Are you looking forward to phone calls at 3am, consistently late rent, drug dealing tenants, and costly evictions?
Of course not. No one wants to be a landlord with those problems. So why do so many landlords find themselves in this kind of trouble? The answer, I believe, is that most of these landlords never learned the correct way to rent out their houses from the beginning. Many look at the process of filling a vacancy like the “pregame” show – but in reality, getting your house rented IS the game. If you learn how to rent your house intelligently from the beginning, you can avoid years of headache later.
Whatever the reason is you’ve decided to rent your house out, the simple fact is: you want to do it right.
- Perhaps you’ve tried selling but the market is too soft.
- Perhaps you’ve been temporarily transfered out of the area for work.
- Perhaps you owe more than your house is worth and can’t sell.
- Perhaps you’ve realized the incredible wealth building opportunities that renting a home out can provide for your financial future.
Chances are – you’ve heard horror stories from accidental landlords about costly evictions, destroyed properties, professional tenants from hell, and all the reasons why you should not rent your house out. While these stories receive the most press and attention – the fact is, every day millions of landlords are renting out houses to great families across the world. While all hassles can’t be eliminated, by following the tips, tricks, and techniques outlined in this guide, you will be able to minimize those hassels and turn your house into a profitable venture.
Whatever your reasons are for learning how to rent your house out, this definitive guide is going to walk you through, step by step, how to rent your house with the least amount of stress and the best results.
How to Rent Your House: Questions To Ask Yourself First
Before handing the keys to your house over to a complete stranger for care, there are decisions you need to make. In fact, the decisions you make now, before even searching for a tenant, will make the biggest impact on the success of your rental.
The following are some questions to answer before you rent out your house:
Why Rent Your House?
Perhaps you are on the line, trying to decide whether or not renting your house is a good idea. Therefore, the first question you need to ask yourself before “how to rent my house out” is “should I rent my house out?” If you’re choosing between renting your house vs. selling it, I’d like to make the case why renting out your house is the best decision. After all, the benefits of renting out a house are numerous.
- Your primary home, while a necessity in life, is not typically an asset or investment. An asset is something that makes you money, where a liability is something that costs you money each month. By renting out your home you are able to transform your liability into an asset.
- By renting your house, you are able to continue to hold onto your house while the tenant’s monthly rent pays down your mortgage each month. During this time, property values (hopefully) will climb and build wealth for your future. You may also begin to experience additional monthly cashflow if you can rent your house out for more than what your monthly expenses are, which should be the goal for all potential landlords.
- Renting your house out may also help start your investment career with no additional costs – since you already own the home. This could be a first step in a tried-and-true method for building wealth. Many real estate investors begin this way – by renting out their homes as they upgrade to bigger or better properties throughout their life. This may also help fund your retirement, as you may end up owning multiple properties “free and clear” by the time you are ready to retire, providing monthly income or a lump sum if you sell.
- Finally, by renting out your house you retain the possibility of returning to that home. This is especially helpful if you’ve been forced to move quickly because of a temporary job relocation.
What Condition Do You Want Your House In?
There is no end to the amount of improving you can do to your house before renting it out. The problem becomes learning when to stop. When is good enough, good enough?
A house should be clean, empty (unless you are offering it “furnished” which is uncommon) and free from any major repairs at the time the tenant moves in. Be sure everything is up to code, to the best of your knowledge. Have a professional carpet cleaner clean the carpets before showing the property.
I recently posted this question (how much should you improve your property before putting renters in) in the BiggerPockets forums, and here are some of the answers I got:
“On deciding how nice to make a rental in preparing it for rent, I have two primary areas I consider: What kind of return will I get from the improvements I’m considering and how much time and aggravation will it save me (if I do the improvements)?” -Joffrey Long
“I try to have competitive advantages that aren’t easily destroyed. Vacancy is the devil, and if little things like a garbage disposal will create less problems and give me an advantage, for not that much money, to me it’s a no brainer.” -Joe Delia
“We strive to offer a clean and better looking unit compared to the competition and we rent them competitively as well. Everything is done with a cost/benefit approach and to minimize repair and service calls.” -George Paiva
“It’s also important to understand the demographic that you’re marketing your property to. Just because YOU wouldn’t want to live in a lower quality residence, doesn’t mean there aren’t hundreds of people in that market who would be more than happy to. Your standards may not (and probably doesn’t) reflect the exact standards of the customers in your market.” -Seth Williams
Remember, the home does not need to be as fancy as you would want it to be if you were living there. Look around at other rentals in your area (via driving around or pictures online) and try to see what the typical quality is. Tenants will generally never take as good of care of your house as you do – so don’t spend too much time or money making unnecessary upgrades that will only be ignored or broken.
If you have questions about a certain upgrade, do what I did and post the question on the BiggerPockets Forums and ask. You may be surprised by the answers you receive.
Should You Use a Property Manager
This question is highly important and will affect the way you move forward reading this guide. Will you manage the property yourself or hire a property manager to look after it? Generally, a property manager will charge approximately 10% of the monthly rent plus 50% of the first month’s rent when a new tenant moves in. A property manager will typically:
- Advertise for new tenants
- Sign Leases
- Collect the rent
- Keep track of finances
- Schedule maintenance repairs
- Issue legal notices
- File evictions (you pay lawyer fees)
If you decide to manage the property yourself, instead, these are all duties you will need to do (or hire out individually) yourself. The decision of whether to manage yourself or hire a property manager cannot be made by anyone other than you. If you have the time, abilities, and energy to manage yourself – you can save a good deal of money by doing so. However, if you try to manage without the ability – it could end up costing you much more than what a property manager might charge.
For more information on hiring a property manager, see:
- How to Hire and Manage a Property Manager for Your Rentals
- Should I Manage My Own Rental Property or Hire a Property Manager?
- Landlords: 8 Tips for Hiring the Best Property Manager
How Much Can You Rent your House For?
In a theoretical sense, the value of anything is not based on what the seller wants – but what the market is willing to pay. In the world of rentals – this means that you do not necessarily set the rental amount – the market does. Your job is to discover what the market will allow for your house and attempt to get that amount, known as “Fair Market Rent.”
Luckily, discovering what the monthly rent will bear for your house is not difficult; the best way to determine how much your house will rent for is to simply do market research. In business, market research means to get out there and find out what others in your industry are charging; learning how much to charge for rent is no different. Your house will generally rent for about the same amount as other properties are renting for that are of similar location, size, and condition. To determine this and do your market research, there are many places you can look, such as:
- Craigslist.org
- Zillow.com
- Trulia.com
- PadMapper.com & other online rent services
- Driving Around, looking for “For Rent” signs
- Calling Property Management Companies
- Asking other local landlords
- Local Newspaper
For each of these sources, call and speak to the landlord and ask questions (posing as a tenant.) This will help you determine how similar the target property is to your own. You will quickly be able to determine what the “going rate” is for your style house. For example, if you are trying to rent a three bedroom, two bath home in good condition, it will probably rent for about the same amount as other three bedroom, two bath homes nearby.
For a more on figuring out rents, see The Ultimate Guide to Fair Market Rents.
How Much Should You Charge for a Security Deposit?
A security deposit is a sum of money paid by a tenant to ensure they fulfill the terms of their lease. Remember though – this is a deposit, not a fee. This money should be held in separate bank account and returned to the tenant when the tenant moves out, less any damages that need to be repaired.
