They say the path to millionaire status can be obtained by becoming a landlord. “Buy land,” they say. “That’s something they aren’t making any more of.” I have more than a couple of investment properties and I’m far from millionaire status but I’m on my way. Check with me in about 15 years and we’ll see how close I am.
Since my last “Tip Tuesday” blog posting “Hacks for Tenants/Renters,” I thought I would follow up with “Hacks for Landlords.”
READ MY HACKS FOR TENANTS/RENTERS HERE:
Based on my 10+ years of experience being a Landlord and Property Manager, I’ve learned “what to do” and “what not to do” when it comes to “Landlording.” Just as the tips for tenants proved useful (at least I hope they did,) these hacks should prove useful to the Landlord as well. For all practical purposes, I’ll be speaking to those who own and/or manage Single Family Dwellings.
- ALL RENT IS NEGOTIABLE: Just as I mentioned “All Rent is Negotiable” in the Hacks for Tenants/Renters posting, obviously the same goes for Landlords on the flip side of the coin. Some Landlords are firm on their asking price, however, depending on the level of motivation, an Owner may be willing to bend slightly on the rent. When you think about it, if you’re talking about a difference of $50-100, it’s worth it to negotiate and find a middle ground, especially if you think you’ve found the perfect tenant.
- NEVER JUMP ON THE FIRST TRAIN SMOKING: This is the biggest mistake I see new Landlords make. The Landlord is so eager to lease the home and because the potential tenant(s) look good on paper, have the deposit and first month’s rent and “appear” to be “really nice,” the Landlord rents to that potential tenant in haste. The rest of the story in some cases is a complete disaster!
- POTENTIAL RED FLAGS: These are some of my personal favorites: 1) The potential tenant who has the deposit/first month’s rent, will do the once over of the property, complete the lease application on site, run to 7-Eleven, get a money order for the app fee(s), brings everything back to you within 30 minutes, (this could be on a Monday no doubt,) and expects a Friday move in. WHAT!!!! THOSE VERY ACTIONS SIGNAL TO ME A TENANT THAT IS ABOUT TO SKIP OUT ON PAYING RENT WHERE HE/SHE/THEY CURRENTLY RESIDE. If they’ll skip out on a previous Landlord, they’ll do the same to you. Beware. This is not always the case, but in my experience RUN FOR THE HILLS!!! Nine times out of ten, it is. I require a copy of a Driver’s License/ID Card, Social Security Card, Utility Bill (to verify current address) and the most recent check stub. Some may believe I’m asking for too much information, but this is actually a part of the “weeding out” process. If a potential tenant doesn’t feel it necessary to provide me with the information I require, another one will come along who has no problem doing so. 2) The potential tenant, who after reviewing the Residential Lease Application informs you for the last FIVE YEARS of residential history (which is what I ask for) they lived with a sick relative usually a mother or father. I always find it comical when this happens because I’ll ask them to go back another five years, and I’ll usually get another relative they lived with or another type of excuse. Bad rental history is better than no rental history: It may be shaky, but at least a Landlord knows where an applicant stands.
- WHEN SHOWING YOUR PROPERTY TO A POTENTIAL TENANT, TREAT IT AS AN INTERVIEW PROCESS: I hate to say it, but APPEARANCE DOES MATTER. Your potential tenant doesn’t have to dress as if they’re interviewing for a Fortune 500 Company, however, they shouldn’t look like they just rolled out of bed to meet you either. Don’t discount potential tenants because of their looks, but do pay attention. Ask questions and observe their behavior. You can learn a lot just by asking simple questions such as where they work. Ask them to explain what it is they do. Ask about their family (or how many will be occupying the property) especially if a person comes alone to view the property. Also, take notice whether the potential tenant is on time or late. I try to arrive at the property 15-20minutes before the scheduled time to make sure I greet them when they arrive. In some cases, I have had potential tenants arrive at the property before I did even though I arrived early. Nothing looks worse than a Landlord/Property Manager who is late to their own showing. If a tenant hasn’t contacted me to inform me they’re running late, I give them 20 minutes tops, and I lock up and leave. Time is a valuable commodity that is not to be wasted.
- ALWAYS PROTECT YOURSELF: If you can, have another person present when you are showing a property. If you are alone, arrive early (you should do that anyway) and wait outside while the potential tenant views the property. I usually have protection (if you know what I mean) whether someone is with me or not, however I still wait outside.
- HAVE YOUR TENANT COMPLETE A RESIDENTIAL LEASE APPLICATION: Make sure it includes the necessary questions including bankruptcy, foreclosure, judgements/liens, evictions and my personal favorite: HAVE YOU EVER BROKEN A LEASE FOR ANY REASON? If yes, please explain. The application should have the potential tenant list their social security number, employment history, past rental/purchase history, previous addresses (5 years,) number of occupants, vehicles, you get the picture. Ask them to explain any evictions, judgements/liens and bankruptcies. Some tenants will be forthright with any potential damaging information, others will allow you to find out on your own. The last page of the application is a signature page where the potential tenant attests the info included in the application is factual and correct and their signature authorizes you to access their credit report as well as verify employment/rental history.
