I know I'm not particularly active on here; I'm pretty bad about keeping up with forums and discussions for the most part. Plus, I've been focused on things other than real estate for a while. But I had some thoughts and figured I'd get a discussion going!
Anyways, I purchased my first property about a year ago. The intention was to move in, do any necessary repairs or improvements, and save up enough for a down payment on another property -- at which point I'd move in there, rent out the current one, and do the same thing over again. Well, I'm pretty much at that stage now, and I'm getting ready to rent out this property before I move out and finally get started being a true real estate investor.
Before I actually start dealing with tenants, I wanted to get a discussion going on here so we could talk about the various things a new landlord needs to do before/when renting to tenants, and to see what tips I could learn from the discussion. I've read the various BiggerPockets guides on the subject, but I'm sure there's a lot more useful information out there! As the "How to Rent Your House" guide says -- I want to make sure I do all of the "pre-landlording" stuff the right way so I don't have issues once the tenants are in there.
Strap in, this is going to be a long post! Hopefully that means there'll be some good discussion, too.
To get the discussion going, here's a quick (sort of) checklist of what seems to be necessary for new investors to get into rental real estate:
- Get a solid lease in place. I've learned a lot about this from the podcasts. You want to make sure the lease states explicitly what is and isn't allowed. For example, if you don't want to be woken up with calls in the middle of the night about clogged toilets, say so in the lease! I took the BiggerPockets example lease, did some research throughout the forums and elsewhere, and expanded it with extra wording and clauses; I still need a lawyer to take a look at it, but that's the next step. I also understand, though, that I'll probably miss things now that I'll learn and add to the lease with experience.
- Are there any important non-standard clauses BiggerPockets feels should be in a lease? I have all of the things in the example lease, and I added extra clauses for things like keeping track of keys and locksmiths, burning candles and grills safely, cleaning and lawncare, an expanded clause on not clogging drains, no pools, etc. There have been other discussions on this topic, but there may be things worth mentioning anyways.
- It's a generic lease (as in not specific to my property), and I'm willing to share what I've got so far if anyone's interested (with the disclaimer that it has not been reviewed by a lawyer, of course!)
- In the advertisements, I should be up-front with all screening requirements. For example, if they need 3x rent, I should say that in the ad. That way, I won't waste my time or the applicants' time interviewing/screening people who don't meet requirements (or at least, I'll reduce the number of applicants who apply but don't meet requirements!). Additionally, I need to come up with an application (that lays out each of these requirements) and take an application fee to cover the cost of credit reports, background checks, etc.
- How much should I take as an application fee? I've never had to pay a fee when renting an apartment in the past myself, though I've heard of $20 to $50. How much does it typically cost to do all of the screening stuff, or does it vary? These are all things I'll probably go and research after I post this, but it's worth bringing up here for the sake of discussion.
- Screen tenants thoroughly! The infographic seems to be a great resource for how to do this. Is there anything else to note that isn't mentioned in that infographic? Also, what does everyone use to do credit reports/background checks? I was looking at the tool here on BiggerPockets earlier -- that seems new! I assume it's probably well-liked here?
- I've read/heard things like "look at how they maintain their cars when you interview them" and such. Are there any other similar tips the pros/experienced might have for us beginners when it comes to interviewing applicants?
- When signing the lease, I plan to sit with the tenant and go through it pretty thoroughly to make sure they understand it. I know a lot of landlords will just try to get them to quickly sign, feeling like it's just paperwork or to try and sneak things in, but I feel this is one of the most important parts. For example, I want to give them a Google Voice number and an email address to send maintenance requests to, but also provide an emergency number. I don't want them calling me in the middle of the night for silly things like unclogging a drain. So I want them to understand 1) don't use the emergency number for anything other than emergencies! 2) what constitutes an emergency? As stated in Aaron Mazrillo's podcast -- don't call me if the house is on fire. I can't help. Call 911. Same for a burglary or crime. Call 911 -- if the police want to talk to me, that's fine, but otherwise I don't need to know about it until I check voicemail the next day, because there's nothing I can do about it. Power problems and running water are also not emergencies -- I plan to show them where the water main is, where the fusebox is, etc. and let them know if something breaks, turn it off and I'll get it fixed the next day. Again -- nothing I can do in the middle of the night, since I would need to call a repairman and I can almost guarantee he wouldn't answer in the middle of the night!
