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Hello,

Me and my wife are about to close on our first house that we will use solely to rent out. I wanted to ask about the best way / method to get a professional rental agreement put together and any advice on the tenant screening process. Like should we use the Smartmove method?

Attorney would be my vote.  I have one in the family so its easy for me to say though.  

I would talk to a professional property manager in your area for advice.  Maybe the injured @Engelo Romero. (sp?) He is all over your area and did a great podcast for BP!

Jeff and Steve. Thank you for your responses. Have you ever heard about anyone using Legalzoom to get a state specific agreement done?

I would agree with @Steve Vaughan  I kind of straddle the fence since I am an active investor and also own a property management company. I have learned that there are alot of things that you can do wrong that can be financially fatal. The biggest reason and problem is that most investors ( I was included in this when I started) do not take the time to create a solid business plan for their rental property business. They do not create policies or procedures to ensure their success. Remember if you own 1 property or you own 50 you are a business. IRS, Fair Housing , Discrimination laws all say you are. The number one reason people fail in this business is they do not treat their rentals like a business (and yes I was on the verge myself).

Either create a successful business model that your are not only going to follow but enforce or partner with a property management company that can help guide you. If the difference of a property owner is $3-$4 dollars per day to spend on property management then maybe the acquisition price should be lower to factor that in for then next purchase.

@Johnny Powers   I would avoid the mass marketed, prepackaged rental agreements. I would also avoid using the ones that can be purchased ready made at the office supply stores. However, you can glean some good ideas from them to incorporate into your own. 

The best route, being that you are new to this, would be to hook up with some local landlords who are good at what they do. Especially those who have similar properties to yours. See if you can borrow their rental agreement and modify it for your own use. Join a local rental association of like minded landlords.... many will offer legal documents (such as rental agreements, notices, etc.) to their members, for free or for a nominal price. Look at the many examples you can find in good landlording books and from big apartment complexes in your area, then glean what you can use from those as well.

@Engelo Rumora  of Ohio Cash Flow may be able to offer you assistance, as @Steve Vaughan  mentioned. His energy is also likely to pump you up!

For tenant screening... establish your rental criteria, tenant screening questions and use a good rental application that will get you the answers you need. Doing so will help you ferret out the good prospective tenants from the bad ones. We've uploaded our Rental Criteria and Tenant Screening Questions into the BP File Place. Take a look at them and modify them for your own needs if you wish. You can find them under the Resources Tab - File Place - Other Documents. 

Now that you have found Bigger Pockets, learn as much as you can from the Learn Tab, listen to Podcasts, read Forums and Blogs. Also, type what you are looking for in the Search the Site box... as you will find the answers to most of your questions here. Happy Investing and Happy Landlording!

Regarding tenant screening I currently use the built-in tenant screening on Appfolio however I have also used Verifirst in the past. Verifirst might be better for you since you're only screening tenants for one property. The customer service at Verifirst was definitely on point. 

Feel free to PM me if you have any other property management related questions!

Originally posted by @Steve Vaughan :

I would talk to a professional property manager in your area for advice.  Maybe the injured @Engelo Romero. (sp?) He is all over your area and did a great podcast for BP!

Thanks for the mention Steve ;)

Originally posted by @Marcia Maynard :

@Johnny Powers   I would avoid the mass marketed, prepackaged rental agreements. I would also avoid using the ones that can be purchased ready made at the office supply stores. However, you can glean some good ideas from them to incorporate into your own. 

The best route, being that you are new to this, would be to hook up with some local landlords who are good at what they do. Especially those who have similar properties to yours. See if you can borrow their rental agreement and modify it for your own use. Join a local rental association of like minded landlords.... many will offer legal documents (such as rental agreements, notices, etc.) to their members, for free or for a nominal price. Look at the many examples you can find in good landlording books and from big apartment complexes in your area, then glean what you can use from those as well.

@Engelo Rumora of Ohio Cash Flow may be able to offer you assistance, as @Steve Vaughan  mentioned. His energy is also likely to pump you up!

For tenant screening... establish your rental criteria, tenant screening questions and use a good rental application that will get you the answers you need. Doing so will help you ferret out the good prospective tenants from the bad ones. We've uploaded our Rental Criteria and Tenant Screening Questions into the BP File Place. Take a look at them and modify them for your own needs if you wish. You can find them under the Resources Tab - File Place - Other Documents. 

Now that you have found Bigger Pockets, learn as much as you can from the Learn Tab, listen to Podcasts, read Forums and Blogs. Also, type what you are looking for in the Search the Site box... as you will find the answers to most of your questions here. Happy Investing and Happy Landlording!

Thanks for the mention and kind words Marcia :)

Have a great day.

If this is your FIRST rental property, then I would strongly urge you to use an Investor friendly Real Estate Attorney to draw up an Investor Friendly Lease Agreement that he/she can defend in court. Once this document is created, then you can sleep good at night knowing a professional who understands the Investment World not only prepared the document you are using but will also have to defend it if need be.