- ALWAYS PULL A CREDIT REPORT: In a nutshell, a person’s credit (FICO) SCORE will tell me how well they can manage debt. NEVER RELY SOLELY ON A CREDIT SCORE TO DETERMINE WHETHER A POTENTIAL TENANT WILL BE A “DEAL” OR A “DUD.” As I stated in my Hacks for Tenant/Renters posting, my BEST tenant of 8 years (and counting) had an initial credit score of 505 and has NEVER been late on the rent. The tenant was forthright in disclosing her financial situation upon our initial meeting. That spoke volumes on her behalf.
- MAKE SURE YOU HAVE A “THOROUGH” LEASE AGREEMENT: The lease agreement should not only protect you the Landlord, but it should also protect the tenant as well. Become familiar with your state laws regarding Landlord/Tenant relationships. If you have certain rules regarding your property (such as no smoking,) it must be expressed, not implied. Stipulate your rules in the lease. If no pets of any kind are allowed on the premises (this includes fish, gerbils, snakes, iguanas llamas, flies, giraffes, gazelles, monkeys, and zebras…Oh and dogs and cats too,) be sure to specify that in the lease as well. Some tenants have to have it spelled out. Be as specific as necessary in order to cover your “assets.” Information regarding rent grace periods, late fees, the eviction process, and even procedures to place a work/repair order must be included as well. Leave no stone unturned.
- STRESS TO YOUR NEW TENANT THE IMPORTANCE OF SECURING RENTERS INSURANCE: If the home is destroyed by some catastrophic event, the insurance on the property covers the structure ONLY, not the contents inside. By law, as a Landlord, you can’t insure property that doesn’t belong to you. The cost is relatively inexpensive (apprx. $10-$12 for about $20K of coverage.) It’s always better to be safe than sorry.
- NEVER “COMMINGLE” YOUR MONEY WITH THE TENANT’S DEPOSIT: All security deposits should be kept in a separate escrow account.
- TAKE PHOTOGRAPHS AND VIDEO OF THE PROPERTY PRIOR TO THE TENANT’S MOVE-IN DATE: Do the same once a tenant vacates the property as well. Make sure the picture and video is date/time stamped. This is a little “insurance policy” in case you have to prove or defend your case in court.
- WHEN DEALING WITH REPAIRS, YOUR RESPONSE TIME AS A LANDLORD IS EVERYTHING: A prompt response to the Tenant builds trust between the Landlord/Property Manager and the Tenant. My response time is usually the same day and in most cases the issue is resolved within 24-48 hours. I answered a call while vacationing in Canada for a few days. THAT’S TOP NOTCH CUSTOMER SERVICE!! Always have an “Elite Team” of dependable repairmen (licensed and bonded) that you can contact when necessary. Let the Tenant know SPECIFICALLY the procedure(s) to follow when placing a work order/repair request. Now when I vacation, I inform all Tenants the duration of my vacation and who they are to contact in the case of an emergency.
- PREVENTATIVE MAINTENANCE CAN SAVE A LANDLORD COSTLY REPAIRS IN THE LONGRUN: Routine maintenance (HVAC, Electrical, Plumbing, Even Yearly Extermination/Pest Control) can save you money down the road. Just as you schedule routine maintenance on your vehicle, performing routine maintenance on your properties serves the same purpose.
- STRESS TO THE TENANT THE IMPORTANCE OF SCHEDULING A “WALK-THROUGH PRIOR TO THEM VACATING THE PREMISES: By doing this, the tenant isn’t caught off guard by deductions taken from the security deposit.
- IF RENTING TO FRIENDS/FAMILY MEMBERS LET THEM KNOW IT’S BUSINESS… NOTHING PERSONAL: Beware of friends/family members who may attempt to take advantage of your relationship. Think long and hard if you believe the relationship may be damaged if things go south.
- JOIN ORGANIZATIONS SUCH AS THE LPA (LANDLORD PROTECTTION AGENCY): This organization has helpful information for Landlords, sample leases and most importantly, the ability to run credit checks on potential tenants for a nominal fee. It’s wise to take advantage of these types of organizations. A one year membership to the LPA is less than $100. Visit their website at http://www.theLPA.com
- If “all of the above” seems like too much of a headache for you, find an “experienced” Property Manager to take away the hassle of “Landlording.” A Property Manager will charge you a monthly fee, which is usually a percentage of the rent collected. MAKE SURE THE PROPRTY MANAGER YOU SELECT IS SOMEONE YOU CAN TRUST TO GET THE JOB DONE. Real estate agencies provide these services as well as independent brokers such as myself. Always do your due diligence when making your selection. Years of experience, number of properties managed and knowledge of the state’s law regarding Landlord/Tenant relationships is a great place to start.