Management FAQ


  • Why is my property a good investment?

    There are four main benefits you get from real estate as an investment:

    INCOME - when one thinks of rental property, he thinks of cash flow which is the difference between the rent and all the expenses for the property.

    EQUITY BUILD-UP - each month the tenant is paying rent, the principle on the mortgage is getting reduced and you build equity.

    TAX SAVINGS - Most of the expenses for the property are tax deductible. You can deduct the mortgage interest, property taxes, insurance, maintenance and the management fees are all tax deductible. You even get to start depreciating the property, which is another write-off. We recommend speaking with your accountant to see what your tax implications will be.

    APPRECIATION - One of the best benefits of real estate is appreciation. Real estate is a long term investment. Although there will be ups and downs in the market, over time your property will appreciate in value.

    It's no wonder why the wealthy have real estate as investments. It truly is the key to riches.

  • How long will it take to rent my property?

    First, the time of year. In our market, this will have an impact. If you are trying to rent your property during the winter months, it will typically take longer. The best time of the year is June to September. Now we do rent property every week of the year, so if you're renting outside the summer months, not to worry, we just recommend that you plan accordingly. On average it will take one to two months to rent out a property depending on the next factors.

    Location, condition, rental amount and time of year. These will have the biggest impact on how long it will take to rent your property and you control two of them. Understand a property that is clean, in good repair, updated and has rent which is in a range that the average person can afford, are going to rent up faster.

    The final factor is the lease term. The more open you are the better. If you are only looking to rent for 6 month or a year, this will reduce the number of prospective tenants. Many tenant's looking to rent a house will stay on average of three years. Therefore, they don't want to rent somewhere they have to move from in 6 months or a year.

    These factors along with number of bedrooms, baths, square footage of the house and features of the house and around the neighborhood will determine how much your property will actually rent for. It's not a cookie cutter so we would need to see the house and do a market analysis before we could quote you a rent range.

  • How do you find me a good tenant and how long will it take?

    Once we start management, a rental file is made up. Your property is added to our list of available properties. Your property is also listed on the internet in over a dozen of the top home rental sites. We can also put up a rental sign, if desired.

    The time of the year and the condition of the property will determine how long it takes for your property to rent. Generally, it takes up to one month to lease up a property in good condition during the spring and summer months.

    In order to rent property faster, we needed to understand things from the tenant's perspective. They wanted to be able to see property fast and whenever they wanted. Therefore, we developed the "Easy Show Process" Here tenants can actually view a property any day they wish between 8am and 8pm. If you the owner are still living in the property while it's being marketed, we would arrange for you to show the property at your convenience and for a nice discount off our leasing fee, of course.

    Once someone is interested in your property, they fill out one of our rental applications , which they can do on-line.

    If a tenant is not qualified, we buffer you from the rejection process where many owners unknowingly violate fair housing laws and Fair Credit Reporting Act.  Not knowing the laws and how this process needs to be handled get many landlords into trouble.

    We are professionals at renting homes, which minimizes vacancy time, minimizes repair and redecorating costs by getting better quality tenants to take care of your home, which produces higher rents and profit for you. And we have an outstanding record for doing so.

  • Can I say who I want as tenants for my house?

    You can specify whether or not you want tenants with pets (in most situations) or even tenants who don't smoke although all our properties are marketed as smoke free. However, the more restrictive you are, the longer it could take to rent your property.

    You cannot discriminate against any protected class under the federal fair housing or local fair housing laws, such as saying you don't want children. Because of this, it is best that you stay out of the selection process. We are professionals in leasing. We have specific criteria that every applicant has to pass in order to rent your property.

  • How is maintenance handled?

    The tenants do have responsibility for some of the maintenance on your property. They have to replace burnt out light bulbs, change furnace filters, change batteries in the smoke detectors, and provide for exterminating if they are in a single family home or in a double bungalow where their unit is the only one affected. Tenants are usually responsible for the lawn care and snow removal, unless they are in a multi-unit property.

    When repairs need to be done outside the scope of the tenant's responsibility, we would have one of our in-house maintenance technicians or one of our sub-contractors handle the job. Anyone doing maintenance on your property is selectively screened and insured for liability and workers compensation to protect you from unnecessary exposure. Our workers are available for your property maintenance needs 24 hours a day and their work is guaranteed. We handle the nuisance calls at all hours of the day or night. So you don't have to deal with that call in the middle of the night.

