Rental properties: Your first steps?

21 Replies

I have a good friend closing on his first property today, a 4-plex in a lower income area outside of philly, he will be self-managing. I am trying to put together some first steps, but being only part-time myself, wanted to get some input. I didn't realize he had moved ahead with this property until I got a text this AM that he was closing, or would've gone over stuff more gradually! He really needs a win on this, and it will be helpful for me to have this input for next time too! If there are other threads or resources to check out, please let me know...

My most immediate question is about running credit on applicants as he has two vacancies and has asked me about this. I have my tenants pull their own reports from a free site. I haven't been able to figure out how to run credit. The companies I looked at for running credit seem to require some verification of your business/office address, or some such thing? How does a person working out of their home run credit??

What I have so far:

- Join BP! :-p check out landlord/tenant articles and threads

- An introductory letter to tenants covering where to send rents and maintenance requests (reiterate lease terms for late payments? anything else?)

- Business/rental license

- Transfer utilities (did I read somewhere that it's a good idea to take pics of the meters?)

- Get landlord insurance

- Find out when trash fees and taxes are due

- Inspect all units, list any repair needs, appliances, mechanicals, age and condition; check smoke detector batteries and for leaks (take pics?) (I believe he did have a home inspection, and I imagine a walk-thru today, but still feel this is important to do...)

- Create a budget

- For the vacancies: Address any repair needs, create ads, screen tenants, create leases

- He lives a bit far from the apartment, I'm going to STRONGLY advise him to try to find a nearby property manager who will be on-call for repair emergencies. Any thoughts on locating someone to take just this aspect of the job?

What am I missing???

Look into National Tenant Network.  I haven't used it yet myself, but know some people that do use it.

Hopefully he is a little more prepared than it would seem from the post.   

A few more things:  

He needs a good lease of course that is state specific.  

I use ctcredit.net for credit reports.    

Read all the BP written info on tenant screening.

If he hasn't read Landlording on Autopilot by Mike Butler, I would recommend it. 

All the best to him!  

Originally posted by @Nancy Larcom :

My most immediate question is about running credit on applicants as he has two vacancies and has asked me about this. I have my tenants pull their own reports from a free site. I haven't been able to figure out how to run credit. The companies I looked at for running credit seem to require some verification of your business/office address, or some such thing? How does a person working out of their home run credit??

I wouldn't trust an applicant to "pull their own reports" because you'll have no way to know if it's been manipulated and/or even complete.  Ideally, you'll get setup to pull your own reports so you can do it yourself and get the full/detailed reports immediately and not have to wait on anyone else to provide them to you.

There are a lot of different companies you can do this through.  However, they will all require a site verification since that is the law (Fair Credit Reporting Act) and also required by all three major credit bureaus. 

It's not that difficult to get setup and you don't have to have a business office to do this.  You can do it out of your personal residence.  The site inspector will just check to make sure you have a few basic things (i.e. a locked door for the premises where credit reports are accessed and stored, a locking filing cabinet to safeguard the reports, and a shredder to destroy reports no longer needed).

I'd recommend anyone who plans on doing landlording long-term to do this. 

Hope your friend does well.  I don't know what you consider "lower income" areas, but if there are bars on the windows, graffiti, cars parked on lawns, etc., hmmm, he may have a tough time with finding anyone with decent credit who's willing to rent his place.

That said, yes, running credit if vital.  I use CreditLink, but I believe BP also has some sort of credit thing as well.  You're right, the companies who give you credit reports are required to see your place of business (even if that's your house); that's a federal requirement, no way around it.  When we set it up, we just had them come to our house, they verified we had a paper shredder (for disposing of sensitive docs) and a locking file cabinet (for storing sensitive docs), that was about it.  Pretty simple.

Also important to verify their current income (call the employer), and call their current landlord to see how they've been as a tenant.  Some landlords will lie and say the tenant's great just to get rid of them, but some will be honest if the tenant's had issues.

That's all I can think of at the moment, you have a pretty good list so far.

Some one in a podcast mentioned Resident Research. They pull the reports and call the previous landlords

Thanks all! Will pass along the well wishes (and direct him to this thread). :)

Another question for you all on application procedures: I typically TRY to get a completed application, credit info, pay stubs, plus a check for security deposit at the time of the showing from any interested tenants. I then destroy the check if I can't approve the tenant. If I do approve them, I call them to congratulate them on approval, set up a time for lease signing and collection of remaining funds, and let them know their check will be deposited. I do things this way to "strike while the iron's hot", minimize the back and forth, and get the deal sealed asap. Is this in line with what others do, and anyone see an issue with collecting that deposit check prior to approval? I think it would make *me* a little nervous if I were a tenant to write any checks prior to lease signing, but no one has ever raised an eyebrow at all...

