How to become a successful landlord (Steve Tytler)

0 | August 4th, 2008 | Posted in Intro: Getting Started, Step #1: Find, Step #4: Rent, Step #5: Maintain, Step #6: Admin

Steve Tytler of the Herald (e-mail address: economy@heraldnet.com) prepared a really good response to a reader’s question which went something like this:

“We are buying a new home and plan to keep our condo and rent it out. We have never been landlords before and we don’t really know what to do. What advice can you offer us?” C.T., Lynnwood

Here is how he answered:

First of all, you have to realize you are starting a small business. Real estate is not a passive investment like investing in the stock market. You are creating a part-time job for yourself, so take it seriously.

Many people are having a hard time selling their homes these days due to the large number of homes for sale and the smaller pool of potential buyers compared to the hot housing market of a couple of years ago.

Some of those homeowners are becoming landlords out of desperation rather than desire and I don’t think that’s a good thing. Take the time to learn what you are getting yourself into before you decide to turn your former home into a rental property.

There are several good books available on the subject. I like “Landlording” by Leigh Robinson. Study the landlord business so that you can learn from other people’s mistakes rather than making the mistakes yourself. The key to success in the landlord business to take the time to select quality tenants.

In the 18 years that I have been writing this column, I’ve heard many horror stories from part-time landlords. Invariably, the landlord rented to the first person who showed up because they didn’t want to waste time showing the house to other prospective tenants.

That is a serious mistake.

Now, don’t misunderstand me. I am not advocating that you discriminate. That’s illegal. When I rent a property, I have only three criteria for selecting a tenant:

Does the applicant have sufficient income to pay the rent? Ideally, the tenant should have a gross monthly income equal to about three times the monthly rent.

Will the applicant pay the rent on time? This is determined by analyzing the applicant’s credit report.

Will the applicant take good care of the property? This is determined by talking to the applicant’s previous landlords.

I also give preference to tenants who are looking for a long-term (two years or more) residence rather than a short-term stay.

You should use your rental application form to gather pertinent information about the applicants, but beware of discriminatory questions. For example, there is no law against asking for the ages of prospective tenants but it is illegal to discriminate against children. In other words, you better not even give the appearance that you’re using the information to screen out families with kids.

You must use a credit reporting agency or tenant screening service to check the applicants’ credit history. It is permissible to charge the applicant a fee to cover your out-of-pocket expense for this service, but you cannot make a profit on this fee. For example, if the tenant screening service charges $50 per applicant you could not charge a $100 rental application fee. Landlords who do the verification work themselves can charge for their time and out-of-pocket expenses such as credit reports and long distance phone calls. However, the charge cannot exceed the customary fee charged by a professional tenant screening service.

While professional tenant-screening companies provide a valuable service, I prefer to pay only for a credit report and verify the references on the rental application myself. Why? Because my rental properties are valuable investments and nobody cares about them as much as I do.

I want to know as much as possible about the tenants before I let them move into my property. You may find this hard to believe, but some people actually lie. One common trick is to write down the names of friends as previous landlords. To combat this, I never call the reference and say, “Hi, this is Steve Tytler. Jim Jones said he rented a house from you last year. Was he a good tenant?” Such an introduction only tips off the fake landlord, who then proceeds to tell you what a great tenant Jim was. Instead, I try to catch them off guard by saying something like, “Jim Jones gave me your name as a reference. How do you know him?” A phony landlord might reply, “Oh, Jim’s an old frat brother of mine …,” while a legitimate landlord would say, “He rented a house from me last year.” I know this sounds sneaky, but it’s better to be safe than sorry.

As for employer references, the purpose is simply to verify that the rental applicant really works where he or she claims to work. Few people will admit to being unemployed. When calling the place of employment, don’t identify yourself as a landlord, just ask to speak to the owner or manager of the company.

It’s not uncommon for applicants to list their co-workers or friends as their supervisor.

You can’t be too careful. I’ve taken as many as 15 rental applications for a single property before renting it. Remember, you are hoping to establish a long term relationship with your tenants. Just as you probably wouldn’t marry the first person you ever dated, don’t rush into signing a rental agreement with a total stranger. Get to know them first. You’ll be glad you did.