    If we go out and find that the problem was tenant caused, the tenant will be billed and responsible for reimbursement of the charge. We look at your property as our own and are only doing necessary maintenance and repairs; however, if it exceeds our authorization limit as stated in our management agreement, you will be contacted.

    Because of the volume of work we do with them, we usually get lower rates than what you would get if you called a contractor directly. We are home maintenance experts; we know houses, the problems that occur, what repair costs are, and how to get good service and we minimize unnecessary repairs by trouble-shooting issues with the tenants.

  • Can I use my own contractor?

    We are always looking for good contractors; however, as protection for you and us, they would need to have liability and workers compensation insurance. We can't guarantee that your contractor will be used for the work. It would be too difficult to schedule if every owner had a different contractor they wanted us to use.

  • What do I need to do to my property before I rent it?

    The better condition your property is in, the better quality tenant we will attract for you. This means that the property should be clean, carpeting should be shampooed, walls should be painted (a neutral color is best) if they are dirty or marred, and things should be in good repair. It is best to have window coverings on the windows, such as blinds. Depending on the time of the year, snow removal or lawn care should be done prior to the new tenant moving in. Tenants are no different than you and I when we were looking to buy our houses - if it was clean and everything was working, it appealed to us more.

    Upon taking over management, we will go through your property and make note of the condition and what we would suggest being done. You would then instruct us what you want done.

    After the tenants move in, locks are re-keyed for liability purposes

  • What type of reporting do I get?

    We are not only completely computerized, we are web-based, which means you have access to what is going on with your property from anywhere there is an internet connection. You get monthly financial statements which detail every transaction affecting your property. If there was maintenance done on your property, you can access the maintenance details and even view the invoice from the contractor. There is also a year to date profit and loss statement which gives you the month to date and year to date totals per category and the net profit month to date and year to date. This makes your tax preparation at the end of the years easy- all your year-to-date totals are neatly arranged.

    In addition, your funds are electronically deposited into your account. No need to go to the bank to deposit your rent checks. You also have an on-line owner portal for fast access to all you statements and copies of bills.

  • How is rent collection and bill paying handled?

    At R.P. Management we have fair but firm rent collection policies. Like most leases, our rent is due on the first of each month. Late fee is charged after the 1st of the month. If we don't receive the rent by around the 10th of the month, we start the eviction process. We take quick action when there is a delinquency because further delay can only add to no rent in your pocket. We've heard all the stories from tenants on why they can't pay rent. We manage this like a business and things happen as a system. We are always professional with your tenants, but paying rent is one of their main responsibilities. The good thing is we buffer you from the firmness that is required.

    We make paying rent easy for tenants - we have direct payment available, where the rent is automatically deducted from their account. We give them coupons and payment envelopes so they can mail in the rent to us if they prefer.

    Once collected, we need to make sure the funds clear and bills are paid; therefore, the proceeds are deposited into your account or sent to you at the end of the month.

  • How are the security deposits handled?

    We handle the security deposit for your tenant. According to state law, there are special requirements for the handling of deposits. We keep the deposits in a separate account. We conduct a move-in condition report of your property prior to the tenant moving in; we do it again when they move out, so we have a before and after picture and can lawfully deduct any damage over and above normal wear and tear on the property.

    As the owner, state law requires you to pay interest to the tenant on the deposit held. It's nominal and we simply pay it out of your account when the tenant vacates, so you don't have to do a thing.

  • When do I get my money each month?

    Rents are due in our office on the first of each month. Our leases specify that if rent is not received by the first of the month, a late fee is assessed. In order to avoid violating trust accounting laws, we need to wait until rent checks clear before we can send payment to you.

    We deposit your funds electronically into the bank of your choice. This process is done on the 15th of each month and funds will be in your account the next business day.

    We will collect the rent, pay the bills and then at the end of each month, provide you detailed monthly statements showing all the income and expenses for the month along with payment of any excess funds.

  • What liability will I have with my property?

    Owning rental property doesn't come without risk; however, with R.P. Management on your side your risk is greatly reduced. Although no management company can guarantee you will never experience problems, at R.P. Management we understand the risk associated with rental property and have systems set up to manage the risk to you.

    Premises liability - These are those things that can happen in and around the property which can cause harm to your tenant and put you, the owner, at risk. Before a tenant moves in, we go through the property and visually identify items that could cause exposure. For example, trip and fall hazards, missing smoke detectors, no handrails on stairs, to name a few.