The amount you charge is largely up to you, though many states restrict the amount you can charge, so make sure to check to find any local limitations. I typically charge the equivalent of one-month’s rent for a security deposit, though I may charge more than that if the tenant has anything in their background that worries me (which we’ll get to in a short while.)
For more, see: Landlord Security Deposit Laws: Use, Refund & Restrictions
How to Rent Your House to the Best Tenants
The most important decision you make that will determining the success or failure of your rental is the person you put in. A bad tenant can potentially cause years of stress, headache, and financial loss – while a great tenant can provide years of security, peace, and tranquility. Don’t underestimate the important of renting to only the best tenants. You are reading this guide because you want to learn how to rent your house. Finding the best tenants is how to make that rental enjoyable.
Advertising for Tenants
When it comes to attracting tenants to rent your house, you will want to reach the most potential tenants as possible so you have the largest pool to choose from. The following are three easy ways to attract tenants.
- Newspaper: Though a quickly fading and expensive marketing technique, your town’s local newspaper may be a great way to attract tenants. Learn the common abbreviations (see our comprehensive list of real estate abbreviations) in order to minimize the length of your ad, but be sure to include all the important information. I recommend NOT putting the address in the newspaper, so people are forced to call (no text or email either) and talk with you first.
- Craigslist.org: Craigslist.org is one of the internet’s largest websites and best places to find tenants. Perhaps the best part? Craigslist is free (unless you are a Property Manager in New York City.) Don’t list the address here either. You can also place your ad in other online rental submission sites, like Trulia.com, Zillow.com, or PadMapper.com.
- Yard Signs: One of the oldest, but most successful ways to market your rental is with a simple “For Rent” sign in the yard. The biggest drawback to a sign, however, is instant notification of a vacant house to anyone driving by.
For more information on advertising to attract tenants, see:
- Three Ways to Attract Great Tenants to Your Rental Property
- Five Tips to Attract Tenants Using Online Advertising
Pre-Screening The Tenants
When you receive a phone call from a prospective tenant, always pre-screen ahead of time. This means to try and qualify the tenant over the phone before spending time going over to the house to show them. The easiest way to do this is by setting rental criteria and explaining that criteria over the phone. My criteria looks like this:
- The gross monthly income must equal approximately three times or more the monthly rent
- Applicants must have a favorable credit history.
- Applicants must be employed and be able to furnish acceptable proof of the required income.
- Applicants musth have good references concerning rental payment, housekeeping, and property maintenance from all previous Landlords.
- We limit the number of occupants to two per bedroom (per State law)
You can read this list over the phone to the prospective tenant and ask them if they meet these qualifications. If they don’t – don’t rent to them. These qualifications are designed to take the emotion out of renting to someone, so stick with them. By allowing tenants to move in who don’t meet your minimum qualifications, you are only setting yourself up for failure later on.
A note on discrimination: Be sure to not discriminate when you are advertising and screening for tenants. Federal law defines seven protected classes of people that you cannot discriminate against, which includes a person’s race, skin color, sex, national origin, religion, disability or familial status. You cannot even ask questions about these terms without appearing discriminatory – so don’t do it.
Showing the Property to the Tenants
Showing units can be a pain because 50% of the time, tenants will not show up. To combat this, I use one of two techniques:
- I give them the address to drive by first and tell them to call me back if they are interested in seeing the inside. This eliminates the people who are disinterested because of the location.
- I try to “batch” all the showings to one time. I will tell all the callers that I will be at the house from “5:00 to 5:30 on Friday afternoon” and if they want to see it – show up then. Having multiple tenants look at a property at the same time can be a little bit awkward, but it creates a sense of competition and scarcity which allows for more applications.
It’s also a good idea to include the criteria and application process with the application. This makes it easy for the prospective tenant to understand how the process is going to work and gives you yet another way to pre-screen for duds.
The Application Process
Always give an application to every single person who is interested, even if you are not interested in them (this is another measure to ensure you will not be charged with discrimination.) Encourage them to fill it out there, but you will probably find that the applicant will usually want to fill it out later and drop it off or mail it to you. I try to discourage this, as it adds a lot of time, but sometimes the tenant will want to think about it, so have a plan in place to deal with this.
The Rental Application
An ideal rental application should have space for the tenant to fill in the following items for all adult applicants, at minimum:
- Names of all potential renters
- Date of Birth
- Social Security Number
- Phone Number and Cell Phone
- Alternate Phone Number
- Previous Addresses (last 5 years)
- Current Employer (name, hire date, income, contact info)
- Past Employer (name, hire date, income, contact info)
- Emergency Contact Information
- Release of Information Statement
- Signature for All Tenants
The Application Fee
Always – I repeat- always take an application fee with the application. Don’t even bother processing any part of the application unless the tenant has paid the “application fee.” This amount can be whatever you’d like (and whatever the market will bear) but I recommend finding out what the local property management companies are charging and charge a similar amount. Currently, I charge $35 for the first adult and $20 each adult after this. Be sure to check with your State laws and make sure there are no laws dictating how much you can charge.
The application fee covers the cost of the background check, but it doesn’t have to be equal to that amount (you can get paid for the hassel of needing to check their background.) However, I recommend not being dishonest and don’t take advantage of tenants with this fee. The application fee should be reasonable.
Immediate Disqualifiers
When you receive back an application from a tenant with the application fee, look over the document and look for the important things before bothering with a background check. The obvious things are those you read to the tenant over the phone, which included:
- The gross monthly income must equal approximately three times or more the monthly rent
- Applicants must be employed
- Applicants musth have good references concerning rental payment, housekeeping, and property maintenance from all previous Landlords.
- The number of occupants is to two per bedroom or less
If you can quickly see that the rent for the house is $1000 per month and they only make $1800 per month in gross income, they clearly did not pass the income qualification. Sometimes this is due to a writing error or income they forgot to include, so be sure to clarify with them before rejecting the application. Chances are, however, that the tenant simply doesn’t qualify and was hoping you wouldn’t notice. If you did a thorough job of explaining the criteria over the phone with the applicant and they still applied and didn’t qualify – it’s up to you if you want to return the application fee. However – don’t bother running the background/credit check if they are disqualified due to one of the above criteria. We’ll cover more on how to disqualify someone in just a moment.
Background and Credit Checks
If the tenant’s income is high enough and you feel confident moving forward, it’s time to dig deeper.
There are many different sources you can use to run a background or credit check on a tenant, but I recommend using SmartMove. SmartMove is offered as a service through TransUnion and is great because all you need is your tenants email address. SmartMove will email your prospective tenant and that individual will enter their information online; you’ll receive the results of the background check in hours and can make your decision.
Deciding what kind of “background” or “credit history” you’ll allow is largely dependent on your location and the strength of your market. If you have a lot of applicants to choose from, you can be more picky and only accept the highest qualified tenant. However, if you are struggling to get applicants, you may need to loosen your standards slightly (and I mean slightly) in order to move someone in.
For me, I look at the rental history and income with a lot higher regard than I do credit – because I live in a lower income area where the vast majority of prospective tenants have terrible credit. Your area might be different, so if possible, talk with other landlords in your area or ask for advice on the BiggerPockets Forums.