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For Those Interested in Becoming Landlords…

0 | August 4th, 2008 | Posted in Intro: Getting Started, Step #1: Find

Buying rental property in a down market can be a lucrative investment — but there are some factors you should consider before you jump in. From Consumer Reports, consider these four tips on how to find a good rental property:

Find out where renters want to live. Ask your real-estate agent to show you properties that have an established rental track record going back two or three years, during which vacancies were limited to no more than three months at a time.

Do the math. Figure out whether the rents will cover your expenses, including maintenance, and leave room for profit. Ask real estate agents for the going rates and scan the classifieds for comparable properties.

Assess the tax consequences. Anything left over after expenses is taxed as ordinary income. You can depreciate the cost of residential rental property, but not the land it sits on, over 27.5 years — even if it is increasing in value. Suppose you paid $400,000 for a triplex on a sliver of property assessed at $50,000. Depreciation would come to nearly $13,000 a year, or, put another way, you could have that much rental income without paying taxes on it.

Choose tenants carefully. Don’t approve tenants until you have checked their credit and criminal histories and talked to references and employers. The lease should lay out rules about pets, parties, rent due dates and late fees.

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How “Smart” Landlords handle Rentals

Closed | August 4th, 2008 | Posted in Step #4: Rent, Step #5: Maintain, Step #6: Admin

Otesa Middleton of Bankrate.com compiled these great tips from experts on managing your rental property. Feel free to add your own “Smart Landlord” advice in the comments section of this blog posting…

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Owning rental property seems like an easy way to generate extra income. But it’s actually not all that easy.

Nevertheless, the number of people buying second or third properties as investments has grown tremendously, according to the National Association of Realtors. In fact, the group’s recent survey found that 36% of home sales in 2006 were second homes and 35% of current investment-property owners plan to buy another property in the next two years. Since 46% of those questioned by NAR said they bought the investment property for the rental income, it behooves landlords to be scrupulous in searching for good tenants.

Landlords who take shortcuts when screening potential tenants, who skimp on insuring the property or who fail to outline everything in a detailed, written lease can end up with unpleasant and, yes, costly surprises. But there is one shortcut neophyte landlords can take: They can listen to the pros so they won’t have to learn lessons the hard, expensive way.

Do your own due diligence: A case study
Take, for instance, the tenant who so looked good on paper, with his attractive credit report and handsome deposit check. Too bad the paper he looked good on was bogus.

Apparently, this seemingly perfect tenant doctored his credit report, giving himself a stellar rating. Then the guy bounced his hefty $4,000 deposit check. Pasadena, Calif., landlord Payman Emamian blames his real-estate partner for renting to this con man. Not only were they out money, but the lying tenant damaged the investors’ two luxury Hollywood town houses. (The guy claimed he’d work in one and live in the other.)

After three months, Emamian successfully evicted the man, but not before he ran up a $20,000 tab for back rent, legal fees and repairs.

Emamian’s advice to landlords: “Never accept a credit report that a tenant brings you.”

Emamian, who bought his first rental property — a four-unit building — in 1998, says he’s learned to double-check everything. To help landlords dig into backgrounds, companies such as the National Association of Independent Landlords, of Houston, provide credit reports and scores for $15.95 each. Landlords must first get the applicant’s permission, signature and Social Security number, plus they must provide their own proof of real-state ownership, photo identification and credit-card number for payment. NAIL also provides a host of other background checks, including a nationwide criminal search for $12.95 and a national eviction search for $5.95. Many landlords charge prospective tenants an application fee to cover the costs of screening.

Emamian doesn’t stop at second-guessing tenants. He applies the same level of scrutiny to information provided by sellers when he’s scouting a potential rental property. “Never listen to sellers as to what the expenses are,” Emamian says. “You research.”

Most buyers know they need to foot the bill for taxes, insurance and some maintenance, but many don’t factor in utilities, landscaping, private trash collection or the loss of income when the unit is vacant.

