2 questions from New Landlord about to rent first property
Chesterfield, VA · Member since 2017 · 10 posts · 8 votes
2 questions from New Landlord about to rent first property
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Omaha, NE · Member since 2020 · 612 posts · 665 votes
4yEveryone has a different risk tolerance, so bear that in mind and choose your path based on yours. I will say your questions sketch a risk tolerance that to me is extreme in both directions.
1. The BiggerPockets lease agreements have undoubtably held up in court. SO many people use them that if they didn't, we'd know it loud and clear. Don't invest an unnecessary $1900.
2. View your properties as a business. Rent at market price. You'll get the best candidate pool for the vacancy. Yes, you may be able to go high, but if you miss a week, two weeks, or even a month trying to fish for more rent, the cost of vacancy will out-weight getting it filled quickly at the lower, competitive pricing.
3a. Your expectations are way too high. There's typically a reason folks are renting and marginal credit scores and low cash-on-hand are among the top three. If a renter can come up with three-months worth of cost, they can probably afford to buy a starter home. Moreover, you'll want to look at local laws if you ask for 2-months deposit, as that may not be legal, but even if it is, you'll extremely limit your tenant pool by requesting that much money. It's unnecessary if you find good renters anyway.
3b. You should never have issues if you aim for 650 or higher, especially because the most important elements of a tenant are going to be employment history and eviction history. As long as your tenant has a history of strong employment and no evictions, with a decent credit score, you'll likely be okay. I do focus on previous rent experience too. But if you want a 740 credit score, you'd decline me! I simply move too fast for banks, and I'm smart with debt, so if I can ride an interest-free credit card balance for 18 months, you bet I will. But that all hurts my credit score, which is hovering around 700. That said, I've never missed a payment, failed to pay in full, or put myself in a position of debt where I can't afford to pay off in full.
Be smart, but don't get greedy. Best of luck!
6 Replies
- Omaha, NE · Member since 2020 · 612 posts · 665 votes4y
Everyone has a different risk tolerance, so bear that in mind and choose your path based on yours. I will say your questions sketch a risk tolerance that to me is extreme in both directions.
1. The BiggerPockets lease agreements have undoubtably held up in court. SO many people use them that if they didn't, we'd know it loud and clear. Don't invest an unnecessary $1900.
2. View your properties as a business. Rent at market price. You'll get the best candidate pool for the vacancy. Yes, you may be able to go high, but if you miss a week, two weeks, or even a month trying to fish for more rent, the cost of vacancy will out-weight getting it filled quickly at the lower, competitive pricing.
3a. Your expectations are way too high. There's typically a reason folks are renting and marginal credit scores and low cash-on-hand are among the top three. If a renter can come up with three-months worth of cost, they can probably afford to buy a starter home. Moreover, you'll want to look at local laws if you ask for 2-months deposit, as that may not be legal, but even if it is, you'll extremely limit your tenant pool by requesting that much money. It's unnecessary if you find good renters anyway.
3b. You should never have issues if you aim for 650 or higher, especially because the most important elements of a tenant are going to be employment history and eviction history. As long as your tenant has a history of strong employment and no evictions, with a decent credit score, you'll likely be okay. I do focus on previous rent experience too. But if you want a 740 credit score, you'd decline me! I simply move too fast for banks, and I'm smart with debt, so if I can ride an interest-free credit card balance for 18 months, you bet I will. But that all hurts my credit score, which is hovering around 700. That said, I've never missed a payment, failed to pay in full, or put myself in a position of debt where I can't afford to pay off in full.
Be smart, but don't get greedy. Best of luck!
- Chesterfield, VA · Member since 2017 · 10 posts · 8 votes4y
Thank you for response, as this is our first foray into being being a landlord and we rehab'd property to high standard we may be unrealistic in expectations, I guess pride of ownership comes into play.
Our number 1 goal is to get tenant that will pay and respect property but we do want to rent it so I guess market will dictate terms we will get, we are not pressured to lease out as we paid cash but we do want to get it rented.
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes4y
Originally posted by @Charles M.:
Hi, wife and I are about to list for rent our first rental property (townhome), we are all in at about $225k. Can you help with 3 questions?
1. Where do we get best lease that will hold up in court and protect our interests. Biggerpockets and other oniline sources have state specific for $100, but we spoke to RE estate attorney who has one for $2,000 that he has litigated over the years and it holds up very well, State is GA. Do online generic leases hold up well if you have to litigate?
2. As far as rent, due to low rental availability there is very little available so market comps few and far between. Rentals are rising so should we start high and go lower if needed or just price inline with general market.
3. For tenant screening, we want high quality person and can wait to get one, but is our criteria too strict: 740 credit score, 2 month sec deposit, 37% max debt/income ratio? Unit is basically brand new in sought after area and we are out-of-state investors.
That lawyer is a leach looking to suck your blood. His lease may be more "legal" but I doubt it's any stronger. He's charging you for all the legal jargon you can't understand that will force you back to his office when you get in a bind.
The lease sold by BP is state approved. Is it tested in courts? No, but that doesn't mean that it's bad and wouldn't stand up in court.
I understand your hesitation. Call around to 5-6 attorneys and see what they charge for a state lease. When I first bought one from an attorney, it was priced at two hours of his time which was $300. That was just ten years ago.
The DIY Landlord Book4.7247 Reviews Georgia tends to be a landlord friendly state. Can't remember where I came up with mine but no way would I fork over $2000 for a lease.
I'd suggest studying the landlord/tenant laws for Georgia. They actually aren't very complicated and some of them are quite interesting; including those that still cover "sharecropper" issues. In court cases I've attended (listening to others evict for nonpayment those seem to be the most common reasons folks are in court) the local judges tend to focus on whether a landlord provided a 3 day Pay or Quit notice to a tenant late on rent (although ironically Georgia landlord/tenant laws only state that a landlord can begin the process immediately after demanding rent from a tenant who then does not pay). Other issues that have come up include the required 60 day notice on the part of the landlord to terminate a tenancy at will (month to month lease) or make other changes to the monthly lease, the importance of adding your address to the lease and requirements if a landlord owns 10 or more properties or has these handled through an outside source.
I don't know where you reside but getting someone with a FICO score of 740 is almost impossible around here. Someone with that high a score is likely to want to buy a property. Don't be surprised if the idea of a 600 FICO is something that applicants see as similar to climbing Mount Everest. Same with the two month security deposit. It can get to be depressing.
Finally in screening keep in mind that many dispossessory issues (our version of an "eviction") will be listed online through your local law enforcement agency that handles these. Become familiar with this site during your screening process (it's often free to view). Often tenants will move out between the time they are served and before the actual hearing to grant the eviction. These folks will often claim they were not "evicted". I don't rent to someone who has had any type of "dispossessory" filings done on them.
- 4yBjorn AhlbladPro MemberInvestor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
You are a good distance away from a property you are proud of; and you are a new LL. Consider solving all your dilemmas by hiring a good PM. Check them out and their creds. Start by looking at the National Association of Residential PM's and see if there is a firm in the area where your property is. All the best!
Question 1) From a local lawyer who has years, decades of experience working in your market with the local courts and the local judges. Their lease will have been through the ringer. That said, 2K is highway robbery. Should be around 250/300. That lawyer is one to stay away from in my opinion, this is not their sole line of work. Find a landlord tenant specialist that all they do is evictions and landlord tenant issues all day long. I would never do a generic free lease. As for the BP lease, better then gernic or free no doubt, but I would probably take that over the 2K lease if those were my only choices.
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