There is a common misconception about being a landlord, that all you have to do is buy a house and rent it out, then watch the money roll in. Yeah, that isn’t how it really works. You CAN make a lot of money being a landlord. You can also LOSE your entire investment if you aren’t careful. If you are like most people, you probably know a landlord or two. If you are on this site, you may have tossed around the idea of being a landlord. I have several friends who have been or are currently landlords. They have a variety of experiences, ranging from “I can’t wait to buy my next property!” (said in a very excited tone) to “I will never, EVER, do that again!” (uttered with absolute disgust dripping from their voice). Let’s check out some stories from those people in the second group. The Heroin Dealer Was My Best Tenant Let’s start out with my friends Brad and Linda. Employment shipped them two states away to Arizona, but they were reluctant to sell their existing home, so they asked for and received property management referrals. Two different friends recommended the same company, and after a bit of research, they chose to use them to manage their property. This property management company was a local, family-owned business. The first tenants they rented to were quality renters. They took care of the home and were quiet and respectful of the neighborhood. The neighbors on either side of the house had no complaints about them. When their year-long lease was up, they moved out and bought a house of their own. The second set of renters weren’t awesome; they had dogs who caused some problems. They also moved at the end of their one-year lease. The property sat vacant for a couple of months before the next set of tenants moved in, during which time the property management company was acquired by a larger, corporate firm. (Cue foreboding music.) “How much different can it be?” said Homeowner Brad upon learning of the change in management. The third set of renters caused a lot of damage to the property. They had enormous dogs that they confined to one room in the house. Can you guess what the dogs did in that room? When this family moved out, the glass doors on the built-in cabinets were no longer there, the carpet in the dog room was no longer there. (But they left the carpet pad. The urine-soaked carpet pad.) Out in the yard, a sprinkler head was no longer attached, thanks to the dog removing it with his teeth. When the sprinkler was turned on, the water sprayed directly onto the siding, causing it to rot. Related: 80 Smart Questions to Ask BEFORE Hiring Your Next Property Management Company On top of all that, the new corporate property management firm wanted to return at least a portion of their security deposit, even though the owners had returned to the area by this time and viewed the damage with their own eyes. It took quite a bit of fighting with the management firm to keep the deposit, which did not cover the damage completely. Meanwhile, down in the state they had moved to… When Brad and Linda moved, they had purchased a house in their new state of Arizona, believing they had jumped into the market at the low point. Nope. They caught the downward slide about halfway to the bottom. So when they decided they no longer wanted to live there, they called an agent and were surprised at just how low property values had fallen during their residency. They couldn’t afford to bring that much money to the closing table, so they decided to rent out their AZ property when they moved back to their original house, hoping to recoup some costs while waiting for the market to recover. In Arizona, at least at the time, out-of-state owners were required by law to hire property managers. In just over two years, they went through at least 6 months of vacancies. It turns out, they bought in an area of Phoenix that locals consider to be sketchy. It was difficult to even find a PM, let alone someone who would do a good job. Enter the heroin dealer. On the surface, he sounded like a good renter. No, he didn’t portray himself as a dealer. Who would say that?! No, he was “renting for his pregnant girlfriend.” He didn’t intend on living at the property, but might sleep over from time to time. (Who tells the PM that up front?) But the application came in after several months of vacancy, so they approved the girlfriend and she moved in at the beginning of January. On-time rent payments were the only communication from this tenant, until June when the AC broke. In Arizona, AC is required, and you must repair it within 48 hours of notification. So they fixed it, and back to no peeps from the tenants until July, when the police broke down the door and arrested both the tenant and the boyfriend for heroin dealing. Brad and Linda started eviction proceedings. Then two months later, the woman tracked them down and offered cash to have the eviction removed from her record. She also had cash in hand to replace the front door the police department destroyed in the raid. Having lost so much money on both this property and the original one in their home state, they were between a rock and a hard place. They took the money and dropped the eviction proceedings, fixed the door, and sold the house. Lesson Learned: Hire the right property manager. Like anything else, property managers come in all shapes, sizes, and levels of competency. Always do your research on the property manager—they are the gatekeepers to your investment and can make or break you. And if the PM that YOU hired suddenly changes companies or the company is acquired by another, vet the new company just as