Check references
As for screening tenants, Emamian always asks for two landlord references. The past, not the current, landlord is the most important reference because the present landlord may fudge the truth to get rid of a terrible tenant. Also, the landlord can either pay an outfit like NAIL to question present and previous landlords and employers or do it himself. Emamian also asks for a copy of a bank statement.

“I want to make sure they have assets — how is that check going to clear?” says Emamian.

Jim McDavid has survived 40 years as an owner, manager and seller of rental property by doing very thorough due diligence, and basically by doubting everything prospective tenants tell him. In fact, McDavid says he gets a police report on applicants and asks for photo identification as an extra precaution. Although procedures vary from state to state, McDavid says in Virginia he simply walked into the sheriff’s department and paid a small fee for the criminal background check.

“I’ve owned just about everything in the book,” McDavid says. “I owned condos in Florida and houses in Charlotte (N.C.).” McDavid, a licensed real-estate broker in his home state of South Carolina, as well as in North Carolina and Virginia, says, “Everything changed on 9/11, even in real estate.”

Buy adequate insurance
Protecting yourself goes beyond combing through a tenant’s background. McDavid says that too often landlords skimp on a very important item: insurance.

“Tenants create all possible situations you can imagine,” he says. McDavid tells of a young woman who rented from a client. The woman’s boyfriend slipped her two illegal drugs — Ecstasy and methamphetamine. Her family is suing the boyfriend, the lender on the property and the owner of the town house.

“Protect yourself against the impossible,” McDavid says of insuring rental property. “You need as much (coverage) as you have on your automobile driving around.” Also, most experts recommend requiring tenants to have renters insurance. The owner’s coverage repairs and replaces only the actual structure and many times the appliances, but not the tenant’s belongings.

Another form of protection is proof of a property’s condition. McDavid suggests having a written, signed document with photos of the property when the tenant moves in.

“Establish a baseline,” he says.

Just say ‘no’ to form leases
And what about those leases for sale at office supply stores? They’re useless because each state has different landlord and tenant laws. McDavid suggests getting a standard lease for your state from a real-estate office or association.

Warren Wheeler, a real-estate attorney in Atlanta, agrees.

If you buy a lease-in-a-box, Wheeler says, “for a good bit of time that works — until there’s a problem.” Those generic form leases also don’t take into account concerns for different types of dwellings. A high-rise luxury condo will have different stipulations than half of a duplex or a converted row house or a single-family home on an acre of land or a unit above a bakery. Get an attorney to help add provisions particular to your property, Wheeler suggests.

Also, set up house rules, put them in writing and enforce them uniformly. If one tenant thinks another tenant gets special treatment, it could be considered discriminatory.

“You can’t discriminate racially,” Wheeler warns. “There’s a federal law against that.”

Heed environmental matters
With environmental concerns taking center stage nationwide, landlords, too, have to take heed. They must watch out for lead paint, asbestos, mold and overall indoor-air quality, says Robert Gallo, certified indoor-air quality manager who is director of sales and marketing at RTK Environmental Group in Stamford, Conn. “If the structure was made before 1979, chances are it will have lead paint in it even if it has been painted over,” he says.

First, Gallo says landlords need to give tenants the U.S. Environmental Protection Agency booklet “Protect Your Family from Lead in Your Home.” Then Gallo recommends having the property inspected by a licensed lead-testing company. “Most people are poisoned not from eating paint chips, but from the dust,” he says.

Gallo says the do-it-yourself lead-testing kits examine only the surface, but can’t determine if there’s lead underneath. His company uses X-ray fluorescence to scan every painted or sealed surface. He charges at least $425 for up to a 3,000-square-foot home, which includes a diagrammed report and advice on the cheapest and safest way to correct the problem. To protect against mold, Gallo says clean up all water immediately.

Consider hiring a property manager
Lisa Vander, founder of Pacific Blue Investments in Solana Beach, Calif., actually tells her clients not to deal with all of these details. Instead, she urges her clientele to farm out that work to a professional property manager.

“If you’re retired, that can be your job,” says Vander, who considers herself a real-estate wealth developer. “If you already have a job, do not take on managing your own property.”