    Fair housing laws - One of the biggest mistakes rental owners make is violating fair housing laws. We understand these laws and have set up consistent systems in our tenant screening and daily management so that your tenant feels they were treated professionally and fairly.

    Carbon Monoxide is an odorless, invisible gas that can kill. In our climate, when we close up our houses and use fossil fuel to heat them, the risk of carbon monoxide poisoning is increased. We are proactive when it comes to the safety of our tenants; therefore, we service the heating systems in the fall of each year and test them for carbon monoxide. This also reduces the possible no-heat calls from your tenant. Housing codes - Most municipalities have rental licensing now and all have housing codes. We are not only versed in the codes, but if there is a violation, we are equipped to handle it for you. We also handle the licensing for you.

    Lead base paint disclosure act is a federal act enacted for properties built prior to 1978 which requires you to disclose to your tenant your knowledge of lead based paint on your property. You also are required to give them a specific pamphlet which instructs your tenant on how to reduce their risk of lead paint. Failure to do so is a $10,000 civil fine.

  • What happens to my property taxes?

    There is a common misconception that renting your property will increase the property taxes by double or triple. It's true that you will need to change the tax status from homestead to non-homestead; however, the property taxes only go up slightly since you no longer are eligible for the homestead credit. You can call your county assessor's office for a specific amount and keep in mind that as a rental, your property taxes are also deductible.

  • What kind of insurance do I need?

    Your normal homeowners insurance does not extend to you the same coverage you will need when you rent out your house. You need comprehensive public liability insurance also known as DP3 - Dwelling Property All Risk. It still gives you the fire coverage you get from your homeowners, but adds extended coverage since you will have a tenant living in the house. Expect this added coverage to increase your premium some. We recommend you speak with your insurance agent before you rent out your house.

  • Who actually handles my property?

    Our management system is departments so there are many people handling different functional on a daily basis. As the owner, your contact person is the property manager. Most communication will be via email which eliminates the phone tag and gives us more time to effectively manage your property. There are several other staff members working behind the scenes to assure a consistent level of service. President and Broker Dave Holt oversees the entire system to ensure consistency.

  • What if the tenant breaks the lease?

    We do sign a legal rental agreement with your tenant which does give you rights if the tenant violates any terms or conditions. It's a good lease based on our years of experience and complies with the Minnesota plain language contract act. We found that it's always better to work with the tenants rather than against them should the need arise to get out of the lease. We understand that people have things happen in their lives that are not always avoidable. For instance, they might get a job transfer or lost their job. They could get a divorce or simply want to buy a house. By working against the tenant in these situations, most landlords find themselves spending more time and money than they want. When we review with the tenants during lease closing process, we go over these situations and explain that by notifying us if they need to get out of their lease, we can work with them to re-rent the property. If we can, they are then released of any further obligation and it costs you nothing. The tenant understands that they are still responsible until we re-lease the property.

  • What happens if a tenant does damage?

    A security deposit taken at move-in is usually adequate to handle most damage that a properly screened tenant may cause. Tenants with good credit and prior rental or ownership history seldom cause much damage. The horror stories you may have heard about a property being "trashed" generally are less expensive properties that have been rented without the proper application and screening process. Our screening company checks credit, rental and ownership history, income and employment, and there are specific acceptance guidelines for each.

    Should the tenant leave your property owing more than is covered by the deposit, they will be billed. If they do not pay, they will be turned over to a collection agency.

  • How often do you check on my property?

    The first step is our initial evaluation of your property. One of our managers will come out and go through the house and assess the condition and give recommendations and suggestions to maximize the rental value and minimize risk. They also do a benefit analysis and plot different rent scenarios against your expenses, so you can see what the cash flow would look like. This report notes the tax implications since you can deduct most of the expenses and start to depreciate the property. It looks at the equity build up generated by the tenant paying down your mortgage. And an estimate of appreciation for the house is calculated. There is a small evaluation fee for this, but if you use our services, this fee is credited towards the setup of the property.

    Prior to the tenant moving in we conduct a move-in evaluation. We do it again when they move out. If there is maintenance needed, our techs will fill out a property form which gives us more eyes looking at your property.

    Houses do wear out - everything from roofs to floor covering to appliances, therefore, the managers do annual evaluations noting how things are holding up.

  • Why should I use your company verses another?

  • How long do we sign an agreement for?

    We do sign an agreement, but mainly to avoid any misunderstanding; it's cancelable at any time; there is never a cancellation fee and our service comes with a three month money back guaranteed.
  • Do you have References?

