Looking for the must haves when Creating Landlord policies.
Working on creating my policies for becoming a landlord in Chicago, IL before i buy my first building because of the highly ambitious goal of having 1000 rental units by the time I'm 40 (which will be in 13 years from now) i understand the fact that i will need to have multiple systems and processes in place to be able to expand at this level. I have been reading Brandon Turner's book on managing rental properties to help me gain some insights to what are the bread and butter things i should have in my policies.
I have some questions that i would like to see how they would directly apply to the chicago market:
1.) How do you deal with section 8 tenants- If you don't accept them when they apply what's your method as a protected class i would want to avoid any possible discrimination but i also don't want any unqualified tenant that won't meet the minimum requirements set for approval.
2.) Would $50 per screening of background and credit checks? I have seen some higher and lower charges as an leasing agent in the city but i want to be reasonable.
3.) Accepting pets- do you charge just a deposit or do you also charge pet rent as well? what have been your experiences pros and cons of allowing pets? If you don't allow pets could you give some insight on why?
4.) Creating a lease- i will be working with a real estate attorney but what are some things that you wish you would have had in your looking back after being in the business for a while?
5.) Things that you wish you would have known when first starting off as a landlord that would have saved you a lot of money and time?
Thank you all for taking the time to read this and looking forward to hearing from everybody.
Hey Nick...
I wanted to share with you an ingenious clause that I have on all my property leases. Some states have a law on jow much you can charge as a late fee, as NC does. So, if I want $800 a month on a property the rent is 825. If they pay before the fifth of the month they get a $25 discount. If they do not pay befor the fifth, they lose their discount and the late fee is calculated, and my state it is 5% max of the rent that is owed. It is the best thing that I've added to the lease and I rarely, rarely get a late payment. $20 doesn't hurt some people, but 50 bucks makes them think!
I also have several section 8 tenants. But they fill out an application in my state just like any other applicant. So you do not need a reason to decline or accept their application so there is no form of discrimination there.
Check with your local laws, I believe all the states are different. Good luck on your goals and if I can help in any other way, please let me know!
Great ideal i believe illinois is also 5% for late fee as well . i will look into adding that since that's one of my biggest concerns is late rent.
the more things i can put in place prescreen, qualify, and scare away terrible tenants the better haha. i know you will have your issues for now and then.
I am in the Chicago suburbs, and so far only have rentals in the Chicago suburbs including Cook County. I would recommend you talk to an eviction attorney who handles the city of Chicago primarily.
I am a member of a local REIA who has had a couple attorneys come and speak about these things, they also had someone from section 8 speak as well. With a membership to that REIA I can go in and see the speech that they taped and uploaded.
That is a great ideal i've been on the fence about joining the REIA in chicago because i have heard a lot of things about it just being about "pitching services" and not giving out a lot of information or have any real benefits. while i do understand not all meetings are the same so it sounds like i just need to go and make the decision for myself. i am sure the networking would be a major benefit at those events that most might not take advantage of.
@Nick Doria , yes, the pitch can be annoying but the REIA I go to has also had those speakers i mentioned who are not pitching anything, as well as speakers who do have a program to sell. Its been worth it from the good speakers and networking with other members who actually own rentals and aren't just wannabes.
Honestly, there are no hard and fast rules on pets, everyone has a different experience. There are lots of threads on BP discussing pets, and things learned being a landlord. Regarding the rest, just make sure you seek out the Chicago info, since Chicago has its own special set of rules, even in addition to Cook county. As far as not getting sued... I am not a lawyer this is not legal advice, but having a written criteria that you stick to, encouraging everyone to apply, giving the same sales pitch to everyone, and being nice and respectful to people goes a long way.
I allow pets but have restrictions. As others have stated, allowing pets opens up a wider swath of potential tenants. As for my restrictions: 2 pet maximum. So 2 dogs or 2 cats or 1 dog and 1 cat. No aggressive breeds. Also no exotic pets, no loud birds, and I place a restriction on aquarium size. For the cats and dogs, $100 non refundable deposit per pet and $10 per pet monthly fee. If you do allow dogs make sure you put into your lease or pet policy addendum that its the tenant's responsibility to pick up after the dog. And if they don't comply that there is an extra charge.
Originally posted by @Nick Doria:
The areas of the city that i'm looking into are in the northwest side of the city so: albany park,Jefferson Park, Portage Park, Edgewater(if a good deal comes along lived there before and i love it there would like in this building if i had one there), and Rogers Park.
You read my mind with your reply on section 8 since i didn't believe you could be forced to comply with section 8 housing standards but with it being such a sensitive subject i want to have a very solid policy on this.
i am in favor of doing a move in fee over a deposit for the specific reason that you brought up deposits cause so many problems when it's time to give them back and people tend to like move in fees since it's easier for them to move into a place since it's normally never more than say like $500 or $600. with your pet fee do you charge a monthly rent amount as well ?
I don't charge a monthly pet rent fee because quite frankly I build it into the price. I charge a bit higher for my units than cookie cutter property management companies who have no pet policies. Tenants with pets WILL seek you out and WILL pay a premium rent.
@Nick Doria min 3x income to rent, clear background checks, no felony's, great references, min 580 credit score
Originally posted by @Joe Splitrock:
@Nick Doria that is great you are working at a property management company and getting your realtors license.