A better option, in her opinion, is to have a property manager handle the day-to-day dealings. To do this dirty work, property managers typically charge a percentage of the rent, with many charging as low as 4% for very large complexes and up to 10% for single-family homes. The property owner, Vander says, should “learn to manage the equity in the property and buy other property, while managing the manager.”

The owner’s concerns should be finding out how to increase the rent by improving the property while decreasing expenses. “The owner should be doing the thinking work and not the physical work,” she says.

Other matters to consider
Vander also tells her clients not to go it alone. “Get involved in an apartment association,” she says. That way, property owners have others to turn to for advice, forms and referrals. She recommends establishing separate bank accounts for each property so that the finances of each investment can be analyzed separately. It’s also important for keeping tax records straight.

Finally, each expert recommends demanding an adequate security deposit from tenants, a form of protection if all the above fails. And to avoid the headache that Emamian experienced, insist on getting the deposit before the tenant moves in — and in certified funds: cashier’s check, certified check, money order or, of course, cash.

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Landlords’ tales of nightmare tenants

Closed | August 4th, 2008 | Posted in Step #4: Rent, Step #5: Maintain

Dead animals, smelly garbage and broken windows overrun the comments of hundreds of people who replied to an MSN Real Estate message board request for landlords to share stories of nightmare renters. In more than 500 postings on the site in the past couple of months, several themes keep coming back — just like bounced rent checks, some landlords might say.

Let’s start with a beef about what may have been beef.

“When I was a Realtor I was acting as a rental agent for an out-of-state owner. Imagine my delight to find the large piece of meat left in the freezer in an apartment left vacant with no electricity for six months. I actually tried to clean it up — there is no cure known to man that I didn’t try to get rid of that smell. Fortunately, the owner was understanding about buying a new fridge.” – Thetabobeta

Rotten food is just one course on a full menu of tribulations described by rental-property owners and managers. The postings have been edited but not checked for accuracy. (FYI: Tenants have a separate message board to gripe about landlords.)

Skipping out on rent

  • “The absolute worst experience we ever had was two college students referred to us by my husband’s uncle. They trashed the place, stopped paying rent after the first two months and were really, really difficult to evict because it was winter, and at that time the state had laws protecting tenants from being pitched out into the cold. The final insult, of course, was that when they did sneak away in the dark of night, they turned off the heat but not the water — so we had frozen pipes to deal with on top of the garbage and filth.” – Cynical2
  • “In the last year, I have had two tenants just pack and leave in the middle of the night.” – Sarab landlord

Stealing from the landlord

  • “I had three rental properties. Worst case was a very rich guy, family lots of $, lots of $! He had utilities cut off, so he tapped into my property’s electrical lines with an extension cord and ran four heaters off it for a month, until it burned through on the new hardwood floor. Then he stripped wallpaper and moldings and sold them at a wood-supply business. He tried to take fixtures but was surprised by another tenant, who called me. He skipped. Family is still very big $ and supports him, I have been told, but they won’t pay any back rent or damage costs. I was out $3,700 for him — the cost of his mountain bike, he told me once.” – noroom
  • “I have a coin-operated laundry in one complex. The tenants try everything to get free laundry. Foreign change, metal objects, latex gloves with the quarter in the finger hole (thought that was creative). After they got tired of trying to get free laundry, they decided to just take the actual dryer! Just loaded it up, carried it off and threw it down a hill. I hope they enjoyed the 10 bucks they got out of it!” – Norcal Landlord
  • “We recently bought a new house that was a little out of our league, but being that it was four bedrooms, we figured we could rent out a room for some help with the mortgage, and so we did. We found a tenant who was single, didn’t drink, didn’t smoke and didn’t do drugs. He had a cat but said it would stay in the room (I’m allergic). So we accepted him. Long story short, his cat ran around the house, scratched my dog and the furniture, and he did drink, and he did do drugs. The one thing he never did: pay his rent on time. Oh, yeah, and he was married. One day, his estranged wife came to town with a one-way ticket and moved in with no money and a drug problem. Lo and behold, while we were out working all day, she was snooping around the house . . . “collecting” things. First, the boat hitch was missing, and then my shoes. We logged on to our banking account one day and saw there was a check made out to cash, not in our handwriting (and “dollars” was spelled wrong), with the wife’s account number and signature on the back. Needless to say, we evicted them immediately and discovered she had half my wardrobe, and I am still finding things missing!” – Tahoe Tessy