    For over 25 years, we have accumulated more letters of recommendation and surveys from our owners and tenants than we can possibly list here. However, you may click to view some of our TENANT TESTIMONIALS or OWNER TESTIMONIALS and you'll see that we provide consistent service time and time again.
  • My preference would be to sell my house. What options do you have?

    We actually have several options because we know there may be several reasons why you are inquiring, for example...

    • You got a job transfer
    • You tried selling your home or it's currently listed but not selling so you decided to check into renting.
    • Your job is taking you on an out-of-state assignment and you might be moving back at a later time.
    • You are not sure if you want to sell your home or rent it so you're exploring your options
    • You currently own rental property but don't have enough time to effectively manage the property.
    • You don't enjoy managing your property but want the benefits real estate has as an investment.
    • You live out of the area, making it difficult to effectively handle your property.
    • You're thinking about buying rental property.
    • Or you simply have better things to do with your time.
    • How would you like the following benefits?
    • Your mortgage payments guaranteed - meaning you never have a vacancy
    • No monthly management fees or leasing fees
    • All maintenance and repairs are handled at no expense to you
    • Now I know what you're thinking; this is too good to be true. So, how can we sell your home fast?

    Of course, we can provide traditional property management services; however, we can also lease option the house for you, we can master lease it from you where we become your tenant and we can buy the house for the same amount you would get listing and selling traditionally through an agent and you pick your closing date.

    Being in the property management business for over 20 years, we have rented to thousands of tenants and have prospective tenants calling us every day - seven days a week. The good thing for you is that many of these tenants would rather buy a home than rent. With our resources, we have arranged to make it easy for these tenants to buy. All we are missing are the homes. We can close quickly and you can get on with your life without worrying about your home. Best of all, it won't cost any more than selling through a Realtor. The big difference is... we have the buyers. It's a win, win for everyone.

    To find out if your home will qualify for our program, I will need some information. So please CLICK HERE to fill out our questionnaire.

  • Are there any important tax implications if I rent?

    If you are thinking of renting your home, you should be familiar with the following code.

    Section 121 of the Internal Revenue Code

    121 Exclusion

    Section 121 of the Internal Revenue Code, which is often referred to as the 121 exclusion, generally allows homeowners to sell real property held (owned) and used (lived in) as their primary residence and exclude from their taxable income up to $250,000 in capital gains per homeowner, and up to $500,000 in capital gains for a married couple filing a joint income tax return.

    Primary Residence

    The 121 exclusion can only be used in conjunction with real property that has been held and used as the homeowner's primary residence. It does not apply to second homes, vacation homes, or property that has been held for rental, investment or use in a trade or business.

    Qualifications

    Homeowners are required to have (1) owned and (2) lived in the real property as their primary residence for at least a combined total of 24 months out of the last 60 months (two out of the last five years) in order to qualify for the 121 exclusion. The 24 months does not have to be consecutive. There are certain exceptions to the 24 month requirement when a change of employment, health, military service or other any unforeseen circumstances have occurred.

    Changes to Section 121

    The Housing and Economic Recovery Act of 2008 amends Section 121 of the Internal Revenue Code. Section 121 no longer permits homeowners to take the full tax-free exclusion on the sale of real property that was held and used as their primary residence if there was any non-qualified use of the real property prior to it being held and used as their primary residence.

    Qualified and Non-Qualified Use

    Qualified use is defined as any use of the property as a primary residence. Non-qualified use is defined as any use of the property other than as a primary residence, including use as a second home, a vacation property, a rental or investment property or use in a trade or business.

    Gain Can Not Be Excluded for Non-Qualified Use

    Homeowners can no longer take the full tax free exclusion under Section 121 when the property was held and used for non-qualified use prior to it being held and used as a primary residence (qualified use)

    The capital gain resulting from the sale of the property will be allocated between qualified and non-qualified use periods based upon the amount of time the property was held and used for qualified versus non-qualified use.

    The capital gain allocated to the non-qualified use period will no longer be excluded from the homeowner's taxable income. The capital gain allocated to the qualified use period (time used as a primary residence) will continue to qualify for the 121 exclusion and will be excluded from the homeowner's taxable income.

    However, non-qualified use after the property was held and used as a primary residence will not count against the homeowner as long as the homeowner still qualifies for the 121 exclusion (see Exceptions to Non-Qualified Use). Homeowners that still qualify for the 121 exclusion will still receive the full tax free exclusion under Section 121.