@Jonna Weber     I too would hope that he has at least some of this in place, but I really want to see this go well for him, so want to make sure I've got good actionable steps for him, all the bases covered, and that I give him the best possible guidance! Thx, for the book suggestion -- I will probably check it out myself... Also, will set him up with the PA Standard Residential Lease, which I've found to be very good and comprehensive.

@Kyle J.    and @Kimberly T.    Agreed! Thanks for going over that. I picked up the habit of taking self-generated credit reports during a stint as a real estate agent, but we were dealing mostly with high end renters with good credit/income and did this because the company found it efficient. I do think it would be hard for a tenant to have both the technical savvy to convincingly doctor a PDF and the financial savvy to know how to change the report and score in a way that would make sense. Nonetheless, now that I understand how, I will definitely set up to run credit myself (and advise my friend of the same)!

Also, as @Kimberly T.  points out, he may well end up with nothing but tenants with poor credit. Do people have any tips for differentiating between bad credit tenants who pay their rent on time and those who don't?? I know to call previous landlord, but my concern has always been that as Kimberly points out, they might not be honest about tenants who they're trying to get rid of. I do charge first month's rent, last month's rent, and security upfront for marginal credit cases (whereas I do not tend to collect last month's from those with good credit)... Any other tips on evaluating or mitigating risk on bad credit applicants?

I have a duplex that has gotten mostly poor credit applicants, but I have a long term renter in one unit, and was fortunate to find a tenant with reasonable credit (a fair amount of debt, but not a single missed payment) for the other unit. I don't know what I would have done otherwise, because I got several more application on the unit, but each had worse credit than the last. They seemed like they just don't pay anything on time ever! How could I rent to a tenant like that?

Originally posted by @Nancy Larcom :

Thanks all! Will pass along the well wishes (and direct him to this thread). :)

Another question for you all on application procedures: I typically TRY to get a completed application, credit info, pay stubs, plus a check for security deposit at the time of the showing from any interested tenants. I then destroy the check if I can't approve the tenant. If I do approve them, I call them to congratulate them on approval, set up a time for lease signing and collection of remaining funds, and let them know their check will be deposited. I do things this way to "strike while the iron's hot", minimize the back and forth, and get the deal sealed asap. Is this in line with what others do, and anyone see an issue with collecting that deposit check prior to approval? I think it would make *me* a little nervous if I were a tenant to write any checks prior to lease signing, but no one has ever raised an eyebrow at all...

@Jonna Weber     I too would hope that he has at least some of this in place, but I really want to see this go well for him, so want to make sure I've got good actionable steps for him, all the bases covered, and that I give him the best possible guidance! Thx, for the book suggestion -- I will probably check it out myself... Also, will set him up with the PA Standard Residential Lease, which I've found to be very good and comprehensive.

@Kyle J.    and @Kimberly T.   Agreed! Thanks for going over that. I picked up the habit of taking self-generated credit reports during a stint as a real estate agent, but we were dealing mostly with high end renters with good credit/income and did this because the company found it efficient. I do think it would be hard for a tenant to have both the technical savvy to convincingly doctor a PDF and the financial savvy to know how to change the report and score in a way that would make sense. Nonetheless, now that I understand how, I will definitely set up to run credit myself (and advise my friend of the same)!

When we take applications, we just accept a completed app and nothing else (don't accept incomplete apps).  We run credit, verify income, etc., and once we approve an applicant, we call them and tell them they've been approved but need to give us a holding deposit for us to take the unit off the market (we continue showing the unit and accepting apps until we get the holding deposit, and tell the approved applicant this).  For the holding deposit, we only accept cash, cashier's check, or money order. No personal checks, because those can bounce.  The holding deposit is typically several hundred dollars, and we're willing to hold it vacant for them up to 2 weeks without rent (lots of people want to get a place lined up while they're still renting somewhere else, and we feel this is a good compromise to let them get close to the end of their current rental agreement so they aren't stuck paying double rent for a month).  We give them a memorandum of understanding as a receipt, which includes some basic info about the rental (the holding deposit is credited toward first month's rent, their names, the unit address, the agreed-upon move-in date, the rent rate, the required security deposit amount, the remaining balance owed prior to move-in, etc.), and we all sign it.  We set up a date/time to go over and sign the rental agreement and collect the balance due (first month's rent + security deposit).  Balance due should also be cash, cashier's check, or money order so you don't hand over good keys for a bad check.  When we hand over keys at move-in, we walk them through the unit and show them how to do stuff (turn on heater, turn off valve if faucet is leaking, etc.).