thoroughly as you did the first one. That Year That EVERYTHING Broke! Reese and Peter bought a small, two-bedroom house when they got married, but babies started coming and didn’t stop. The decided they had outgrown it when they found out about baby #4 and started shopping for a larger space. They also thought renting out the smaller house for some extra income would be a great idea. They quickly found a tenant, and all was fine. Until… About three months into their new lives as landlords, the hot water heater broke. Reese and Peter aren’t very handy people and had to hire someone to come in and replace the unit. It happened at some point on a Friday, and the tenant was at work. Of course, there were extra charges for weekend time. Murphy’s Law rules landlords. Two months later, they were again hiring someone to come and replace their furnace, which died in the middle of winter. This too was a rush job because you cannot be without heat in Colorado in the winter. The problem is, not only are Reese and Peter not especially handy, they also didn’t have any reserves. These large, unplanned expenses had damaging effects on their finances. Reese and Peter decided that after the year lease was up, they would not renew, believing it would be easier to sell a vacant house. They had two months of vacancy before the property closed, adding to their losses. Lesson Learned: Being a successful landlord isn’t just owning property that you let someone else live in. You need reserves because something always breaks. Breaking even by charging the same amount as you pay for mortgage and taxes will always be a losing proposition. Serge Shukhat and Ben Leybovich did an intense study about CapEx reserves. They discovered that to adequately prepare for CapEx expenses in a B area, you need to allocate $250 per door for CapEx per month. But even this figure is assuming you are starting off with brand new equipment. Something is going to break; don’t let that break you. The Not-Quite-Professional Tenants The last story I will share with you today is about Shannon, who bought a three-flat in Chicago, intending to rent out two of the units and live in the third. Shannon didn’t feel a need to run a background check on her tenants because she is a “good judge of character.” Shannon lived in the basement unit and rented out the top two. The level one renter was a great tenant—on-time payments, no complaints, quiet. That’s all I have to say about the level one tenants. The top level tenants were the complete opposite, of course. It was a family with two small children. They couldn’t pay the entire security deposit before they moved in, but Shannon felt bad because they had two small kids, so she let them move in with the promise of half this month and half next month. Any psychics out there want to guess what happened next? The tenant came down to her unit about two weeks after they moved in. He told her that they couldn’t come up with the security deposit in any amount, and they also couldn’t pay any rent. At all. He offered to do work around the house like mow the lawn and shovel the driveway in return for free rent. Now, this seems like the worst part of the story, but it gets even better worse. Remember those young children this tenant has? One of them was in diapers at the time. Diapers fill up and need to be disposed of. Normal, well adjusted, non-sociopathic people will put used diapers in the garbage. These tenants opened the window and chucked them into the backyard. Shannon didn’t know this for a few weeks. Yep. Weeks. Infants go through 6-12 diapers a day. Related: My Top 4 Most Shocking Real Estate Horror Stories: What Are Yours? Lesson Learned: Screen your tenants. Wait, no scratch that. SCREEN YOUR TENANTS!!! Nobody is going to tell you, “I’m going to stop paying rent after the first month.” No one is going to clue you in that they plan to punch holes in your walls, rip out your copper pipe, and flush cement down the toilet. No one is going to tell you they plan to toss used diapers out the third floor window and let them pile up in the backyard. Screen your tenants. If they sound bad on paper, don’t rent to them. Don’t make excuses for them. Find someone who doesn’t have excuses. Find someone who has money to pay the rent every month. It is far better to have an empty unit for one month while you wait for a good tenant than to have someone right away and spend several months on eviction and rehab. Listen to Experienced Landlords I spend a lot of time in the BiggerPockets Forums. I like to share what I do know and learn from others who have experienced what I have not. I’ve seen some pretty outlandish forum threads. New investors who ask questions that should be no-brainers: “A potential tenant has a 400 credit score, but says it’s his ex-wife’s fault. Should I rent to him?” or “My tenant just asked if they could run a daycare out of my house. That’s ok, right?” I don’t fault them for asking the question—you don’t know what you don’t know. But when every single responder says, “NO!” and “Run the other way as fast as possible!” yet the original poster replies, “Well, I’m going to do it anyway,” it makes me sad for them—for the lessons they will learn from the School of Hard Knocks. So I have just one more lesson for you to learn. Listen to the experienced landlords on this site. People are members of BiggerPockets because they love to talk about real estate. Listen to their advice. [Editor’s Note: We are republishing this article to help out our newer readers.] What is something you wish you would have known before you started? Did you get any advice you were happy you took? Let’s talk in the comments section! Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! 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Let’s go over three advanced ways to screen your applicants that are a little outside the box. 1. Social Media In today’s world, people often put more information publicly on their Facebook, Twitter, or other social network profile than they would even tell their own mother. This information is a goldmine for landlords to discover more about their prospective tenants. We always do an online search on our potential tenants and see if we can find any information that would help us make an informed decision. For example, a young couple once applied for one of our apartments that does not allow pets. However, upon checking her Facebook page, we discovered the applicant posing with a brand new puppy with the caption, “My adorable new puppy!!! Isn’t she cute!?” Surprise, surprise. That information was definitely helpful. By searching social networks, you might also discover information about their current living situation, roommates, or whether they complain all the time. Or maybe they seem just as great as they did in person and on their application. Another option for using social networks for learning more about your applicant is by looking for mutual friends or acquaintances and getting their opinion. In larger areas this may not work as well, but in small towns most people are connected in some way or another. If you notice your applicant is also mutual friends with “Sarah,” an old friend from high school, consider shooting Sarah a message asking if she knows anything about the applicant that would be helpful in making an informed decision about their tenancy. Remember, the point of all this is to learn as much about the prospective tenant as possible before approving them so you can make an informed decision. There’s nothing like approving your new tenant only to discover too late that you made a horrible error. Related: 4 Old School Tenant Screening Tips That Still Hold True For Modern Landlords 2. Google Almost everything you’ve ever done publicly in your life is chronicled somewhere on the internet. The same is true of your applicant. As of this writing, the best source for searching the internet is, of course, Google. Searching Google for a tenant’s name is helpful for discovering little known facts about the applicant’s life. You can also try combining the applicant’s name with their city or county to narrow your search. You’ll most likely get all sorts of information by Googling a person’s name, but you are looking for information that specifically tells you a little more about the applicant, such as whether they were recently in the county’s jail roster or have been involved in lawsuits. To search Google, try entering their name within quotation marks, which causes the search to be narrowed down to only the the applicant’s full name, or what you entered within the quotations. For example, entering “John Smith” will only show you results for “John Smith,” whereas entering John Smith without quotations will show you results for anything containing the name “John” and anything containing “Smith.” Using quotation marks will significantly narrow your search. 3. Drive by Unexpectedly Curious about how your prospective applicant will take care of your home should you approve them? A look at their current residence should give you a pretty good idea. Consider driving by or even paying them a visit at their home to get a good look at how much care they show (or don’t) to their yard maintenance, housekeeping, and general cleanliness. If they live like slobs now or their lawn is two feet tall, that’s not going to change anytime soon. Related: 12 Tips I’ve Learned From Screening Close to 500 Prospective Tenants Once you have processed your applicant’s application, you should have everything you need to either accept or deny them tenancy. If they have met your minimum standards for qualification and exhibit traits of dependability, reliability, and responsibility, you’re off to a great start. If they have failed to meet your minimum standards of what you are looking for in a tenant, you will most likely deny them tenancy and wait for someone more qualified. [This excerpt was taken from The Book on Managing Rental Properties, which gives investors valuable information on everything from screening tenants to managing everyday issues — and everything else you need to know for successful buy and hold investing.] Have you ever used these techniques? Any other outside-the-box ways you check out applicants? Let me know with a comment! Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! 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When I was a renter, there were a few things I needed from a place. Not all amenities were important to me, but many are. Here’s what most renters are looking for and why I make it a point to provide the optional amenities. The Top 7 Amenities Renters Want 1. Location, Location, Location Does this place have easy access to roadways? Can I bike to or otherwise easily access grocery stores? Will my commute be reasonable for my preferences? Is this area safe? Are the school districts acceptable? These are all questions renters are going to ask when looking for a quality place to live. You don’t necessarily need to provide all of these to have a rental that performs well, but they are certainly things to consider. 