3 Keys to Successful Landlording
It seems easy. Collect rent, respond to maintenance requests and watch your investment grow. It is easy, most landlords have a great experience renting out their properties. But we have all heard the stories—maybe we’ve become the story—of the tenant disaster. Threatening tenants, property damage, legal costs—it’s enough to make some landlords get out of the business and never look back. They swear off landlording and real estate investing altogether. But the problems with being a landlord aren’t inherit to investing in real estate, but rather with poor management. While nothing eliminates risk completely, a few simple practices can greatly decrease the chances of having a disastrous experience.
Garbage In Garbage Out
To be a landlord is to be in the business of providing housing. We’re providing one of humanity’s basic necessities. Sometimes people are desperate to find housing and when people are clamoring for our housing, we can sometimes drop our standards on the housing we offer. Resist the temptation. There is a direct correlation between the quality of product you offer and the quality of tenant you will attract. That doesn’t mean every unit needs to have granite countertops and high-end finishings. But no matter how old a unit is, it can be clean for an incoming tenant. If prospective tenants come to look at the property and see the sinks are grimy and cobwebs in the windows, the best tenants would rather move along to a property that is clean. Or if the walls are in need of paint, some of the lights don’t work and the kitchen drawers fall off the rails, you are communicating to the tenant that you don’t care about the maintenance of the property and they will return the favor. If you present a product that you are proud of, you will attract tenants who are responsible, pay rent on time and take care of the property. If you put forward a product that asks tenants to tolerate substandard conditions, you will get tenants who can’t get into nicer places and you will accept them out of desperation because the best tenants won’t rent your unit.
Thorough Screening
Whenever landlords tell me about their tenants from hell, I often ask “How did you find those tenants?” Usually the answer is something like, “My co-worker had a friend who was sleeping on his couch” or “I bumped into a guy at the store who told me he needed somewhere to live.” This is alluring because it allows us to get tenants into our rental quickly and start collecting rent. Proper screening does take a little time and a little more work, but you’re money ahead to suffer another week of vacancy if it means thoroughly screening the tenant and not taking on the cost of going through an eviction.
It takes a little work to learn the fair housing laws so that you don’t discriminate against a protected class and follow the laws as it pertains to screening fees and disclosures. You should set forth in your advertising all your screening criteria. Then you’ll find out your applicant’s credit history, criminal history and eviction records. You should ask for documents to verify all declared income, check landlord references and verify employment with their employer. It’s well worth the cost to hire a screening company to do some of this leg work for you, which you can recoup with an application fee. Never trust screening provided by Zillow or other marketing sites where the check is initiated by the applicant. If necessary, you can deny the applicant for the inability to verify information, if you’ve made a good faith attempt to verify the information provided by the applicant. Knowing exactly who you put into your rental is crucial in having a good renting experience.
Regular Inspections
Even if you’ve done everything right to this point and have fantastic tenants, you can’t become complacent. It’s necessary that you do regular inspections. Landlords love tenants who don’t bother them much, but that could also be a bad thing if the tenant is failing to report necessary repairs that are causing further damage to the property. These inspections are not about whether the tenant dusts or keeps up on the dishes. You are inspecting the property for maintenance issues—in particular ones that can be expensive if over looked. Things like water leaks around toilets, tubs and hot water heaters. Check the HVAC filter to make sure it is being changed and that smoke/CO alarms are in working order. You also want to check to see that the tenant isn’t violating the terms of the rental agreement. Is the tenant taking care of the landscaping as required? Have they removed the smoke alarms? Did they set up a swimming pool without prior consent? These are all terms of the rental agreement you need to enforce.
By conducting regular inspections, you are communicating to the tenant that you expect the property to be cared for and that you will enforce the terms of the rental agreement. Of course, you can’t catch everything they do that violates the lease and they can always hide things they don’t want you to see. But if you’re walking through the property on a regular basis and don’t see anything of great concern, chances are your investment is probably in pretty good shape. There’s no law regulating how often a landlord may conduct inspections as long as it isn’t harassing the tenant or retaliatory. You should do a walk through at least once a year or more.
While these basic practices aren’t a sure-fire all-inclusive guarantee against all landlord-tenant woes, it covers a great swath of issues. If you can make sure you’re at least following these simple suggestions and having the tenant sign a solid rental agreement, the odds are in your favor.