The things I look closely at on the background and credit checks are:
- Prior felonies
- Prior evictions filed
- Prior evictions carried out
- Bankruptcy
- Judgments
- Other criminal or bad financial history
I make it a policy to never rent to a person with an eviction on their record or recent felony (within 7 years.) Yes, people do change – but I don’t find the risk worth taking. I’ll leave that risk to other landlords.
Verifying Income and Rental History
People often lie, especially when they want to get into a new rental and cannot qualify. As such, it is vitally important that you verify everything that the tenant writes on their application. As discussed earlier, your application should include a “release of information” signature from your prospective tenant to allow you to properly check up on their claims.
Begin with their job. The application should include the name and phone number of their current employer, so call and speak with the manager, owner, or human resource manager. Many times you will be required to fax over the release of information signature. The important questions to ask are:
- How much do they currently make?
- How long have they worked there?
- Is this job considered temporary?
Next, call their previous landlords. Don’t simply call their current landlord – because many landlords will lie or embellish the truth in an effort to get rid of bad tenants. Instead, call all the previous landlords for at least the previous five years. Be sure to check their background check and credit check to see if any other addresses appear that might indicate they conveniently “forgot” to include a landlord that they rented from. When talking with previous Landlords, you might want to consider asking the following questions:
- How long did the tenant rent from you?
- What was their monthly rent?
- Did the tenant give proper notice when vacating?
- Did the tenant receive back their security deposit?
- Would you rent to this tenant again?
Accepting or Denying an Applicant
After receiving their background check and verifying the information listed on their application is correct, you will have a good idea of whether or not the tenant is worthy of your rental property. Sometimes, you will receive applications from multiple parties who both qualify. To avoid discrimination complaints, always process applications on a first-come, first-serve basis – processing the application until you discover they do not qualify. If someone doesn’t qualify, move on to the next.
When you deny an applicant, it is important that you clearly document your reasons for why you are denying them to avoid discrimination complaints. Always inform the tenant with written notice. I always send a letter to the tenant stating that they did not meet the minimum requirements for tenancy for “such and such” reason. Be sure to keep a copy of all records pertaining to the prospective tenant so you can back up your reasons for denying a tenant.
When you find an applicant that meets all your requirements, you can verbally let them know that they are approved. However – your job is not yet finished. Many times a good applicant will be approved but still find another place to rent, leaving you wondering what happened to that applicant. Therefore, it is important to require a deposit to hold the vacant property. This deposit is non-refundable and should be due within 24 hours of being accepted. Simply let the approved applicant know that you cannot hold the property indefinitely so if they want to guarantee their position they will need to pay the deposit within 24 hours.
(Some landlords actually require that the deposit-to-hold be paid when the application is filled out and the landlord simply returns the deposit if the tenant doesn’t qualify. While I don’t personally use this technique, it may work for your location if there are a lot of qualified applicants trying to rent your house.)
This deposit will turn into their security deposit (which we will get to later) so it’s not an unexpected cost for the applicant. When you collect this deposit, be sure to sign two copies of a “deposit to hold agreement” that states what the deposit it for and what the terms are. Essentially, this document will state:
- The applicant has until “such and such” date to sign a lease agreement.
- If not signed by that date, the deposit will be forfeited to the landlord.
Both you and the prospective will receive a copy of this agreement, which will serve as a receipt for the applicant. I try to schedule the lease signing for as soon as possible, to minimize the amount of time the property is left vacant and costing me money. Typically, I will not hold it longer than two weeks unless I absolutely love the tenant and don’t want to lose them. This is up to you and your discretion.
For more information on screening tenants, check out:
- Tenant Screening: The Ultimate Guide (over 5000 words with a great Infographic – truly the ultimate guide!)
- 8 Essential Tips for Screening Tenants.
- Tenant Screening: The Application & Selection Process – Putting it all Together
- 8 Tips For Screening Out Professional Tenants: Your Worst Nightmare!
The Rental Lease Agreement
In order to sign a rental lease with your tenants, you will need to have – of course – a rental lease. You can get a state-specific lease agreement from a number of sources, such as EZLandlordForms.com, USLegalForms.com, a local paper supply company like Staples or Office Depot, or your attorney. You can also download a free lease online in many places, including BiggerPockets.com, but be sure to run the lease past your attorney for review. Each state has different rules and laws that govern the landlord-tenant policies in that state, so chances are a lease found for free online may not be legally binding for you. Don’t skimp on the quality of a lease.
“Having a strong, loophole-free lease agreement is probably the most important aspect of maintaining good, long-term tenants who treat your property the way it deserves to the be treated (or pay the price if they don’t).” – J Scott
Before purchasing your lease agreement, however, you need to decide on whether you want a month-to-month rental agreement, a one-year lease, or something in between. Most landlords choose a one year lease in an effort keep their tenants in the home as long as possible and minimize turnover. Others choose to offer only month-to-month leases, to hold on to the ability to quickly and easily remove a tenant if things don’t work out right. Still others choose a six or nine month lease, which is often helpful for ensuring a lease doesn’t end during the holiday months of November through January, when vacancies are the most difficult to fill. This comes down to a personal choice that you can make, but with whatever lease term you chose, be sure to buy the correct lease agreement form.
While lease agreements generally vary in length and content, most lease agreements contain the following information:
- Names of tenants
- Address of the rental property
- Lease term Length
- Rent amount
- Security deposit amount
- Late fee description
- The move-in condition report
- Provisions for or against pets, utilities, smoking, and more
You may also need to provide certain State and Federal documents with your lease, depending on when your home was built and your State laws. The United States EPA requires that you give your tenant a pamphlet called “Protecting Your Family from Lead in the Home” if your home was built prior to 1978. Check with your local attorney for state specific forms you may be required to provide.
How to Sign a Lease Agreement
Schedule a time for the tenant to meet with you at the property. Don’t sign at a coffee shop or via the mail/fax, but actually meet at the property on the day they will be moving in. I find it helpful to go through the lease ahead of time and mark all the signature or initial areas with post-it notes or a highlighter so nothing will be forgotten or missed.
When you meet with the tenant, walk them through each provision in the lease – step by step – and sign (with a blue pen) as you go. This may be time-consuming but will help protect you when the tenant says, “Well, I didn’t know that” months down the road. You may consider having the tenant initial next to important items as well, such as a “no pet” policy. It’s easy for a tenant to later forget details, so having an initial is helpful in jogging their memory later on.
Accepting the Rent
During the lease signing, when you get to the part that says how much the monthly rent is – this is a good time to get the money for the first month’s rent. You should have already received their security deposit (in the form of a “deposit to hold” when they were approved) so typically this is when you will collect their first month’s rent.
If a tenant moves in during the middle of the month, I don’t pro-rate the amount they pay upon first moving in. Instead, I pro-rate the second month to match the first. In other words – every tenant pays a full month’s rent when they move in, but when it comes time to pay the rent on the 1st of the next month, they will only pay for the amount of days they lived at the home in the previous month. For example – if the rent is $1200 per month, and they move in on the 10th of January, they will pay a full $1200 for rent when they move in, but will only pay $800 on February 1st.
One final note on the rent: Only accept rent in certified funds, such as a money order or a cashiers check. Don’t take cash and don’t accept a personal check – especially for the first month’s rent. You do not want to move a tenant in and find out weeks later that the check was bad, forcing you to evict. This is a wise policy to have all around in your relationship with your tenants: certified funds only.