    Allocation of Capital Gain between Qualified and Non-Qualified Use Periods

    Homeowners do not need to determine when the subject property actually appreciated or depreciated in value. There are no appraisals needed or required. The change or fluctuation in the fair market value of the property each year during the time they owned it doesn't matter. The total capital gain recognized upon the actual sale of the property is all that matters.

    The total capital gain recognized upon sale will be allocated between qualified and non-qualified use periods in order to determine the amount of gain to be excluded from taxable income under Section 121 of the Internal Revenue Code due to qualified use, and the corresponding amount of capital gain that will be included in taxable income (not excluded) under Section 121 due to non-qualified use.

    The allocation of the gain between qualified and non-qualified use periods is actually very simple. Gain is allocated using a formula or fraction based on the number of years the property was held for qualified use versus the number of years the property was held for non-qualified use as a percentage of the total number of years the property was owned by the homeowner.

    Example

    A homeowner owned real property for ten (10) years. It was held as rental property for the first eight (8) years and then converted to their primary residence for the last two (2) years. The non-qualified use period is eight (8) years and the qualified use period is two (2) years.

    In this example, 2/10ths of the total actual capital gain can be excluded from taxable income as qualified use under Section 121 and 8/10ths of the actual total capital gain must be included (not excluded) in the homeowner's taxable income as non-qualified use under Section 121.

    Remember that any depreciation recapture cannot be excluded from taxable income under Section 121 and would be recognized and included in the year the property is actually sold. In this example, the depreciation taken over the eight (8) year period while the property was held for investment will be recaptured and taxable in the last year when the property is actually sold.

    Exceptions to Non-Qualified Use

    1. The Housing and Economic Recovery Act of 2008 has provided three (3) exceptions to homeowners where the sale of their primary residence may not otherwise qualify for the tax free exclusion under the new requirements now included in Section 121.
      The first exception will have the greatest impact. Homeowners can move out of their primary residence and convert it to any other non-qualified use such as rental, investment, vacation, or business use property and still qualify for the tax free exclusion under Section 121.
      The key is that homeowners must still qualify for the other requirements under Section 121 at the time they close on the sale of their primary residence. They must have (1) owned and (2) lived in the real property as their primary residence for at least a combined total of 24 months out of the last 60 months (two out of the last five years) in order to qualify for 121 exclusion treatment.
    2. This also means that Revenue Procedure 2005-14 still applies and that homeowners can also complete a 1031 exchange to defer any balance of capital gains above the 121 exclusion limitations.
    3. The second exception involves those homeowners affected by qualified official extended duty such as military service.
    4. The third exception involves unforeseen circumstances.

    Summary of Changes

    Property Held For Rental or Investment First

    Property held for investment purposes and then subsequently converted into a primary residence will be impacted the most under these legislative changes to Section 121.

    The amount of time that the real property was held as investment property (non-qualified use) will no longer qualify for tax free exclusion under Section 121. Only the actual time that the real property was held and used as a primary residence (qualified use) will qualify for the tax free exclusion.

    This will significantly affect those homeowners who had planned to move into investment property and convert its usage to their primary residence in order to take advantage of the 121 exclusion. The longer the real property was held for investment the greater the impact will be on the amount of capital gain that can be excluded from taxable income (i.e. the more capital gain that must be included in taxable income).

    Property Held As Primary Residence First

    The modifications made to Section 121 do not affect homeowners that move out of their primary residence and convert it to non-qualified use. The homeowner can still take the full amount of the 121 exclusion upon the sale of the property as long as they still qualify for the 121 exclusion.

    In other words, a primary residence that is subsequently converted into investment property will still qualify for the tax free exclusion under Section 121 provided the property is sold no later than three (3) years after its conversion to investment property. The property will no longer qualify for the 121 exclusion once it has been held by the homeowner as investment property beyond the three (3) year window.

    Effective Date of Changes

    The modifications to Section 121 of the Internal Revenue Code apply to the sale of any real property closing after December 31, 2008 that was held and used as the homeowner's primary residence.

    Transitional Period

    The Housing and Economic Recovery Act of 2008 provides a very generous transition period to help homeowners plan for the modifications to Section 121. Any and all non-qualified use of the property prior to January 1, 2009 will not be taken into account and is ignored for 121 exclusion treatment; only the non-qualified use of the property after December 31, 2008 will affect homeowners.

    This information is not intended to give legal or financial planning advice. We suggest that you seek the counsel of an attorney and or qualified financial planner.