Friends and family

  • “I had let my cousin (at the request of my aunt) move in, and she sold my water heater, air-conditioning unit, all the fixtures in the house and all my children’s furniture and living-room furniture I had let her use, my riding lawn mower and anything else she could remove. Then she left in the middle of the night. Now, two years later, she has no problem walking into any family gathering and acting like she does not understand why I do not speak with her.” – Amalga
  • “I had close relatives (too close) living in my house. One moved out, and a girlfriend moved in. I haven’t had any rent money in six months because she is in school, and if I make too much of a fuss they will all be mad at me. This is a no-win situation. I found out not to have dealings with family!!” – Lizzy221

Letting pets run wild

  • “I rented to a veterinarian who had her boyfriend move in. The two of them started collecting animals. I had agreed to an outside dog only, but now they had four horses, six dogs, and I couldn’t count how many cats! They had fenced in the backyard and put the horses in the yard, right up to the back door, and had the basement full of animals and couldn’t possibly clean up after them. Then she left this guy. He stayed, and the contract was only in her name. We couldn’t get this guy out of our home.” – Wahoo1413
  • “My boss has a rental that I got put in charge of, and I will never do that again! It was an older couple with their 20-something-year-old daughter, and they lived in filth. They had two dogs, one cat and a chicken that all lived in the house. I guess the animals didn’t like to go outside, so by the time they finally moved out there were mountains of dog, cat and chicken poop in the house. We ended up having to go to court to get them out and then go to court again to get two months of rent and more of a deposit.” – Mandalou

Beyond normal wear and tear

  • “We had druggies (highly recommended by family/friends in our church!) who glued pennies to the walls, stuffed Cheetos into the shutters, stapled small pieces of cardboard to the inside window facings, disassembled the outdoor flower bed and brought all the bricks inside the house, poured water into the floor furnace, causing it to rust out (we have a 1928 home in Tulsa, Okla., which was beautiful), used the drapery for cleaning rags, used wood staples to anchor a large, outdoor inflatable toy inside the living room and left their drug paraphernalia in the closet when they moved. We’ve spent thousands in cleaning and replacement costs.” – Taken in Tulsa

  • “The worst case was a house where the renter had driven his four-wheeler into the carpeted living room and repaired it there. When they moved out, they left garbage, dirty diapers on the carpet, children’s drawing in permanent marker on the wall, feces in a plugged toilet, spoiled food in the fridge and, oddly, all sorts of furniture and baby items.” – bulldog7
  • “I am out of the rental-property business, thank goodness. The worst were the people who paid the first and last months’ rent, then moved in and never paid another dime. After repeated calls and personal visits I had to pay $100 to the constable to get them out. After the constable told them to get out, they shattered the solid-core front door, poured paraffin down all the drains, rewired the electric wiring to short out the whole system (so the fireman told me), threw beer bottles and broke all the windows and screens out, and sold all furniture and appliances and some carpet ripped off the floor. What carpet they did not steal, they poured bleach on, and dumped battery acid on the tile flooring. They put knife holes in all the Sheetrock and left me with original spray paintings. The water had been cut off for months, and they were using 3-pound butter tubs for their toilet, which they left me with. Their dogs left presents inside the house, also.” – bothgone
  • “Rented to a well-to-do couple with a 2-year-old, solid references (so we thought), and we paid a rental agency to monitor the property and collect the rent. These people paid on time. However, they had a kitchen fire due to the stove being so filthy, thousands of dollars in smoke and fire damage, completely melted the door off the microwave, wouldn’t set up the sprinkler-system timers to water automatically, so the entire yard died, completely tore out shrubs and cracked the upstairs master-bath sink washing a bowling ball. They didn’t have a diaper pail, so they just tossed the wet diapers (from second child born while in the home) in a corner on the carpet of the baby’s room (gag), took every window covering and tore out the alarm system contacts on all the windows. My favorite one: They drove their car through the wall in the garage into the downstairs guest bathroom. All toilets in all three bathrooms had to be replaced because they were stained black. Never could figure that one out.” – Nutso