For paying rent in the future, I recommend not picking up the rent in person, as this will only train the tenant to expect you each month. For my rentals, I mail monthly statements to the tenant and they mail their certified funds to my PO Box. Many landlords have different techniques for collecting rent, so be sure to check out the BiggerPockets Forums for more suggestions and ideas from landlords. Ultimately, you may change or adapt your style as you learn more and grow.
The Move-in Condition Report
By this time, the rent and security deposit has been paid and lease has been signed. It’s now important to do one final thing before handing over the keys: the move-in condition report. The move-in condition report is simply a paper that the tenant will sign that documents, in detail, the condition of the property. Allow the tenant to take some time walking through the property and inspecting it – letting them take notes of the condition of each room. If there is a hole in a door – document it. If there is a light switch that doesn’t work – document it. If there is a stain on the carpet – document it.
The move-in condition report is designed to protect both your interests and the interests of the tenant when it comes time for the tenant to move out. As much as you might think you’ll remember every detail of the home – you won’t. By documenting everything and having the tenant sign-off on that documentation, the tenant can not come back to you next year and say “oh – the giant hole in that wall was already there.”
For the same reason, I also recommend taking photos (or a video) of the property before handing over the keys. This will be further evidence in the future when the tenant moves out. In many States, a landlord can not deduct any charges from the security deposit if a move-in condition report was not filled out when the tenant moved in. Do not make this mistake – document, document, document. Some landlords will even photograph and/or video record the walk through itself to document the tenant noting the condition of the property.
Handing over the Keys
When the tenant has filled out the entire lease agreement, both parties have signed it, the move-in condition report has been signed, and the rent has been paid – you can now hand over the keys to the tenant to allow them possession. Although the tenant may ask – never let a tenant move in things before signing the lease and paying the rent. The consequences for failing to do this could be disastrous.
Be sure that you have made it clear to the tenant the rules you expect, as well as the procedure for paying rent, requesting maintenance repairs, and other details about your house. By training your tenants, you set the ground rules ahead of time and ensure they are aware that you’re not the kind of landlord that they can walk all over.
What if Things Go Wrong?
Congratulations! You’ve officially gone from a vacant house to a fully rented home to great tenants and have joined the ranks of your fellow real estate investors. However, your journey is not over – but just beginning.
As a landlord, it is now your responsibility to ensure rent is paid on time, your tenants are properly trained in the most efficient manner possible, late fees are given when needed, repairs performed when required, and bookwork kept up to date.
During this process, things will go wrong. You will face problems that you might not immediately know the answer to. I highly recommend that, with any problem you face, come ask for help on the BiggerPockets Forums. There are hundreds of thousands of posts that cover every nook and cranny of the investing world – all for free and all right at your fingertips. If the question hasn’t been asked before – just jump in and post a question. Within hours or even minutes, you’ll receive feedback from seasoned landlords across the world. The advice I received from the BiggerPockets Forums was the most instrumental tool in growing my rental business and becoming financially free. I encourage you to stay close to BiggerPockets and do the same.
Also be sure to check out my recent article How to Be a Landlord for my top ten tips for success in managing your own properties. These tips will help you save you countless hours, headaches, and dollars.
Now It’s Your Turn
Clearly, you’ve stuck around to read over 5,000 words about how to rent your house out so I’d love to get your feedback! Leave me a comment below and let me know either:
- Your favorite tip for renting your house out,
- Something you do differently than above,
- Something you learned about and can share, AND
- Your favorite Starbucks drink (let’s see who read all the way through this!)
Photos: Anthony Easton,FreeDigitalPhotos.net, Daniel Borman, John S, Brenda Clarke, & Steven Depolo
{ 90 comments… read them below or add one }
Very nice comprehensive document!
Thanks Paul!
Great write up. Can you please provide the rationale behind your statement that you “…always take an application fee with the application”? This was a bold-faced dictate but you didn’t provide any detail. I use SmartMove already and have the prospective tenants pay for the background check themselves, so that has been my reason for not collecting a fee…but certainly may change this if there is a good reason charge a fee. Also, you mention not to accept cash for the first payment/deposit. Why? Thanks!
Hey Chris, sure! I always require a fee upfront – except when using an online service like SmartMove (But I don’t start working on any part of their application until after it is processed.) When I first started, I had a lot of people apply and because I was trying to be a nice guy, I told them I could get the application fee later. I had multiple people apply and then disappear, wasting me a lot of time. So either way – I’m just saying don’t do too much work before getting a fee from them (online or in person.)
Also – I wouldn’t accept cash because then the tenant (and their possible dead-beat relatives or friends) know that you are about to walk out of the house with several thousand dollars in cash. Not a great move, since you don’t really know the tenant that well. I don’t take cash ever, for this reason.
Make sense? Hope that helps! Thanks for the comment Chris!
Also it’s like giving a pet away for free and charging a homing fee. It turns away the not so serious people. The ones who really want to rent your property will pay the app fee.
Great point, Justin!
Great article. I’m exploring the concept of landlording and that clears up a lot. Thanks! Question about the app fee. When using smartmove, is there an option for the landlord to pay using the applicant’s funds instead of the applicant or does that cause legal issues? The reason I ask is this; if you collect the fee up front and then pay for the background check then you avoid waiting for an applicant who chose to ignore the email and not complete the background check. Perhaps they found another place to live or simply lied on their application and do not want to pay the fee just to have you find out and reject them. Waiting without any notification of their change of mind seems frustrating.
This is a truly comprehensive and great posting concerning a topic that a lot of people have so many questions about. I like the smart move information in here through transUnion, I use them also. One thing I have done a little differently is I will tell prospective tenants to give me their email address if interested after viewing it and I will send them a link where they will have to pay a small fee to do the background check, however if we decide to go with them, I roll it into first month’s rent.
Hey thanks Brian,
I’ve gone back and forth on the whole “rolling the app fee into the first month’s rent” and now kinda use it when I need it. If it’s tough to find tenants, I’ll throw that in to add incentive to apply – but generally I haven’t had too big of a problem finding tenants around here.
Thanks for reading and commenting!
Great detail Brandon,
My main deviance is that I pick up rent myself each month. I do have a drop box at the properties that I can pick it up from to aleviate time constraints. You pointed out that by saying you will pick up rent each month then they expect you. I put that as a good thing. I visit my properties at least once a month. This gives great opportunity to bring up any issues and as an added benefit they know that I will be there each month and know that I expect all aspects of the lease to be followed.
My properties are all relatively close by so the travel is not a big deal at all. So far in 7 years I have had no vacancy (bought a place and rehabbed before moving new tenants in in 45 days from purchase and had 7 days between tenants as I remodeled a bathroom and replaced carpets for an upgrade.
The time and hassel factor might be more pressing as I grow but was there any other things I missed from your statement on that?
Hey Kyle, Sounds pretty good to me. I definitely understand the value in frequent visits to your property, and honestly it’s something I need to do more of! Thanks for commenting!
Wow, Brandon, amazingly comprehensive! Great stuff.
One thing we do differently is that we put lock boxes on our properties and let prospective tenants go through on their own. We do a little pre-screening on the phone i.e., how much do you make per month, and get a copy of their ID ahead of time which they can either fax or text to us. We have never had a single problem with this in 8 years and hundreds of properties. Totally eliminates the concern of them not showing up and keeps us from running around town when we could be performing income producing activities instead!
