methods of valuing real estate are Market Data Approach, Income Approach, and Cost Approach. The Market Data Approach is usually of most interest for small residential properties. Although all three Approaches may be used for large residential properties and commercial properties, the Income Approach is usually given the most weight.

Although this course is written from the perspective of an investor valuing a property for purposes of purchasing a property, a seller determines value in exactly the same way, with the advantage of having all the necessary data at hand.

Groups can (1) allow active participants to do projects that they could not do on their own and sometimes do them without using their own money and (2) allow passive investors to participate in a profitable venture with limited risk and without management qualifications or responsibilities.

However, both active and passive group participants must be careful. As an active participant, you must be careful both as to (1) what other active participants you become involved with and (2) who you allow to be passive investors. As a passive investor you must be sure (1) that the project makes sense and (2) that the the group managers are fully qualified for the particular project.

Consideration of risk management issues and use of qualified professionals are important to any group investment.

Furthermore, in addition to the legal issues related to the group entity, one must be careful to avoid violation of federal or state securities laws.

Landlords are sued more than any other business owners in America and damage awards are often very large. Aside from civil rights violations, most lawsuits are related to health, safety, and security issues. Landlords are increasingly being held liable for tenant (1) injuries and health problems resulting from exposure to animals, micro-organisms, and plants as well as dangerous chemical and physical hazards in the rental premises including asbestos, carbon monoxide, lead-based paint, and radon, (2) injury caused by physical defects of the premises, and (3) injuries or property losses resulting from natural disasters and from crimes by employees, contractors, or others due to landlords failing to provide reasonable levels of care and security. Tenants not only expect a healthy, safe, and secure environment, but also expect one free of pests and other problems that may be more an annoyance than any real hazard to health, safety, or security. Landlords are well served when they make an effort to deal with such annoyance issues even when they present no legal liability because unhappy tenants generally don’t stay long and vacancies are costly. Health, safety, and security are important to both the well-being of tenants, maximum cash flow to landlords, and the protection of the landlords' assets. In this course we cover 9 important health, safety, and security issues that can be of concern to landlords divided into the following categories:

1. Animals
2. Micro-organisms
3. Plants
4. Chemical & Physical
5. Water Quality
6. High-Voltage Power Lines
7. Safety
8. Security
9. Natural Disasters

Using a good lease agreement is an important factor in being a successful landlord, on par with doing adequate tenant screening and making careful selection. A large percentage of landlords fail to use adequate lease agreements and this fact results in unnecessary disputes and other problems for them.

Leases should always be in writing and should include enough detail as to minimize the risk of misunderstanding. Leases should not include any illegal or unenforceable clauses. Landlords should utilize supplemental documents of co-signer/guarantor agreements, rules & regulations, and move-in/out checklists.

The lease agreement should be adequately detailed and cover all issues of importance to the particular property. It must include tools for enforcing timely payment of rent and provide for proper management of the property,

Existing lease agreements can be of importance when considering purchase of an income property. For a number of reasons they are of particular importance for commercial properties.

A landlord should know and thoroughly understand all terms and conditions of the lease agreement used and the document should be continually improved as deficiencies are noticed and as new problems are encountered.

There are important legal issues that must be considered when a tenancy is terminated including what notification should be given, legal options if tenant doesn’t leave upon expiration of a fixed-term lease or after giving or receiving a termination notice and what happens if the tenant leaves without giving required notice.

The keys to minimizing the hassle related to moving tenants out are (1) the degree of preparation and detail that went into moving the tenant in and (2) following proper procedures prior to the move-out date. Just as an investor purchases an investment property with a exit strategy in place, the smart landlord places his tenant in the rental unit with clear, agreed-to, and documented move-out procedures.

The primary consideration for a trouble-free tenant move-out is knowledge of applicable laws and what the landlord’s own lease agreement sets forth. These requirements guide the timeline of the move-out.

Obtaining legal possession and dealing with abandoned property are important issues. Of similar importance are proper handling of security deposits and collection of any amount owed beyond the security deposit upon departure of the tenant.

Many self-proclaimed real estate gurus make a lot of money pushing foreclosures as great sources of properties for want-to-be investors and charge goodly sums of money to be told just how great and easy these sources are. Unfortunately, as with most guru offerings, the risks and problems are not often included in their spiels.

Some people, not necessary those who listen to the gurus, do make money at it. The attraction of buying foreclosure properties is to be able buy properties at well below market value prices. However, as with many investments, higher profit potential means higher risk.

In practice it's not always that easy to find profitable properties and it’s possible to experience serious problems and end up with big losses, particularly for the unprepared beginner.

There are three ways to buy foreclosures: (1) directly from an owner in default (pre-foreclosure), (2) at a foreclosure sale, or (3) from a foreclosing lender that now owns the home (REO). As with many investments, opportunities for the biggest potential rewards carry the highest risks. Buying foreclosures at the auction is the one out of the three opportunities to buy that has the greatest risk.

The attraction of rehabbing is the idea that you will be able to find a distressed property, buy it way below market value, fix it up within a short period of time and at relatively little cost, and then sell it for a big profit. In theory, it's a great idea and there are certainly properties out there that are worth rehabbing. However, in practice it's not always that easy to find profitable properties and it’s possible to experience serious problems and end up with big losses, particularly for the unprepared beginner. In other words, rehab projects can be risky, particularly for the inexperienced.

Profitable rehab of a property requires adequate knowledge, careful analysis, and good planning. It is important to buy the right property in the right location for the right price in the first place. It is also important to fix the right things and do so in the proper manner when rehabbing it.

Whether you want to be a rehabber depends not only on your knowledge, expertise, and talents, but also on your tolerance for hassle and risk.

The purchase contract is usually the most important document in any real estate purchase transaction. This is primarily because, when properly written, it limits risks for both parties.

Buyers of real estate often put far too little effort into writing a good purchase contract. Inferior contracts can result in insufficient time to perform the desired due diligence, loss of deposit or even a costly lawsuit for specific performance, or the hassle of dealing with problems after closing.

The purchase contract must clearly set out all details of the transaction including various money issues and definition of the timeline for the numerous events that must take place between acceptance by the seller and close of escrow.

A well written contract will provide the buyer with flexibility and options and will result in minimum hassle prior to and after closing. Contingencies, adequate in number and being properly written, are critical to a good contract, as they will provide an investor with the option of walking away with his deposit or renegotiating the price or other terms.