2. Parking The properties I own that have covered parking (garages mostly) are in very high demand. Covered parking is big in places like Florida, where it rains often (especially near salt water, which can be damaging to cars), Northern states with plenty of tough winter weather, and areas like Colorado where remnants of the last few hail storms are seen on a few cars throughout the Denver metro area. 3. Private Spaces Things like a fenced-in yard go a long way, especially if you happen to be pet-friendly or if these tenants have young children. Many places also provide extra storage on site to assist with the moving process or to otherwise hold excess sports gear if the place doesn’t provide something like covered parking or garages. Relate: 4 Steps to Boost Your Bottom Line by Improving Tenant Retention 4. Unit Readiness No one wants to move into a project. The unit needs to be clean and in working condition. Sometimes things are overlooked during move-out and move-in inspections, though. The intent is to cut down on that so the tenant can be left to unpacking instead of scheduling additional visits. Making sure older HVAC units, electrical, plumbing and the like are properly maintained will fall into this category as well. 5. Unit Upgrades The nicer a property is, the more tenants you can attract. Stainless steel and energy-efficient appliances go a long way to giving a good first impression, and following local trends will help a great deal as well. Get rid of that dark green or maroon carpet. In many cases, there’s some really nice hard wood flooring under them anyway! If you have an old, tired bathroom, dress it up with a nice vanity, newer sink, and updated fixtures. These are minimal repairs that can dress up an entire room. When upgrades are done, figure out how much more you can charge as a result and how long it will take to make that money back. If it means you provide a higher quality product and hopefully receive a better tenant pool, why not go for it? 6. Included Appliances Everyone has their own preference. I heard a BiggerPockets Podcast episode once where the landlord rented each appliance for a certain price and otherwise had a very low base rent. I always choose to include a washer and dryer in the unit (or shared space for multifamilies) for many reasons. If I can find a unit with them already, great  If the unit doesn’t have them, that’s one of the first orders of business. Related: The Top 10 Rental Features That Attract Cream of the Crop Tenants 7. A Great Renting Experience As landlords, we are providing a service. Make the effort to respond to maintenance requests promptly. Tenants are looking for peace of mind knowing that if a problem arises, the landlord (or management company) will respond in a timely manner. In fact, I advertise the service as much as the rental when promoting the place. I’ve lived in apartment complexes where I’m simply a number and where I’d be lucky to see a maintenance request filled within the month. I’ve also lived in a mom-and-pop-managed condo where their son answered all the maintenance requests the next day. In a lot of ways, tenants are interviewing you as much as you’re interviewing them. So, Why Do I Provide These Amenities? Easy. The more extra amenities you provide, the larger the amount of quality tenants you will likely attract. I would rather pay a bit more for a property and on the other side, charge a fee for amenities. Hopefully the worst case scenario is that I break even maintaining these appliances with the trade-off of fewer tenant-related headaches. For me, that’s worth it. Garage door needs fixing? Hopefully the extra $10/month in base rent over four years more than pays for that. Fence in the back yard coming loose? Same deal. Ideally in this system, you attract a larger pool of great renters to supplement an already fortified tenant application and approval process. At times, you’ll need to fix or maintain these extra amenities, but in my mind, I’m happy to trade maintenance requests for peace of mind. What amenities do you strive to provide for your tenants? Which do you think are most in demand in your area? Let’s chat below! Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! 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Nothing motivates a tenant more to replace their dead light bulbs than knowing that if they don’t, it could cost them $5 per bulb for us to hire someone else to do it. This Itemized List of Common Deposit Deductions is fairly generic and includes a statement that says, “This list has been prepared for your information only. Actual charges will vary.” The point of this list is to simply motivate your tenant to do as much themselves as possible because, let’s face it, moving is not fun. It’s a lot of hard work, and by the time the tenant gets everything moved out and into their new place, the last thing they want to do is deep clean and get the home they have lived in for years returned to move-in condition. The responsible ones will buck up and do it anyway. It’s those others you’ve got to impress the importance upon that they need to do it themselves—which is where this list comes in. In reality, some things may cost more, some less, but the point is to let the tenant see with their own eyes that it will cost them, probably a lot more than they think. Related: How to Hone Your Screening Process to Ensure Better Tenants The Landlord’s Itemized List of Common Tenant Deposit Deductions [This article is an excerpt from Brandon Turner’s The Book on Managing Rental Properties.] Landlords: Does your deposit deduction list look similar? Anything you’d add or change? Be sure to leave a comment below! Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you