We also sign contracts at our office because we definitely take our time here. This is what we consider “paper training” our residents. We tell them to allow at least an hour for the signing and that they can focus better without the children (though I do have toys and crayons and paper for the kids if they show up). We spend the time to read with them through all the documents and have them initial the important points. I let them know what we will and will not do for them as they live in the home i.e., “If your toilet backs up, I don’t live there so I didn’t do it so don’t call me.” When we take the time to have conversations and get to know them a bit better up front, it’s amazing how few maintenance calls we get and we have hundreds of properties! I really believe the secret is the time we spend before they move in rather than trying to convince them later how we operate.
Thanks again for the great article.
Decaf vanilla latte with only 1 pump of vanilla.
Thanks again Brandon for your response to my earlier question.
Karen, great thoughts on the up-front investment of time walking them through. I’m on my 2nd tenant on a single property and I’m already seeing the wisdom of this. I will do this next time.
Sorry, I pulled you regular espresso roast, is that OK?
Hey Karen,
I’ve thought of the lock-box idea – but since I live in a lower income area, I’ve never done it. Maybe someday If I had an office, I might also let tenants sign out keys in exchange for their drivers license or something, but working out of my house – I’ve never done it yet.
Thanks for the comment Karen, as always!
Oh – and thanks for reading the last line of this article!
Mine is a Tall Non-Fat Peppermint Hot Chocolate at 185 Degrees with Whip.
This was excellent and very informative Brandon. I am looking forward to the down loadable guide you are putting out. I am in the process of training staff to handle a lot of the steps you laid out & I am buying out of state as well and interviewing property managers.
Thanks again for providing such great information.
Thanks Mike, it should be up on Amazon by the morning (fingers crossed!)
Hands down, the best freaking article on renting your home period!
I never comment, write a review, or submit my thoughts on any article online. However, I must say that I frequently read Biggerpockets.com and it’s forum quite often to find helpful tips. This article tops the list of an article I will frequently visit.
Very well written and really insightful. I just had to get this off my chest.
Dang Edgar, that was about the nicest comment I’ve ever read in my life. Makes the hours I spent on this baby all worth it! I appreciate you taking the time to comment. It really does mean a lot!
Feel free to jump into those forums and start participating!
Very thorough article, and if you are not this thorough as a landlord then you will generate more vacancies and delinquencies than is optimal.
If you are buying a tenant-occupied building then your due diligence should include a look behind the rent roll to see if the seller has leased the property effectively. This is particularly important when buying multi-family. A few ways to see if the property has been leased in line with Brandon’s guidelines:
- Make sure that the delinquencies are displayed on the rent roll broken down by 0-30 days, 31-60 days, and 61 days+ If tenants have not paid rent in over 30 days you should consider it a vacancy.
- Ask the buyer for the rent roll for each of the last 12 months with the tenant names, and this way you will be able to see if you are buying into a property with high tenant turnover.
Great advice, Phillip! Thanks!
BEFORE handing over keys – make sure ALL utilities have been switched to the new tenant’s name. Don’t take their word for it – call and confirm with the utility companies!
Great comment Jilly! I knew I was forgetting something! (Probably more than just that!)
Thanks for adding that! Very important!
By the way – I don’t drink coffee, so have never spent a cent at Starbucks!
I can barely go a day without my Peppermint Hot Chocolate! It’s sad, really
Great article…I also make sure utilities transferred before turning over keys…
Very smart!
Awesome article! Thanks for taking the time to write it.
I had a quick question. Why do you prorate the second month’s rent? It seems like you do this to prevent tenants from leaving before the first full month’s rent it due (assuming you prorated the first month), but don’t you have the security deposit to cover you?
Thanks!
I prorate the second month because I don’t like the idea of a tenant moving in on the 24th of the month and paying just the security deposit and 6 days worth of rent. If rent was $500, then I only have $600 when they move in, and if for some reason they don’t have enough to cover rent 6 days later, I have to evict but only ever received $600. It might be overkill, but I like to get as much as I can, upfront, since I don’t have a track-record with them yet.
What is a normal turnaround time to get back (approval or rejection) to a prospective tenant?
I try to get back to a tenant within 24 hours. I’d say 50% of the time I can look at an application and in ten seconds let them know they won’t qualify (even though I state my qualifications everywhere, including on the application and on a cover sheet to that application) people still turn in applciations who don’t qualify. I’ll never understand that one.
Otherwise, I try to get them either approved or rejected within 24 hours, sometimes more and sometimes less, depending on weekends and whether or not people call me back.
Elvira, I always try to get back to them within 24 hours, but sometimes the credit check and reference calls can take up to three days. In the meantime the tenant can hold the unit. It is important to be responsive to potential tenants – they have a choice in selecting a unit and the landlord is a service provider. Approaching it with that attitude minimizes vacancies and maximizes lease renewals.
What a great article, Brandon! I’m new at this, only have three rental properties, wish I’d known all of this when I started the landlord thing last year.
Hindsight being 20/20, I narrowly avoided a complete disaster when renting out my last property in November. I had done what I thought was a complete employment and past rental check, but as I was handing over the keys, something just didn’t feel right. So I went back to the application and actually “checked references on the references”. None of them were real. Not one. The jobs were fake, the previous landlords were fake, everything. I quickly called my largest friend to see if he could go to the property with me, and hoped I could give back their money, get my keys back, avoid whatever fraudulent mess I was about to become embroiled in. Luckily, it worked out. They took their deposit and rent back and left. They weren’t pleased, and weren’t nice about letting me know about it. But flinging obscenities at me, they left. Whew.
Kinda embarrassing to admit my near-disaster, but hopefully someone else can learn from my mistakes. I will be following the advice in your guide to the letter next time I have a vacancy! Thanks for all that you share with us Bigger Pocket newbies!
I like mocha lattes, extra fattening everything. And if you’re ever in Denver, I’m buying,
Thanks Julie, Super nice comment! I’m glad that deal worked out well for you. I’ve had some pretty crummy tenants who have checked out perfectly – but almost every time, something tells me in my gut to 2nd guess it. I usually don’t listen and end up regretting it later!
I love Denver and Starbucks- so you’re on
Hey Brandon,
Great post man. I completely agree in accepting certified funds for any money that is collected before the tenant moves-in. However, I’m not really a stickler for that rule if I have multiple weeks prior to move-in. If I’m collecting a deposit 3 weeks before the move-in day, I’ll accept a personal check, and then deposit it immediately. I figure there is enough time for it to clear. Or, sometimes, I’ll take the check to their bank (i.e. take a BoA check to a BoA branch), and ask to cash the check. That’s another way to ensure the check doesn’t bounce!
After the deposit and first month’s rent, I’ll then set them up on a auto-bill pay system in my PM software (I use buildium), which takes care of the hassle of depositing checks.
I had never heard of the idea of charging the full rent amount on the first month, and then charging the pro-rated amount in the 2nd month. What does this really accomplish besides giving the landlord more money up front? How do you validate it to the tenant?
P.S. I really enjoy “cafe au laits” (i think starbucks calls them “cafe misto”). It’s half drip coffee and half steamed milk!
Congrats on the book conversion!