I would NOT use a Local Club or some other Investor's document or a generic lease form from Staples/Office Depot or Legal Zoom. Don't start off on the wrong foot or in someone else's shoes that you don't know the history of where they were made. Who will be there to defend you and that document? That REIA Club...NO, that other Investor...NO, Legal Zoom...maybe, BP...NOPE

Tenant Screening can then be completed by the Management Company that you are or should be using. Many people think they can manage their own properties, even a single family house, but without knowing about actual Management Responsibilities, it's not advisable. You be the Investor and let the Professionals handle the rest and you can deduct the cost of their services as a Business Expense. If the Management Company puts in a bad apple tenant, then they will share some of, or all of, the expense of removing that tenant and getting a new tenant in the property (depending on the terms of your management agreement which should also be reviewed by your Attorney). 

Make your first rental a pleasant experience... don't try to do what you DO NOT have the knowledge/experience to do. A couple Pod Casts, 3-day boot camp or book reading isn't enough to handle the duties alone... 

Real Estate Investing is a Team Sport... Build and USE Your Team!!/

Congrats on your first place and Good Luck!

All,

Thank you very much for all of the info! It is greatly appreciated. So, overall opinion is I should use a property management company? If I do, can I deduct their fees as a business expense? @Engelo Rumora  Any advice for a Toledoan my friend? Thanks again everyone!

Originally posted by @Johnny Powers :

All,

Thank you very much for all of the info! It is greatly appreciated. So, overall opinion is I should use a property management company? If I do, can I deduct their fees as a business expense? @Engelo Rumora Any advice for a Toledoan my friend? Thanks again everyone!

Thanks Johnny,

You definitely want to be setting up your Real Estate ventures as a business that works for your instead of you working for it.

Establish a relationship with a good PM in Toledo (all dependant on the location) and get them to look after management of this property and all others to come in the future.

When building a house the foundations need to be strong, same as when building business.

Buying rentals should be considered the same as running a business. Surround yourself with good people that can do the things that you can't or don't want to.

My 0.2 Euro's haha :)

Thanks

Johnny,

Congrats on closing on your first rental property! I agree with the comments above, a professional is definitely the way to go! If you plan on staying in the area, near the home, you may be able to find an assistant or virtual assistant who can help you with the admin side of renting the property. This route is generally less expensive than the property management company HOWEVER, this option only works if you want to be a hands on landlord. This provides you with a lot of decision making power but can also come with a lot of headache. A property management company can help with all aspects of managing the property by removing you from the middle, therefore, removing the stress.

Good luck!

Jasmine

@Johnny Powers  I'll go against the grain here and state that even the best PM company in Toledo rates a C+ at best.  You'll learn far more on this first rental by doing everything yourself.  You should know what goes into managing property, dealing with basic repairs, calls, etc. before you hand over to a PM.

You're a local and unless there are some other circumstances that have not been stated, you should manage this first one (and I would recommend every one after).

Also note, in Toledo, it's typical for PMs to take a full first month's rent for tenant placement and 10% monthly there after.  Your tenant is on a one year lease and if they leave after that one year, you just paid 20%+ of your gross rents to a PM.  On a property that rents for $600-850/mo, which is likely your market, this hurts bad.  After taxes (which are damn high), insurance (probably high too as your property likely isn't a recent build), repair fund, maintenance, vacancy, etc...your cash on cash will be <6%

If you're financing, you'll be breaking even at best and more probably cash flow negative.

If you really want to be hands off, maybe landholding isn't the best use of your funds.  Property management companies, especially in the Toledo market, need a lot of managing themselves.  I enjoy it, slightly, but if you're looking for a hands off ATM machine, I think you'll be disappointed.

A good game plan for you would be to pick-up a few rentals, screen and install good tenants and then hand the rent collection and 2am clogged toilets over to a PM.  You'll save on the leasing fee (that first month rent payment) as you found the tenant and you'll just have to pay the 10% of rents.

This is a single family home, yes?  In a decent neighborhood?  This shouldn't be hard to manage.  And if it is hard to manage, your local pool of PM companies won't handle it any better than yourself.

@Marcia Maynard  self manages a lot and her posts (and podcast) are gold.

Property Management Fees are tax deductible if your business and property are set up correctly. Just like Attorney Fees are and CPA/Accountant Fees are so long as your business is structured properly and governed accordingly.

If you can't afford a PM, then your margins are too tight and your deal may not be a deal after all. PM's typically due charge between 8-10% and sometimes do take the first months rent to cover advertising and related expenses BUT all of those fees are Negotiable and in-fact should be Negotiated to best suit you and your property. You can also enter into a Full Management Agreement or an Ala-Cart Style Agreement. I suggest you start with Full and then, if you want to be more active, transition into Ala-Cart once you become more educated and comfortable.

