Because we are investors and a property management company with an amazingly low eviction rate, we get new investors all the time ask us how they protect their property from putting bad tenants and being one of those famed horror stories that you always hear about and keeps you from ever wanting to become a landlord.
The basic premise behind being a successful landlord is to always have policies and procedures not only written down but most importantly followed. The number 1 reason that I have seen investors fail is that they do not have a plan and most importantly they do not stick with their plan when things do go wrong.
There are normally many initial steps that you can trace back to seeing a horror incident happen. Unfortunately like in airplane crashes it is not until after the crash team traces back these steps to find the when and when the miscues happened.
Below is a quick guide to help you with the framework to avoid being the next topic of discussion as to why someone should not invest.
1. Find a Good Tenant.
You can find tenants by advertising in local newspapers, both in print and online. Also spread the word through friends, relatives, and coworkers. Currently, the best way to find applicants while using the highest amount of leverage would be some form of online advertising.
Make sure you have your criteria of what type of tenant you will and will not accept and disclose that to all inquiring people of interest. Make sure to be aware of all the local and federal Fair Housing and Discrimination Laws to not violate anyone’s rights.
When people do inquire, ask potential tenants to fill out an application form, listing their basic information: name, employer, salary, previous landlords, and references. You’ll also need their Social Security number and signed authorization to check credit reports and criminal history.
If you hire an online agency to provide background checks, make sure it is accredited by the Better Business Bureau.
If you decide to do your own background checks by Pulling credit reports.
- Checking criminal history. Search state and local records online or find an agency. Landlord.com offers tips on conducting tenant screening.
- Checking references, contacting employers, and talking to previous landlords.
2. Determine How Much Rent to Charge.
Get an idea of rent amounts by checking newspapers, online resources such as MLS, or neighborhood rental signs. Be realistic about rent levels. The rent may be lower than your mortgage payment, but if you want to find a tenant, the rent must be comparable to what’s in the market not what you personally feel it is worth. Also renting season is cyclical. It is generally slower in the winter months with less activity and much more active in the spring and summer months. These swings will affect rental prices (meaning you can typically get higher rent prices if you market your home in the spring and summer than if you rented it during the dead of winter).
3. Protect Your Rights with a Lease.
“Have a written lease so that each party understands their rights and obligations and is fair to both parties to be able to perform per the agreement” A good lease complies with fair housing, rental, tenant, and insurance laws of your region. These laws differ across states, counties, and cities, so you are safer working with a local lawyer or licensed real estate agent/management company. Avoid using blank leases from the Internet because they may not comply with the laws of specific areas.
A lease should spell out the following:
- Lease term: A month-to-month lease offers more flexibility if you are selling, while an annual lease provides more stability if you are holding on to the property.
- Security deposit, usually one month’s rent
- Rental due date and late penalties
- Repairs and who’s responsible for what
- Routine upkeep and maintenance responsibilities, such as lawn care
- List of tenants
- Rules of behavior, including noise levels, neighborly conduct, and smoking
- Pet policies and related deposits
- Who pays homeowner association dues
- Association rules that the tenant must follow
- Arrangements for showings, if you plan to put your home on the market while it’s being rented
- Eviction terms, such as not paying the rent or damaging the property
4. Protect Your Property with Proper Insurance.
Protecting your property with the correct insurance policy is extremely important. You need a different policy if you’re renting a property to a tenant versus using it as your primary residence. You must remember while you were living in the house, your insurance was an owner-occupied homeowner’s policy, which covered the structure, damages, and your belongings in the house.
As a landlord, you’ll need “Non-Owner Occupied” rental insurance also known as fire insurance. This policy covers your home’s structure, legal costs, medical expenses, and loss of rental income if repairs are needed. Since you are not responsible for the tenant’s belongings, you should encourage tenants to buy renters insurance. So that if there is a catastrophic loss such as Fire, Flood, etc their belongings would be insured.
5. Hire a Management Company.
Fees are charged primarily for two services: finding a tenant, which includes advertising and background checks, and then managing the property. The fee for filling a house can vary from area to area but are typically one month’s rent.
Monthly management includes collecting the rent, charging late fees, handling repairs, and dealing with tenant issues such as HOA and lease violations, Texas Property Code, early vacancies, and evictions (all around tenant drama).
If you hire a property manager, find a licensed professional that focuses specifically on property management. Your several hundred thousand dollar investments or life savings is too important to leave it to someone that does this on the side and is not up with local laws and tenant rights.
One big advantage of using property managers is emotional distance. I have seen very often the owner will get involved with the tenant emotionally says, Swanson. “Even though (property managers) take good care of tenants and they’re sympathetic, their job is to make sure that owners get the rent.”
6. Prepare Properly for Evictions.
Depending on your state will determine whether you will need an attorney to evict a tenant.
Remember “If the tenant doesn’t leave willingly, you can’t just go and move their personal property and kick them out, You have to go to court, and the sheriff or constable needs to come out and physically remove the person if they don’t move out willingly.”
Pacific Rim Property Management in Pierce County, WA.