Thanks Lucas,
I also am not so strict on that rule when I get the check ahead of time. However, I have had checks take a few weeks to bounce, so I’d probably set like 2 weeks as the max.
And I think switching around the first two months really just ensures I get the most money upfront in the case that they move in toward the end of the month. I wouldn’t want someone moving in on the 27th and paying like $50 plus their security deposit and then not paying rent 4 days later. In that case, it would take a month to evict and I’d lose out a lot more. As for justifying it, I’ve never had a tenant even question it in six years, so I think they just assume that’s how its done
I haven’t used Buildium yet, but I think I’m going to try it out soon!
Thanks for the comment, and reading the whole thing (and sharing your drink!)
Brandon – great article. Do you have any advice on what to do when a renter breaks the lease early & skips town? I’m not aware of any way to “go after them” for balance of lease, if there is one. First time this has happened to me.
P.S. No Starbuck’s for me, but Coffee Plantation is delish.
Sometimes, my tenants skip town (it just happened) and it is unfortunate. I look at it in a positive light though: no eviction. Plus, because I always require a security deposit (and a double one when they are borderline) I usually have enough cash to cover the lost rent and repairs, so usually I don’t lose any money.
I suppose an attorney could go after them, garnish wages, and all – but I usually just let them go unless I’m really ripped off.
Hope that helps!
Brandon – I agree. Had just wondered if there was something I was missing. And you are certainly correct about avoiding the eviction…much more irritating and costly. We are not allowed to take double security deposit here; lucky for you! But I wouldn’t even consider an attorney unless it was just awful. Talk about expensive and irritating…:). Best to forget and move forward. Thx!
Brandon,
This is the most comprehensive article and guide I have ever read about the topic. The comments of your readers about the things they do slightly different are also a great value added. I’ve just bought your guide right away in Amazon in just one click.
Great Job and Keep up the great work!
Alex
Thank you very much, Alex! I appreciate the purchase on Amazon as well! Feel free to leave a quick review on that Amazon book as well if you get time! The more reviews, the more reach I can get
I don’t know where to ask this question, but thought someone on here might be able to help me. I inherited a rental property with a tenant already in it from my dad when he passed away last month. Do I need to write a letter to the tenant making them aware of the change, and if so what should I say and what info should I give them? I called the tenant and told them to continue putting the rent in the lock box at my father’s house, which I will be moving to soon, but I didn’t know if I needed to be more formal and write a letter stating the change in landlord? Thanks for your help. These blogs are really helping me with this whole landlord thing.
Hi Kay, Thanks for your question – and I’m sorry to hear about the passing of your dad. I honestly don’t know that – but I definitely would recommend asking the question over on the BiggerPockets Forum – where thousands of landlords may see your post and help answer. Be sure to also check out my other landlord guide, How to Be a Landlord, for more tips and feel free to ask questions like this anytime on the forums. That’s what we’re here for!
Kay:
I would send them a letter explaining the reason for the change of landlord. If your dad was on their rental agreement, you will also want to update the rental contract with them. You can keep everything the same except the landlord info (if it was your dad you need to change that). This would come up if there is ever a problem at the property and you should need to go to eviction or any other court.
Check with your local real estate attorney about your landlord laws.
Very well written article, Brandon! and to start for the bottom, my favorite Starbucks is Caramel Macchiato, yes I read the whole article!
However, I was waiting for you to go over the maintenance part of the rent! I mean if things go wrong in the house while the tenant is in! This is my biggest debate whether or not to hire a property management! What is the best way not to deal with that? Are there specialized companies that can do all the maintenance for you to include receiving calls from the tenant?
Thanks,
Thanks Asi,
Thanks for reading the whole thing! I’m impressed! As for the maintenance part – check out my other lengthy post How to Be a Landlord for some tips. The maintenance part is probably the hardest for most people – and the part that took me the longest to give up – but I’m so glad I did. I think a great way to handle it is to find other local landlords and talk with them. Who do they use? If one landlord uses a guy 20 hours a week – I’m sure that maintenance guy would love to have you as a client, and the other landlord likes to give referrals to contractors that they use and like. It’s a win-win-win.
Hope that helps!
If I have a lease with a tenant and I decide to sell my home before the termination of the lease, what are my ethical and legal obligations to my tenant?
Hi Maggie,
A lease is connected to the property, not to you – so the tenant can’t be removed until their lease is over, even if you sell it. However, if you really want to end their lease and sell, you’re best bet is to ask them (or pay them) to leave.
For more help – definitely jump over to the Forums and ask this there, to get answers from dozens of people for free (who are much more intelligent than I am!)
Hi Maggie:
Yup, what Brandon said! The lease is a binding contract that protects the tenant. Both tenant and contract transfer with the sale.
If you have a landlord buying the property, they are often thrilled to have a performing tenant already in place which may make the property more valuable to them. If a homeowner is buying, you may need to buy the tenant out of their contract.
Another point, if you have a tenant and they find out your are planning to sell or (heaven forbid) start letting potential buyers walk through their home, they may move out immediately leaving you with a vacant property and mortgage payments!
Happy Selling!
Hey Maggie,
What Branden and Karen said is correct. A lease does not terminate even with the sale of the house….. UNLESS, your lease says otherwise. In rare cases, when I think I’m going to sell a property in the next year, I’ll put this clause in my lease:
“TRANSFER OF OWNERSHIP / SALE OF PREMISE. Upon the transfer of ownership or sale of Premises, or the pending transfer of ownership or sale of Premises, Landlord may terminate this Agreement with 30 days written notice. After the transfer of ownership or sale of Premises, the new owners may terminate this Agreement with 30 days written notice. “
Loved it! Thank you. We are underwater on our house, and all over the internet are people screaming not to rent out your property. All I wanted was a reasonable voice to tell me what to expect and how to do it if we do decide to rent it. This was by far the most helpful article I have found. Thanks again!
ps – I love Starbuck’s hot chocolate. I’m not a coffee drinker, but a Tall Hot Chocolate with a piece of banana cake is awesome!
Thanks so much, Mandy! That’s exactly what I was hoping for!
Oh – and I am a freak when it comes to Starbucks Hot Chocolate. Not a day goes by that I don’t get a Tall Peppermint Hot Chocolate at 180 degrees, with whip but no foam. (and non-fat when I’m feeling guilty…)
Thanks for the comment!
I just thought of two questions that weren’t covered:
1. What happens when a lease runs out? Do you sign a new lease, or just go month-to-month at that point?
2. How often should rent be increased? (We would actually be renting our house for about $100 less than the mortgage and just having to make up the difference each month.)
THANK YOU!!!
Hey Mandy, great questions!
1.) Yes, in most states it just converts to a month-to-month. If I want the tenant on a lease, I’ll just sign a new one with them before the old one expires.
2.) Personally, I’d increase rent whenever it’s competitive to do so (I like to be slightly less than average) but I try to do it only once per year. If on a lease, you can only do it after a lease expires (which is one of the benefits to month-to-month rentals.)
I’d also recommend signing up for a free BiggerPockets account – cause the whole landlording thing can sometimes be a hassel and the forums are full of tons of seasoned landlords who volunteer their time to helping answer questions and help those just starting out. This community is unlike anything I’ve ever seen online, so definitely take advantage of that!