@Jonathan Pliszka I really like your suggestion on charging a move in fee and pet fee. Do you do that instead of deposit or do you do both sometimes? Do you ever find that people are less motivated to leave the property in good condition when they move out, since they have no money coming back?
I'm confident enough in my screening process that I won't run into tenants who would be less motivated to leave the property in good condition. I like to think the folks I've selected would see the reputational risk in doing as such.
Much of what you need to know about successful landlording has been said by everyone here, but I'll throw my two cents in too.
1)Accepting Section 8 - particularly when the tenant is responsible for a portion of the rent- can be risky. This is true if the tenant has not had steady employment income or a stable job history (with the same employer for at least two years). As with any prospective tenant, you can screen out the problem tenants by defining your rental criteria in writing. Give this to everyone, including Section 8 applicants. For example, require a minimum credit score, a ratio of 2 1/2 to 3 times rent to income, a good rental history (no evictions) and so on. And, if a property is not "set up" or "certified" for Section 8, tell them so and they will likely move on.
2) Screening fee of $50 is a bit pricey, so check the laws in your state for what you can legally charge. I only charge the amount required $30-$35 and the tenant pays the fee directly to the third party.
3) Pets can be problems, but you will eliminate a good 30-40 percent of your applicants with a no pet policy. As a compromise, I'd suggest restricting the type of pet and charging "pet rent" instead of a pet deposit. For example, landlord must approve of pet (dogs must be a non-aggressive breed and under 25 pounds. If they question this, say your insurance carrier doesn't allow pit bulls, chows, dobermans, etc.) I'd also request documentation that the pet was spayed or neutered. Personally, I discourage cats because their claws will ruin blinds, shades and curtains and it's impossible to get cat piss out of carpet. Charging pet rent (monthly extra charge of $25-$35) is better than a pet deposit because you can use that to "cure" any damage pet may cause. For you to deduct from the pet deposit, you'll have to prove and document specific damage to unit was caused by the pet and not by something else.
4) A good lease has no leaks or wiggle room in it. Everything is plainly and thoroughly spelled out for both parties. This protects both you and the tenant and will serve you well if you ever have to go to court.
5) Something I wish I'd done prior to jumping in the landlord business is keeping updated with your state's tenant-landlord laws. For one of our tenants we were trying to evict, we served an outdated notice which did not include necessary wording and changes. This error cost us dearly, so KNOW YOUR LAWS AND USE THE RIGHT FORMS.
Best of luck in your investing endeavors and keep us all posted on your progress!
In addition to the fantastic responses others have provided, I just wanted to add, @Nick Doria, that your worries about not having Section 8 tenants even suspect a whiff of discrimination, since they are a protected class, is certainly reasonable.
From the landlording podcasts, I've heard many useful tips that are relevant here for you. The best tip for you is this one: Rather than tell a(n) (Section 8) applicant that they've been denied, you can tell them that, after speaking with their prior landlords (since you should always try to get those references in your screen as well), you weren't able to get a positive reference from them. Then, you ask the applicant if they can help you in getting a positive reference from them. Chances are, they will mumble "Umm, sure, okay" and then you will never hear from them again. Thought that was a clever way to get around actually denying them.
Other than that, I would definitely recommend @Brandon Turner's Guide to Tenant Screening (https://www.biggerpockets.com/renewsblog/2013/01/2...), as it has great best practices that you can replicate as a system across all your units.
Finally, I'd reiterate what @Penny Clark mentions above - have a list of criteria in writing. I also heard this on the podcasts. You can have 12 things on the list (income, criminal history, evictions, pets, etc.) and literally check off which qualification they didn't meet, and then you can show those you do deny literally/fully why. You can use this across all your units systematically.
p.s. I believe this also came from a podcast but some even suggested recording your phone calls with applicants during the pre-screening process, just to CYA. maybe this is a bit much for your liking, maybe not...
Hope this is helpful!
(Sorry, I'm rambling --) Another tip that comes to mind, which was from podcast #94, is a set of questions to include in your PRE-screen phone convo/rental application: "Why are you moving?" (that way you can weed out those who are moving bc their prior rent, which was close to yours, was too high) and "When are you looking to move?" (to avoid wasting time on those that are interested for 4 months out) and "How many people will be living in the apartment?" (to avoid situations where people cram others).
@Nick Doria Love your goals! You've received some great answers to your specific questions, so I'll give you some other things to keep in mind for your policies. I would forego the security deposit and just charge a move-in fee. I still have security deposits on some of my buildings, but initially I didn't realize you're supposed to actually pay the interest annually, not just cumulate it and defer payment until the tenant moves out. There are other rules about separate savings account which are easier to follow, but even that became a bit troublesome.
As others mentioned set your criteria in writing. @Marcia Maynard uploaded a thorough rental criteria that may be a good starting place. This goes beyond just minimum income and credit score and delves a bit deeper into other key factors.
https://www.biggerpockets.com/files/user/Marcia/fi...
John Casmon
Thank you for the reference. I've got some pretty ambitious goals but have finally decided that real estate is what works for me. I'm the type of person that is all in or not really at all. Looking forward to really seeing what I'll get done being fully committed now !
Again thank you everybody who has shared their knowledge all of it has been a major help and just proves that this website is an amazing resource of knowledge.