That is how we operate, obviously others will have different methods.

One thing I thought of, make sure your friend knows about the lead paint legal requirements if the property was built prior to 1978.

Originally posted by @Nancy Larcom :

Also, as @Kimberly T. points out, he may well end up with nothing but tenants with poor credit. Do people have any tips for differentiating between bad credit tenants who pay their rent on time and those who don't?? I know to call previous landlord, but my concern has always been that as Kimberly points out, they might not be honest about tenants who they're trying to get rid of. I do charge first month's rent, last month's rent, and security upfront for marginal credit cases (whereas I do not tend to collect last month's from those with good credit)... Any other tips on evaluating or mitigating risk on bad credit applicants?

I have a duplex that has gotten mostly poor credit applicants, but I have a long term renter in one unit, and was fortunate to find a tenant with reasonable credit (a fair amount of debt, but not a single missed payment) for the other unit. I don't know what I would have done otherwise, because I got several more application on the unit, but each had worse credit than the last. They seemed like they just don't pay anything on time ever! How could I rent to a tenant like that?

I wish I could help with this, but I just don't know.  We absolutely will not rent to anyone with poor credit, but we don't buy in the "bad" areas.  We don't have high end rentals by any means, just moderate, middle income stuff.  Hopefully someone who rents to lower income tenants can help you.  Some will probably suggest accepting Section 8, which we won't do, but obviously some landlords like it.

@Kimberly T.  Thanks! I like that procedure. I typically try to collect everything as fast as possible, but of course not everyone can come up with that extra $$ to easily when still paying on their current place, so often end up taking things in installments. I think what you suggest is a great option as well that I will add to my possibilities for structuring things depending on the circumstances... I typically do take personal checks, but only if there is time for them to clear before giving keys!!! 

Also, THANK YOU for the reminders on what to do during the new tenant walk thru and about the lead paint pamphlet! I new I was forgetting something! I also take pics or video of condition during that walk thru and ask them to note any damage. 

I use - Quick Check Credit Reports - http://www.thelpa.com/lpa/QuickCheck.html

They are pretty reasonable in cost and provide Transunion reporting.    

Make sure the application is good for the state its being used and has provisions in it to run background and credit checks.  Also make sure its also legal to collect Application Fees. Some states do not all app fees. 

As for the property manager, depending on size he can get away with just a handy man type of person that can be called on to service the property.

@Kimberly T.  actually Section 8 might be an idea for him for the future.... Hadn't thought of that!

Another one I missed: An expense tracking system. I went about 2 years without a good system for this before I figured it out! lol

Originally posted by @Nancy Larcom :

@Kimberly T. actually Section 8 might be an idea for him for the future.... Hadn't thought of that!

Another one I missed: An expense tracking system. I went about 2 years without a good system for this before I figured it out! lol

Make sure he does some thorough research on all the pros and cons of Section 8.  There is a big reason (well, several reasons, actually) why many landlords will not accept it.  He can search threads here on BP about it.

@George Paiva  Thanks! Good idea about the handyman type, especially if one can be found who is willing to get out of bed at 2 am for an overflowing toilette. :) That really seems like the right solution to me. I'm sure one can be found even if at a bit of a premium for those inconvenient emergency situations. 

@Kimberly T.  Will do for sure! I don't accept it myself, though I only have the one property where it might make sense....

@Nancy Larcom   I remember hearing on one of the BP podcasts someone mentioning that they like to check not only the applicant's current landlord, but also their previous one.  This is because the current landlord might say anything to get rid of them, so you are more likely to get accurate information from someone who doesn't have a vested interest in just getting rid of an unwanted tenant.

Also, an unplanned visit to the current address might yield some valuable insight into how they treat the property.

@Julia Rowling  Thank you! Great tip!!! Of course that info wouldn't be as current as the current landlord, but I think all these things help paint a picture. 

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