Thank you @Brandon for this post. Though I have been renting a small number of houses for years it has great ideas. Some of the renting tips will not work in small towns but most will work anywhere. One suggestion in addition to yours is to look for businesses who have employees who fit your rentals. I now rent most of my rental houses to teachers/principals etc. My houses are above average, I know they can afford them, I usually know who their boss will be, and I know the school has screened them pretty heavily for their job. While I am sure it is possible, I have never had a teacher or principal be a bad tenant. I often have new teachers call me even if I do not have a rental open because everyone at the school advises them to call me for a place to rent. We do not have Starbucks in Thermopolis WY, but my drink is Mountain Dew, so cold it makes your teeth hurt.
Thanks Jerry for reading and commenting! The only thing I’d counter with is that,ironically, I only rent my stuff out in a small town! I’m a small town boy! live in a town of 3,000 people and do all my investing either there, or the next town over which has around 20k people!
The teacher idea is amazing! My mom ran a daycare when I was growing up, and she got in with the “teacher crowd” and it was a never-ending source of leads. I never thought of approaching real estate in the same way, so thanks! I need to get me some teachers!
And good choice on the Mountain Dew! That sounds awesome right now!
Great useful Article! I’m just starting to rent out my property and wanted to get some basic knowledge of being a landlord and how to go about renting my property. I have plenty of more reading to do. Thanks. Jay
Thanks Jay! Be sure to get connected with the BiggerPockets Forums for a lot more great advice! The community is really great!
Brandon, Thank you so much for your article!! My husband and I are in a situation that has us questioning whether we can take on this whole renting thing or risk short selling our house. After reading this I feel much more confident we can do this!
My questions are:
1. Do you require the renters to pay each month’s rent with certified funds or only the upfront costs?? How difficult is it for people to get certified funds for rent each month? If its too much of a hassle I’m afraid people wont do it.
2. Is there a way to set up paying rent through paypal? Maybe I should ask this question in the main forum like you suggested…
3. my husband and I purchased a hot tub for around $1200 when we bought the home 3 years ago. Should we require a security deposit and additional rent money to use the hot tub (assuming we know how to monitor this) and write a provision in the lease agreement that if the hot tub is damaged in any way they will be responsible for the cost of the damages less the security deposit?
4. Should we have the tenet pay HOA fees and/or fines? How do you regulate they are following HOA regulations/rules like pulling the weeds
5. This may be common sense but do we need to get all signed agreements notarized?
I’m sure I have more questions as we have never done anything like this before! Thanks for all your information! I will have to look for your book on Amazon!
My favorite Starbucks drink is a grande white chocolate mocha with whip
Hey Kelly,
Thanks so much for the message! I’ll do my best to help -
1.) I generally require certified funds for the 1st months rent and deposit, but am okay with personal check after that (Never cash, ever.) If they ever bounce a check, though, I charge them, hit them with a late fee, AND never take a check again. Certified funds are SUPER easy to get. Any 7-11 has money orders, or any Wal-mart for under $1.00.
2.) Yes, but it’s annoying. If they pay via credit card, someone has to pay 3%. If they pay via paypal money, the person has to put it in their account, wait a few days, transfer to you, wait a few days, and then you can withdraw. But I suppose it could be done.
3.) Yeah, that sounds good. Or just don’t let them use it
4.) I’ve never actually dealt with a HOA, so not too sure -I’d ask that one in the Forums!
5.) Nope, I believe notarization is only needed when the lease is longer than 1 year. That’s how it is in my state anyways – you may wanna check your state but I’ve never heard of one needing it on a normal lease!
Hope that helps! The book on Amazon is the exact same as this post – so don’t worry about getting it
Though – be sure to jump into those Forums. There are so many people there WAAAAY smarter at this stuff than me – and willing to help anytime.
Keep in touch!
(And nice drink! I had two drinks today from Starbucks… this is a bad addiction!)
Hi Kelly, I rent out two town homes and a condo, both with HOAs. I’m also on the board of the HOA where I live, so I have some experience from both trying to get tenants to follow the rules, and also trying to get absentee owners’ properties compliant.
YOU need to pay the hoa fees and make sure you’re collecting enough rent to cover that cost. This way you are sure they’re paid, and paid on time. If they don’t get their money, the management company will file a lien and send you to collections. Also, if these fees are paid late (at least for my properties), the late charges and collection fees quickly add up to way more than the original bill. I would never leave this to a tenant and just hope that they pay on time. As for the rules and regs, I would make sure that you have a copy of the covenants, bylaws, rules and regulations to give to your tenants when they sign your lease. And have them sign something saying they read, understand, and will follow these rules or else. You can be sure that the management company will let you know if they’re NOT following these rules, and it will be your responsibility, as property owner, to make sure they become compliant. You should also inform the management company when you’re renting out your place and give them your new address, this way they’re mailing these notifications to you and not your tenant.
I think the amazing, all-knowing Brandon answered the rest of your questions.
Good luck renting out your house!
Very informative article! I’m a newbie to the rental game and I found this very helpful.
Here’s the problem I’m having. I’m renting out my first property (townhome), which I personally rehabbed quite a bit, so I know it’s one of the better units in the neighborhood. I’ve priced it competitively and listed with Zillow and Craigslist. It’s been on the market about a month, and I’ve gotten about a dozen inquiries (ps-check the email contact you placed in the ad EVERYDAY-oops) and showed 4 or 5 times. All inquiries have vanished.
In general, what am I doing wrong? I believe I’m in a competitive area, but I’m afraid that just lowering the price will attract less-qualified applicants. Any ideas? Time to get a broker? Thanks in advance.
Hey Josh,
While you could go the “broker” route – I firmly believe it is a problem of price (when you are at least doing an okay job of marketing, which Craigslist should be). It always comes down to price! Renters these days do their homework, and the month you’ve had it vacant will cost you more than dropping the rent some. It’s not the best thing to hear, but it’s probably true! That’s my thought anyways, but you may wanna get a second opinion! Maybe post this question in the Forums as well – I’d be curious what other landlords think!
Can you give some advice regarding renting to pet owners? We have a fenced backyard and I would like to be able to collect extra fees associated with being pet friendly
Hey Liz – I know in my state, we can charge pet fees, but not if they are service animals.
Outstanding article Brandon! Just the kind of information I need as I prepare to begin investing in rental properties. Even better did not have to pay for it. Thanks BggerPockets!
Thanks Allan! There are so many great resources here on BiggerPockets! Jump on in, the water’s fine!
Thank you for posting Brandon !!! I learn a lot
I know you mention I need to charge the application fee $35 for the first adult and $20 each adult after this. What about if they are family, do I still need to do that?
Thank you
Hey Isaac,
I only charge an app fee for anyone over 18 years old – so generally that’s only 2 people (maybe three if they’ve got an old kid with them!)
besides the above questions,
One more question
If they are family, do I need to check every single one background check and credit check, employee history and past or current landlords ?
Thank you so much for your help
Just those 18+! Thanks Isaac!
Hello Brandon,
I am wondering if denying a tenant application because of too much credit card debt is a good reason. This applicant does make more than three times the rent, however credit card debt as well as other installments are extremely high. I am also concerned that there is no credit history prior to 2009 in their credit report (by smart move). Would you (or anyone reading this) consider debt-to-income ratio in renting out your property?
Thanks!