Biggest mistake new investors make is trying to do everything themselves to save a dollar thinking they know it all and the old Learn as You Go motto usually has them stressed out over the entire deal OR worse yet, has them set for failure out of the gate. I know I would NOT invest my Money into a New Investor unless they had, and used, a Team of Professionals to assist and work with them as they get started and re-invested in themselves with some knowledge to enable growth as they go down the Yellow Brick Road.

A Management Company can help you learn in a safer environment and, depending on your negotiation skills, can sometimes share the burden of some expenses.

Wealthy people use Professionals to protect their wealth which in turn gives them back their Time to do what they do best...find the next deal to get into. To Wealthy Folks, TIME, KNOWLEDGE and RESOURCES matter more than the cost of Professional Guidance and Wealth Protection.

Just Saying....Be Smart, not Cheap :)/

@Johnny Powers  I provided you advice based on my local experience with Toledo property management companies and the Toledo market as a whole.  I think you're better on your own, at least for this first one.

This first one is a learning experience, no matter if you have a property management company in place or not.  I'm of the opinion that you maximize your learning and save a good slice of your margins along the way by being 100% hands on.

While @Fred T.  provides some generic numbers that do not reflect the Toledo property management market (again, my numbers come from actual experience with the local PM firms), I do think his method of going full-on with a PM first, let them get the first property setup, observe and then slowly taking the reins from there, as you feel comfortable, is another way to approach it.

However, judging from the quality of PM I've dealt with in Toledo and knowing how much work I have to do to manage them, I'd still lean to going 100% hands on yourself.

My opinion only based on direct experience. 

I really appreciate everyone's info and opinions. I love the fact that you all are willing to speak up and try to help me and my wife succeed. I can't thank you all enough for helping us out. THANKS everyone!!

Originally posted by @Fred T. :

If this is your FIRST rental property, then I would strongly urge you to use an Investor friendly Real Estate Attorney to draw up an Investor Friendly Lease Agreement that he/she can defend in court. Once this document is created, then you can sleep good at night knowing a professional who understands the Investment World not only prepared the document you are using but will also have to defend it if need be.

I would NOT use a Local Club or some other Investor's document or a generic lease form from Staples/Office Depot or Legal Zoom. Don't start off on the wrong foot or in someone else's shoes that you don't know the history of where they were made. Who will be there to defend you and that document? That REIA Club...NO, that other Investor...NO, Legal Zoom...maybe, BP...NOPE

While the note of caution is good, you can not assume the documents available from a local rental association or from other real estate investors have not had proper legal review. It is wise to have whatever contract one uses to be written or reviewed by an attorney knowledgable in landlord-tenant law for the jurisdiction in which it will be used.

Our local rental association in Vancouver, WA has a legal advisor who is an attorney who specializes in landlord-tenant law. Our previous advisor is now a sitting superior court judge in our county and is educating the other judges on this area of law. That bodes well for us and the documents that have come out of this "club".  I know the rental association in Portland, OR also provides quality documents drawn up and/or reviewed by attorneys. These contracts, from both sides of the river, have a history of standing up well in court.

We want the legal documents that we use to not only stand up well in court if need be, but more importantly to provide a framework of clear understanding between ourselves and the tenants we serve.... an agreement that can actually be used effectively by all parties to create and maintain a successful tenancy.

@Johnny Powers  , I am a full time landlord in Toledo. I own and self-manage about 180 units by myself. I'd be happy to help you out in any way I can. I own in good and bad areas and have made just about every mistake one can make. 

I agree with @Sam B.  that you should self-manage at first, especially since you are local. You can always hand off to a manager down the road, but then you will at least have management experience and will know what your PM should be able to accomplish based on your own experience.

I will tell you that property management is not very difficult as long as you do the hard part first, which is properly screening your tenants. Every year I go back and review every single one of my units. With each and every unit the profit is directly related to the tenant that was in the unit. A good tenant means good profit, a bad tenant means lots of repairs, poor collections, eviction costs, vacancy, vandalism, etc. Putting together a good screening process is the key. You can even be profitable in bad areas if you screen properly (although it's much harder and riskier and I wouldn't recommend it).

Feel free to contact me anytime. I can take you through my screening process and answer any other questions you may have.

@Johnny Powers I used legal zoom to set up my LLC as well as my OH lease agreements. They have worked well so far.

I have recently purchased some properties already rented and plan to incorporate some of the good points in these existing leases to add to the current legal zoom lease. Building on experience...

Good luck!

In my area it's difficult to even get a PM to return a call or email when you are offering to bring your properties to them.  I could only imagine the level of neglect once you sign a contract with them.  

As for the lease, I went to some local PM companies and got a copy of theirs.  I copied it and added additional clauses I wanted in there.  

Maintenance - fix it yourself, call a handyman or repair company and pay to get it fixed.  

Place good quality, boring tenants, and you will wonder why anyone pays for a PM when they live locally.

Thanks Brandon! I appreciate your response.

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