- Thoughts? I know this is a divisive issue on the forums. This question could probably warrant a post of its own -- but what do you think would constitute an actual emergency? What is something that could happen that I would need to come over and fix immediately? I feel like those issues have to exist, but I can't think of any where it wouldn't just make more sense to call 911 (because that's what I would end up doing anyways) or wait until business hours.
- As far as the power/water problems and showing them the water main/fusebox -- any other important examples of similar things?
- Speaking of repairmen, I feel like I should at least have an idea of who to call for various issues that might come up. I've got a good friend whose dad has owned rentals since before I knew him, and who self-manages. I found all of this out fairly recently (I had met his mom earlier, but didn't even meet his dad until the later years in college, and have seen him rarely since then). I want to have a lengthy discussion with him at some point about his strategies, but in the mean time I plan to see if I can find out who he calls to do maintenance/repairs when issues come up.
- I plan to manage this property myself, since it's just one property. Hiring a property manager for a single property seems unnecessary, and I think the experience would teach me a lot. As I accumulate more properties, I hope to either 1) learn by doing and systematize the process -- I'm a software engineer by trade so systematizing things seems right up my alley; or 2) hire a property manager once I get to scale, at which point it makes a lot more sense to do.
- As far as rent prices go -- I plan to advertise with rent rates on the higher end of the market price and alter them as time goes on if necessary (if I get no good takers, I can reduce prices and see how that changes things). The property itself is pretty nice, so I would think it would go for the higher rent rates -- my only concern is timing, since I imagine it'll be a family that moves in, and the school year has already started. I guess we'll see; I plan to cast the net and see what happens, since I'm not really in a huge rush -- I'm living there currently anyways so if it takes a little longer to get a tenant, it's not like it's going to kill my finances, although I would like to get started sooner rather than later! That's probably not true for most beginners -- it just happens to be my personal situation.
- Speaking of timing -- since I'll probably end up with a lease that begins in the fall (mid-schoolyear) I plan to offer a lease with a non-standard term that ends in the summer sometime (rather than a 12-year lease where, if the tenant moves out at the end, I'm back in the same position I'm in now, except with extra expenses, since I'll have to move somewhere and end up with another living expense!) I intend to explain that this is probably good for both parties -- if they want to move out between school years, they can, and if they do, I can fill the vacancy more easily. If they want to stay after the lease expires, I'll do the standard 12 months at that point.
I guess this post ended up with me sort of laying out my own plans, but I did put up a few questions! So... thoughts? Any beginners have any questions to add? Any pros want to critique my strategy/answer questions/tell me I'm wrong and I suck?
EDIT: Ok, apparently <ul>s and <li>s don't work on the forums. This was supposed to be a bulleted list; I hope it's still readable!
I also develop software and manage 7 rentals of my own in my spare time. I think that maybe you're over-thinking the complexity of being a landlord. I would concentrate on the following:
1) Learn the process to evict non-paying tenants. If they stop paying you and also refuse to leave, what will you do?
2) Learn basic home repairs such as installing a toilet, sink, flooring, repairing drywall, changing locks, painting. This way you can gauge whether a repair would be more cost effective to do yourself and also whether someone is asking for too much to perform a certain task.
3) Have a plumber, HVAC person and exterior person on call who you can trust to work independently at a fair rate.
4) Learn how to advertise your rental effectively and to screen applicants quickly so that your rental does not stay vacant long.