Hi Stephanie:
I consider everything when approving a tenant. If they’re not paying their credit cards, what makes you think they will pay you? Eviction and vacancy are costly. There are lots of people looking for housing. In my experience, waiting for a better tenant proves better than taking someone questionable. However, we do a ton of marketing and get 25-30 calls per day so I can afford to be picky.
To your success!
For the first time, I’m actually doing more upfront research than I’ve done in past BIG decisions. Lucky me to find you…although, I have to say, it made me a little nerve-wracked. It’s a very thorough article, and I love all of the links to additional resources. I really love my home, but may very well be facing the decision to leave it and I’m not ready to put it on the market “just in case” I want to come back.
So, here goes:
Unsweetened Green Tea Latte.
Nice Tracy! Just take it one step at a time. Let me know if I can help at all. And I’m honored you read the whole thing
Hey! Thanks for all your great info! We are about to rent out our home and purchase a new one. I have such anxiety about renting my home for fear of some one not paying rent! We can’t afford two mortgages! I have heard horror stories about renters and it taking so long to evict them? Why does it take so long? If someone is not paying cant I just tell them to get out??
I am a chai tea lover, iced in the summer.. Hot in winter:)
Hey Kiersten,
Thanks for reading and commenting!
Evictions are scary things, but if you run your business like a business and don’t run it like a hobby – you’ll be fine. For example, if they don’t pay on the 5th (or whatever short grace period you give them) they get a three day notice to pay or vacate (or whatever your state allows.) Then if they don’t pay three days after that, you file eviction. (Or pay them their security deposit back in cash to leave.) True, there are always horror stories, but they generally involve tenants who never should have been allowed in the first place (see my Ultimate Guide to Tenant Screening) or they didn’t run your landlording correctly (see my article “How to Be a Landlord: Ten Tips for Success“)
Again, it’s nothing to worry about but it is something to plan for and run like a business. Stay close to BiggerPockets, join the BiggerPockets Forums, ask questions, and you’ll do fine – and you’ll be building wealth while your tenants pay down your mortgage for you!
And my wife is a Chai fan as well!
That gives great comfort! We put it up for rent 2 hours ago and have already been contacted by 4 different people who are interested and want to see it. Here we go…..
Rent in our area is skyrocketing because of an oil boom. Many more people live here or want to move here and there isn’t enough housing. I am planning on renting our 3/2 for $2400 a month. Expecting the future tenants make three times the rent seems so steep. Should I still stick with that?
I found this a very encouraging look at leasing out my home. It is nice to know others are nervous about the process. You have given me much to think about, and some solid steps to take if I decide to go this route. It certainly sounds better than foreclosure. My favorite Starbucks drink is a plain dark roast with hot cream…sometimes with a shot of espresso! Thanx for your website. You’ve made me hope!
Lots of great information! We will be renting our home for the first time and will be using a rental agent due to our inexperience. My question is I have a pellet stove in the house and although it offers low cost heating I don’t trust that it will be used correctly. Any other folks have this issue?
Hey Shari,
I haven’t had this, but I think I would just train my tenant how to use it and let them. But I would definitely ask this over in the Forums and see what others have done!
I’m looking to rent out my first property and this information has been really helpful. I have one question, How do you feel about charging first and last months rent as well as a security deposit up front? I know this is common but I’m bit concerned it might discourage some renters from applying because it would involve a lot of upfront cash.
Thanks in advance.
Hey Rob,
I think it totally depends on the Market. If you have a lot of possible renters, I’d get as much as you can. However, if good tenants are hard to find then I would try to charge less (but still hold the high standards.)
Hope that helps
Thanks for the fast reply, very helpful. I’m going to try to stick with the first month, last month, and security deposit for now and see how it goes….
Most comprehensive article I have read. A few things we do 1) We require the entire deposit upfront and will not process the application without it. This saves tons of time and forces prospective tenants to really think about what they want. 2) We are from Missouri and it has a GREAT online site called Casenet, this is a comprehensive list of all public records. We are able to learn of felonies, evictions, rent & possessions and garnishments. It would be smart to check the state you live in for this site. Also, when I am pre-screening, I always as for contact info. When I do this I ask the spelling of their name, even if it is a simple name. This allows me to plug into casenet the exact spelling so I get good info back. If I find numerous judgments, felonies, or garnishments I automatically eliminate them from a showing. 3) We have what we call red flags or wincers…such as: if someone calls and asks if utilities are paid there’s a good possibility they have an unpaid bill at the utility company or if they want a unit that greater than a mile from a school – better check out your county sheriff to see if they are on the Sexual Molester register list. 4) We do an extensive wall through and check list-we are in process of doing a recording of this process. Save discrepancies or disagreements when returning deposits. 5) Be mindful when showing a property to remain outside or by the door to prevent false accusations regarding sexual misconduct – a few we know use their phone to do audio recordings this has been invaluable when prospective tenants or tenants decide to cause a problem. 6) Lastly, we now require all new tenants to do automatic bank draft, all previous tenants we have given them 12 envelops addressed with our address and their return address to mail rent. All they have to do is get a stamp. Hope some of you can use these tips.
Awesome comment Angie! Thanks so much for offering those ideas – they are all excellent. I’m sure that will help a lot of people. Are you over on the Forums yet? If not – we’d love to have you – I bet you could offer a lot of great advice on Landlording.
Thanks Angie!
Brandon: Superb article and written diligently. I went through the entire article, and had a smile on my face when I realized that I had followed your many of the guidelines pointed by you. I made all the long term improvements, had a realtor do the screening, managed my rental property, and after a year am moving back to my home….and I was actually looking for tips on what to look out for when I do the walk through of my home when I take back the home from my tenant. I think that final pience would be a good ending to your detailed guide….Thanks again, very useful even as a post moretem report for me
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Hey Ani, thanks for reading and commenting! As for doing the walk-through, that would be a great idea for a post, so I’ll add it to my list. But quickly I’ll say what I do:
So I send a “Move Out Packet” to the tenant a few weeks before their move out day (or whenever they give me notice that they are moving). In this packet is a copy of their move-in inspection sheet, along with cleaning instructions and a sheet that says how much I’m going to charge them for each item I have to fix/clean. For example, $5 per light bulb, $50 per stove to clean, $50 to clean fridge, $100 per room for painting, etc. It has like 100 items on it. This way, they know exactly what to clean and the penalty for not cleaning.
I then tell the tenant that they can be there for the walk through at the end, but they don’t have to be. About 50% want to. Then we walk through the property together and just go over the move in checklist (which has the move-in on the left, move-out on the right.) Then I charge them based on whatever wasn’t up to par. Sometimes the tenant will choose to remedy the item right then, but usually not. Then in 14 days (the max time allowed by my State) I send them back their deposit less any damages. The reason I wait 14 days is because sometimes it takes a little time to find problems (like Urine stains from pets) so I want the max time to ensure I know all the problems.
Hope that helps!
I really appreciate the detailed information. I will one day have numerous investment properties. I am working hard 6 days a week to save up for my first property, a duplex with tenents on the other side. Anyway my favorite Starbuks coffee is a venti white chocolate mocha with whole milk and no whipcream.
Hey Brandon, thanks! I think you are very smart beginning with a duplex. I kinda began the same way (after a quick live-in flip, before I knew what I was doing!) And good choice on the Starbucks drink – but why no whip!? That’s the best part!
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