Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
Over the past couple of years we have focused mostly on flipping houses in Arizona. But starting this year, 2017, we are now starting to pick up rental properties that we are turning into lease options. So far we have picked up 4 properties in Arizona that we have lease optioned and we have 4 more that are in the various stages of rehab and coming to market.
As a fairly new landlord, what I would like to know is what have been the very best tips that have helped you the most when you started out as a landlord?
On the acquisition side, it took me a long time to fully understand cash flow calculations. How to properly forecast costs for repairs, maintenance, CapEx, vacancies, and even learning that I needed to include property management costs even if I were managing the property myself.
On the management side, the two most important things are tenant screening and tenant retention. Turnovers are where you lose money as a landlord, so those two tasks become the highest priority.
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Landlords that want to have maximum control over their properties only use M2M leases. There is zero advantage for a landlord to have tenants on term leases.
Once you have a tenant you will then be dealing with 101 tenant issues. The key to dealing with every different issue is to make all decisions based entirely on what is best for the business. Separate yourself from the fact that you are dealing with individuals and deal with the issues by strictly enforcing the lease, give notice immediately and never keep a bad or difficult tenant. There are 9 good tenants for every bad one.
Bad tenants are created by their landlords having not initiated strict training practices. When rent isn't received on the 1st the tenant receives a pay or quit notice on the 2nd.
Landlords that place a priority on avoiding turnovers end up living with bad tenants and ultimately become bad landlords.
@Robert D. that's a good tip about the bugs. We just found bedbugs in one of our properties and we are needing to spray both sides of the duplex to get rid of them.
3. Have a set of rules for your tenants follow them.
4. If you want to do charity and help some one don't make them your tenant. Help them give them money or help them in any other way. Just do not help them by putting them in your property. It always come back to bite you.
5. Only sign 2 year leases minimum.
6. Tenants like an employee. Set the ground rules from the min they make contact. If you are firm but fair you will attract people who will fit that mold. If you compromise then you will keep running into goofy tenants.
7. If you fail to screen and train your tenants then you tenants will own your investments rather than you owning the investments.
Couldn't agree with most of these any more ... especially 1&2 ... don't be a cheapskate on acquisition, spend the money to buy quality properties in quality locations and 90% of your landlord headaches will go away. The only one I disagree with is #5 ... I am on month-to-month for all my tenants. If a tenant wants to leave, they are going to leave, doesn't matter if they are month-to-month, 1 year, or 2 year lease ... on the other hand, if I want a tenant out or want to raise rents or adjust any other terms of my lease, it is much faster and easier with month-to-month. In other words, a 2 year lease protects your tenant more than it protects you the landlord IMO.
Month to month does not make sense based on my business plan but if it work for that work.
With our tenants our goal is 1 turn over in 5 years. 65% resign after 2 years. If they sign for another 2 years we offer no rent raise along as it reasonable. Now we are up to 160+ properties have scaled up. Over the past 6 years I went from 1 year lease to 2 year lease now we have some 3 year leases. Less that 2% of the entire portfolio is 1 year leases.
I am absolutely against turnover of tenants. I have heard about month to month leases so if that work for some land lords great.
Month to month does not make sense based on my business plan but if it work for that work.
With our tenants our goal is 1 turn over in 5 years. 65% resign after 2 years. If they sign for another 2 years we offer no rent raise along as it reasonable. Now we are up to 160+ properties have scaled up. Over the past 6 years I went from 1 year lease to 2 year lease now we have some 3 year leases. Less that 2% of the entire portfolio is 1 year leases.
I am absolutely against turnover of tenants. I have heard about month to month leases so if that work for some land lords great.
I think my average stay is over 3 years ... and they are all on month-to-month leases. Just because they are on a 2 year lease doesn't necessarily mean they will stay 2 years any more than they will leave after a month if they are month-to-month. From my experience and opinion I don't see much direct correlation between lease term and duration of stay. That is my point. YMMV.
@Andrew Holmes I also agree with all your points as well except #5. Term leases only benefit tenants. All my tenants are M2M, would not have it any other way. M2M allowes full control by landlords and tenants are much more forthcomming with their plans knowing they will not be breaking a lease. Usually plenty of advance notice.
A term lease has no bearing on how long a tennat will stay, tenants do not respect leases and have personal lives that are not governed by a term lease. There is no direct correlation between lease term and turn over. Tenants will stay or go regardless of the lease but with M2M the landlord controls if they must go.
