My Parents are renting out thier former primary residence in Southern Mississippi. Their market is now soft, and they are waiting for it to turn around. Currently, they are choosing from two tennents. One from an agent whom they have used in the past. This tenant would pay $1,050, with a 10% commision to the agent (which will almost cover their note). However, the past two tenants from this agent have not worked out well. One missed enough rent that they had to be evicted, the other caused over $4K in damage to the property. The other potential tenant is a referral from a neighbor. This tenant would only pay $900, but they would be better for the neighborhood and the property, and there would be no commision to an agent.
Thank you in advance for all your help.
Can you tell us some more info? Have background checks been done on both possible tenants? Why the difference in rent price? Can one only afford $900. What is the comparable rent for the area?
Finally, have you or your parents tried looking elsewhere for your own tenants like Craigslist?
Have you checked income, credit and references for either tenant? I would not make a decision solely on a referral. The agent has no vested interest in the quality of tenant you get based on their referral track record. The neighbor has a vested interest in making sure your tenant is a good fit with the neighborhood, but still cannot guarantee you'll get the rent every month.
It sounds like your parents would net the same either way. Just be sure they complete their due diligence this time around.
I wouldn't rely on an agent who has picked two bad tenants. Either they are not screening properly or someone is not managing the tenancy well, or both.
If your parents are not interested in learning the business of residential landlording, then they had better find a good property manager.
The referral from the neighbor might be more promising, but they would still need to go through proper screening and the property would still need to be properly managed for the duration of the tenancy.
Marcia Maynard, Fischer Properties | Podcast Guest on Show #83
Yes, the one can only afford 900/ mo. Evidently the husband just got out of the military and does not have a job yet. I am waiting to hear back about the credit checks. No, I dont think they have treid on Craigs list yet.
Thanks for youe input,
Thanks Ursula, true they need to make sure to vet the tennents better. I agree that the track record of the agent is not good, and she has does not have as much interest in getting a good tennent as the neighbors do. They are leaning toward the recomendation of the neighbors, assuming the credit checks come back good.
I have found a property manager in the area that my parents will be contacting. They do not live there any more, and will need help to keep things on the up and up. They will also be getting both tennents checked out.
Thanks for the advice Marcia,
@Ken Cooper Good luck to your folks. Would they be upside down if they decided to sell? Could they float the money to cover if necessary?
Reason I ask is that land lording at zero cash flow after P&I (orPITI if they escrow) is an ugly proposition. One tenant already cost your folks $4K in damages - how many months of rent do they have to collect to make that up?
What your folks are banking on is appreciation and principle paydown will outstrip depreciation and maintenance. Can be a risky gamble.
If the market is soft, when and why do they think it'll turn around? Did they overpay for the property and now can't easily unload it?
I'm biased (see my job info), but wouldn't decide on anything until checking credit, references and criminal history, etc. Not sure what you mean by one tenant being "better for the neighborhood" but my advice would be to be cautious that you aren't violating any Fair Housing laws when deciding who to rent to.
Update...They decided to go with the recomendation of the neighbor. They wrote a contract where the tenant will pay $900 for the first three months to give the husband time to find a job. After that they will be paying $950 which will just cover their mortgage. @Mike M. they are pretty close to the break even point. No, they did not overpay. The neighborhood was nice, but it went downhill after Hurricane Katrina. Yes, they are banking on principle paydown and appreciation and are not sure when or why they think this will happen. @Kris Taylor I tried to help them out; got them a lease off of BP, sent them "The Ultimate Guide to Tenant Screening", and " How to Rent Your House." Sadly, they did not take my advice. Well, it was not really my advice, it was BP's advice.
I am a newbie doing a lot of reading (and looking for my first deal). You can lead a horse to water...... When I asked my Dad if he did a credit check, he said, "No, but I looked at their credit score and it was really good." Also, by "better for the neighborhood" I mean that the past tenants had unruly kids (jumping the fence to swim in the neighbors pool) and left large piles of garbage in front of the house, mattresses chairs etc.
I hope this works out for them. Thank you everyone for your help. It has been a great learning experience for me.
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