In a class of their own

  • “(The tenant) left us with garbage and tons of clothes throughout the house, holes in the walls, carpets destroyed and a large potbellied pig left in the backyard that was very hungry and chased after me.” – Rhonda Landlord
  • “We fell for a sob story from a prospective tenant, and we got burned. Her husband worked late hours, and she asked if she could take an application with her, (and) along with that could she take the key so they could come by when he got off work at midnight so she could show him the house. She loved the place; they were going to fill out the application and drop it off to us the next day along with a deposit to hold the property until the credit checks came in. We got a strange call from her a few days later, and on a hunch, my husband and I went by the house. Oh, yes, they were moved in all right; everything was unpacked hanging on the wall, and a cat running around. We had squatters. After the cops were called and the eviction process was started, they had the nerve to ask us if they could start over if they gave us the deposit then.” – it ain’t always easy
  • “I had rented to a mother and two boys (ages 3 and 7) who were supplied to me by the Department of Social Services. They were on a plan (two-year max) to help down-and-out single moms/dads get on their feet. I thought this was a good plan. Then the constant traffic started coming to the house apartment: 10 p.m., 1 p.m., 2:30 p.m., 6:30 p.m. The smell from the apartment was horrible, and I eventually found out she was making and selling crack cocaine from my apartment.” – Pacific Heights

If you want to see the other posting, check out this LINK.

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The Landlord at Kontraband (Funny!)

0 | August 4th, 2008 | Posted in Step #4: Rent, Step #5: Maintain

Sure, we landlords get a bad rap much of the time (even though it’s usually “Professional Tenants” who cause us the biggest headaches!). Still, it’s healthy to laugh at our business and not to take life too seriously. With that being said, click on this LINK to go to a hilarious 4 minute Video.

If you want to see more Kontraband Videos, go to this LINK.

ENJOY!

http://www.kontraband.com/videos/12298/The-Landlord/

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How to Be a Responsible Landlord

0 | August 4th, 2008 | Posted in Step #4: Rent, Step #5: Maintain

I found an interesting Blog post by Dr. Javaid Kiyani, who also provides advice and tips on property investment.  For more of his work, please visit: http://www.hmopropertyriches.com

Posted on June 16th, 2008:

Any responsible landlord needs to take the following into consideration when renting his property out.

1. PROPER SELECTION OF PROSPECTIVE TENANTS

Prior determination of credit standing, references and background are very important in assessing a tenant. Credit standing is important because it will disclose the tenants ability to meet rental payments. The rental application form should as a minimum request information such as employment status and income. The tenant should also provide proof of identification and current residency.

2. THE TERMS AND CONDITIONS OF THE AGREEMENT MUST BE WRITTEN

The written lease contract is the best evidence of the terms and conditions. The contract will serve as the governing law between the contracting parties in case there is a future dispute concerning the agreement. The lease contract should include at least the following salient details: the names of the parties or all tenants in their respective capacity; nature of the use of the occupancy; provision on sub- letting; duration of the tenancy; rental fee which includes its due date and manner of payment; appropriation of deposits and fees; landlord responsibilities for example repairs and maintenance issues; right concerning access to the property, and prohibited activities etc.

3. APPRIOPRIATE THE DEPOSITS AND OTHER FEES PROPERLY

There must be a standard system of securely holding any tenant deposits for the property. Before the termination of the lease contract, a property inspection should highlight any damage caused by the tenants and hence appropriate deposit retention to cover repairs.

4. SUPERVISE MAINTENANCE BY MAKING NECESSARY REPAIRS CONCERNING THE PROPERTY

The landlord should guarantee peaceful possession of the property by the tenant. The landlord is also obliged to maintain the property by organising any necessary repairs quickly.