A term lease assumes a tenant will be good, that is not rational and counter to good business planning.
For me buying and holding real estate falls into two buckets; 1) Acquisition of the property 2) Management of the property. During the acquisition take your time and look at what other investors are charging for rent and around what they purchased the property for in an area that has a high demand for rent. Develop a formula that you can quickly input numbers that lets you analyze deals fast. Make sure you take into consideration Vacancy loss, CapEx, Maintenance on the property and property management. (CapEx can be tricky so I always assume the worse, here's how I calculate it; (Cost of roof/Life of roof) + (Cost of painting/Life of painting) = Annual amount needed / 12 (months in a year) = Monthly amount needed.) If the numbers work out and you're making money, put in a couple offers, run through an inspection and always be running and rerunning the numbers.
If the numbers don't work out, nothing else matters.
Without a doubt, screening is your make it or break it moment as a landlord.. good tenants make it a wonderful experience and very rewarding to provide someone with a home!
The other advice/tip I got from my mentor: -- "Give them everything they need and want in regards to a home, and they will never leave. Do repairs quickly, don't nickle and dime them, and they will stay a very long time. Price competitively, so they have no reason to want to move. People hate moving!"
for me, it's been upping the quality of tenants. To help with that I decided to purchase in B/C areas and try to be above the median rent range of my city.
I agree with quality tenants and quality properties. One thing I would add to the discussion is have a long thorough lease. Go through all of it with your tenant. Good fences make good tenants.
When prospecting a new tenant for a rental, upon their exit walk them out to their vehicle and take a look in the backseat. If it is filled with McDonald's trash bags or food or junk that may stink, that is a glimpse of how they will treat your place.So no matter what the credit score is or how they look on paper or in person, that trick is a great way to find out how your place will be treated.
I see a number of people prefer M2M leases, and say that tenants will leave regardless of whether they have a lease. I have found that to be true as well. However, I have kept people on 1 year leases so if they leave unexpectedly at least I get to keep their full security deposit. When this has happened I have oftentimes lost very little income when people have broken their lease. Any thoughts on this approach?
My favorite tip has been switching all my tenants to deposit only ATM cards for paying rent. Each tenant gets their own ATM card with their name on it and I get cleared funds direct in my account almost immediately. No more trips to a PO box or waiting a week for online payments to clear. I use Bank of America.
Especially now that millennials are surpassing the baby-boomers in population ... multi-family will be in a huge demand .. IMO now is the best time to buy multi-family properties even if you slightly over pay for them but in a good location ... I personally will never buy in areas below B. As a landlord I can tell you meeting the Tenant in person and screening is the most important .. and everything else after that will fall in place.. also don't treat being a landlord as a hobby but rather as a business.. and have a systematic routine going with every property you rent out it will save you TIME ... and TIME IS MONEY!
By no means are we experts in this category but I have to say -patience is one of the most important character traits needed for screening good tenants. We could have rented our first property the very first week we put this on the market. In fact, the applicant had 6 months of cash upfront! Sounds good right? Well, as it turns out they were being evicted from their current landlord and had all sorts of credit issues. Finally, after 83 days of being on the market, we are about to sign our first lease -whew! The best way to learn to be a landlord is just getting in there and doing it. We know now that screening tenants is better left to management companies but doing this on our own has been such a learning experience that all of the forums in the world cannot explain.
Tenant screening and the use of level set rental criteria. Set the criteria and do not lower your standards for any tenant. The tenant must agree to the standards and all screening must meet or exceed the standards.
Secondly, maintain the properties. Poor properties does equal poor quality of applicants.
A big tip that's helped me save a ton of time was to do open houses rather than individual showings. I start marketing a property that's going to come up for rent in 3-5 months, and I tell all prospects that there will be an open house on a Saturday a week or two out a specific time, usually 1-3pm, and anyone that can make it to the open house is welcome to come check the property out. It works well, I never struggle to get interest and it saves me from 10 individual showings a week.
Yes, I may loose some potential people through this process, but it also helps me weed people out that are searching last minute (possibly irresponsible) or people that are not really interested in the location or unit. From the people that do show up, I take name and emails, and anyone that's really interested I give them instructions on how to start the screening process and apply.
It's worked for years for me, I'm in a busy college town though, so there's usually not a limit to the number or people looking. In all the years I've done these open houses, I've never had to hold a second open house, I've signed a lease with someone every time, making my total showing time for a property just over 2 hours.