5. SECURITY OVER THE PERSON AND THE PROPERTY MUST BE GIVEN THE UTMOST PRIORITY

The landlord should guarantee safety and security of the tenants by providing them with a safe and secure property to reside in.

6. OBSERVE TENANTS RIGHT TO PRIVACY

The tenant has a right of possession over the property without excessive landlord intrusion. Hence, the right to privacy must be given due consideration. Entry within the tenants premises must be coupled by prior notice.

7. DISCLOSE ANY ENVIRONMENTAL RISK

Any known posed danger to the life, limb and property of the tenants must always be revealed.

8. SUPERVISE APPOINTED MANAGERS OF THE PROPERTY

The tenant must always be informed of any development or improvement concerning the leased property.
The landlord should always ensure that anyone working on the property is supervised carefully. Otherwise, the landlord could be held responsible for any disputes that may arise. Background checks of any staff should always be carried out.

9. SECURE INSURANCE

The landlord should always ensure the property is insured adequately to cover it against any risk it might face. Minimal liability cover should also be obtained in the event of a tenant-landlord dispute.

10. THERE MUST BE PROPER AND STANDARDIZED DISPUTE RESOLUTION

Any dispute should first be resolved without the intervention of outside parties. The instruction of solicitors should be left as a last resort if the landlord and tenants are not able to reach a satisfactory resolve.

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10 Things You Should Know About Being A Landlord (But Were Afraid To Ask)

0 | August 4th, 2008 | Posted in Intro: Getting Started, Step #4: Rent

This article by Justin A Ragusa, founder of RentKong “The Rental King”. He can be contacted at JR@RentKong.com

He offers an extensive database of apartments for rent and houses for rent, including rent to own and vacation property. His Top 10 List is a good one…

Have you ever thought about renting out your home? Most people think about this at one time or another while they consider buying a new home. When done right, being a landlord is a lucrative business that can open the doors to that house you always dreamed of. It means that you can have multiple assets that continue to appreciate in value.

Before you take the plunge, let’s go through some of the things that you need to know about being a successful landlord. If you are not careful, some mistakes may come back and bite you again and again.

Tenant Screening

Not all tenants will be good tenants. All too often landlords can be too eager to fill their homes. It is important that you do a little investigation on your potential tenants. Whether you are managing your property yourself, or using an agency, careful screening will save you a lot of money and stress. There are problem tenants out there, but there are many ways to prevent them living in your property! Things you can do to make sure you have the right tenants:

  • References
  • Talk to previous landlords
  • Talk to the Tenant
  • Credit check

If you are letting an agency handle your affairs, make sure they know that you want a good tenant. Unfortunately, agencies do not always have your interests at heart. Their job is to rent out property and sometimes they forget that they have a responsibility to the landlord to find good tenants, not just any. The key here is to be on top of things. No one will care about your home or income as much as you! Note* When screening your tenants, you should be aware of the Fair Housing Act

Understanding your Expenses

Most people don’t realize that expenses are more than taxes, insurance and mortgage payments. You should have money set aside for repairs, vacancies and bad debts. These other expenses can be limited with planning and preparation.

You should be realistic with the condition of your property. If something looks like it’s not going to last or will require repairs in the near future, then you should sort out these issues before your tenants move it. You will find this saves you money as you have the opportunity to either fix some of the problems yourself or find a good quote for the services. Once your tenants have moved in, your priority would be to solve the problems as quickly as possible which means the costs can be increased.

Always over budget for your expenses. Things happen that you cannot always foresee. Here are a few costs you should consider when renting out your home.

  • Gas and electricity testing
  • Insurance
  • Letting agency fees
  • Tax
  • Repairs

Communication

Be in contact with your tenants. The best way to make sure that your tenants pay your rent and treat your home well is to be in regular contact with them. Obviously, you do not need to harass them. If you haven’t heard from them in a few months, then give them a check up call. Find out if they are happy and what their plans are for the future. Often, if they feel that you are looking after their interests, then they will look after yours.

Most tenants have some sort of idea how long they want to stay in your property. A good relationship with your tenants mean that you can have an idea of their intentions and plan for it.

Home Checklist

If you have rented a home before, you would have probably come across the checklist and never thought twice about it. It is crucial to do a stock check before a tenant moves in or out. This will help tenants know exactly what condition the apartment is in so that they respect it. Obviously, there will be room for wear and tear, but if it’s more than that, you will have the checklist to go back to.

The checklist will be signed by both parties and you will have proof should the condition of the apartment be disputed by the tenant when they move out. Tips for making a good checklist:

  • Separate your checklist into individual rooms
  • Break down each room into sections
  • Create a system of check each room. A good idea is to start from the floor, then the walls, then the ceiling.
  • List appliances and their condition

This will save you spending money on things which you shouldn’t have to.

Insurance

There are many insurance plans for your property. Make sure that you have enough insurance to cover your home. Talk to your insurance agent to get the right package for you.

A well-designed insurance package can protect your home from losses caused by everything from fire and storms to vandalism, and personal injury and discrimination lawsuit. For a small amount of money, you can protect yourself from the opportunity to lose a large amount.

Rules for your tenants

Having a clearly defined set of rules for residents can save you time and money. When you draw up your list of rules, make sure the same rules apply to all your residents. Don’t discriminate based on age or gender. For example, don’t just say “children are not allowed in the pool area.” You either have to say “no resident or guest is allowed in the pool area” or “children under the age of 8 must be accompanied by an adult in the pool area.” Using general terms, such as “resident” and “guest” will mean that you can’t be accused of discrimination.

If a resident does break your rules, then you have every right to keep a record of such behavior. Keep written records of the time and date when the incident took place and how you found out about the incident. Keeping records will mean that it’s far easier to evict a residents if there are any problems in the future. Having rules and guidelines for residents clearly laid out means they know what is expected of them before they agree to rent from you. Make sure you look at the laws in your own state before you finalize your rules.

Maintenance and Repairs

Nobody likes having to spend money on repairs, but making repairs within the shortest possible time will save you money in the long-run. A small problem can soon escalate into a big problem if you don’t act quickly. Think of plumbing, if there is a leak and you don’t fix it quickly, you could end up with damp and other issues. Acting quickly to repair problems will mean that the rental and sales price of your home doesn’t depreciate.

If you don’t act quickly you could also find that good residents will want to leave. They can also sue if they suffer any injuries or leave without giving you notice. Act as soon as any issues come up so you won’t be left footing the bill and trying to find new residents.

Advertising

Advertising is one of the most common ways for landlords to find people looking to rent a property. Advertising can be expensive in traditional newspapers and magazines, but there are websites that can help you find new residents that are much cheaper. Potential residents will also be able to see a picture of your home, so you’ll spend time showing your home to people who are genuinely interested in renting from you.

When you advertise your home, make sure you describe only the facts about your home, such as, location, transport links, and what is in your home. Never discriminate on age, race or gender or say something like, “this home is perfect for young couples” as it could be misread that you are discriminating against families or older people.

Resolve disputes informally

If you have problem with residents, there is no need to be heavy-handed and start calling your lawyers immediately. Try to resolve any problems with an informal meeting first. This will help save you money on lawyers fees (they get enough money already!).

If an informal meeting doesn’t work, then consider using a neutral third party to mediate between you and the residents. Only once you have exhausted all possible avenues should you get your lawyers involved.

Get everything in writing

Before you agree to anybody renting your house you must get everything in writing. Even if you plan on renting to friends you need a contract. Without one you’ll have less standing in the eyes of the law. Your contract needs to include things like:

  • All the names of the people renting the house
  • Rules of when you or the renter must undertake of repairs or maintenance
  • How much notice you are required to give to the renters before you visit them
  • Deposits and fees payable
  • Rental amount
  • The length of the contract

Make sure to get these key details written down and consult further with your lawyer so you know the rights in your state.

These 10 tips will make the transition into being a successful landlord much smoother. Becoming a landlord isn’t difficult as long as you are organized and have a plan in place.

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