All Forum Posts by: Kimberly T.

You are under no obligation to accept applicants on a first come, first accepted basis.  That seems to be a common myth in landlording.

We have set up a set of criteria for how we determine the "most qualified" applicant, and then accept that one.  Just as a basic idea, we have some initial deal breakers (no past evictions, income of minimum 3x rent, max number of occupants, minimum credit score, no pet dogs, etc.).  If we were to have multiple apps that met this basic criteria, then we assess which one is better and pick one.  You have to decide what your assessment will be based on: the one with the highest income, the one with the best credit score, etc.  It obviously needs to be something non-discriminatory.  You couldn't, for example, pick one app because it has fewer proposed occupants than another app, as that could be argued to be discriminatory against families.

Good luck picking an app.  If that's the worst "problem" you have, you'll be just fine. :)

We own rentals in CA, AZ, and CO.  We bought in CA first for a few reasons: it's where we live (so we can self-manage and work on it ourselves), we anticipated staying in CA for at least a while, and so we could get experience being landlords (my parents were landlords when I was growing up, but you learn so much more when YOU own the property!).

Since buying that rental, we have decided we will be leaving CA by 2020ish, and branched out to buy some rentals in AZ for a few reasons: only a 6 hour drive away, better ROI, lower prices, and landlord-friendly. We're strongly considering moving to CO when we leave CA, and just bought our CO rental late last year (part of the research I did on various states we considered moving to was how landlord-friendly they were).

So, as far as AZ and CO, my research and experience with those states is consistent with the assessment of them being landlord-friendly.  Doubt you'll ever see CA on that list.

I totally agree with your approach.  We do have a minimum credit score for applicants, but we also look over their report to see if there are any red flags, such as the one you mentioned about owing to a previous landlord/PM.

@Kevin C. if you're handy, you might be able to do it yourself.  When my husband and I bought our house, he rented a big sander from Home Depot and sanded down all the wood floors (4 bedrooms, hall, living room).  He got a bunch of the poly and the thing to spread it with (was it wool...?  it was basically like a mop... can't remember the details about it now) and finished the whole thing.  That was almost 7 years ago and they still look good.

You'll need a dust mask/protective gear, and don't bother cleaning the house until you're done because it gets all dusty.

@Eric Thompson just to confirm, you did not buy this property as owner-occupied, correct?  If you did, I believe you're supposed to move in within 30 days, and if your lender finds out you're not living in it, you could be in a world of hurt.  Just something to be aware of when making your decision.

No one has an incentive to make sure you're not getting screwed except you.  My husband and I have bought 3 rentals out of state (AZ and CO), and we went and looked at all of them during escrow to check them out ourselves.  An appraisal tells you exactly nothing.  An inspector will give you some info about the condition of some items, but they aren't going to list all of the little deferred maintenance issues that may exist (worn/scratched counter tops, chipped sinks, worn carpet, evidence of prior plumbing leaks in cabinets, etc.).  A lot of that stuff can add up to big bucks for you to take care of, so you definitely want to check out everything yourself.

I can work really hard at my job to save up $200,000 to pay cash for a property, or I can work just hard enough to save up $50,000 to put 25% down and then let the rent cover the rest of the loan payments (and give me a better ROI, per my example above). Obviously not everyone wants that kind of risk/exposure, but I chose the second option.

Depends on your personality, stage of investment, etc.  My husband and I are still pretty young (early 30s), so we are in the leveraging/accumulation phase of investing.  We are putting as little down as possible on rental properties so that we can acquire more of them while we're young.  We're getting positive cash flow from all of them, our tenants are paying down the mortgages, and we're growing our (little) empire.  Leveraging is a huge advantage in real estate.  Also, with today's super low interest rates, we've got lots of loans locked in cheap for 30 years, and we can invest our cash and get better returns than the interest rate we're paying on our loans.  Once you're past the accumulation stage of investing, though, it makes sense to start paying off the loans.

Here's an example of how leverage can help. Let's say you have $200,000 cash to invest. If you buy a rental for $200,000 and it makes $2100 in gross rents, you might net about $1100/month after expenses (taxes, insurance, maintenance, etc.). That's about a 6.6% ROI. Now, what if you took your cash and used it to put 25% down on 4 of those same rentals? With a loan at 5% 30 year fixed loan, you'd be netting about $290/month/rental, or $1160/month total. That's a 7.0% ROI.

Now let's look down the road, say 10 years from now.  Let's assume rents have gone up to $2660/month (2% per year), and the property values have gone up to $250,000.  If you'd bought one rental for cash at $200,000 you'd have increased your net worth by $50,000 and you'd now be netting maybe $1400/month from the rent (expenses have gone up - taxes, insurance, etc. all cost more in the future).  However, if you'd bought 4 rentals with 25% down each, you've now increased your net worth by $200,000 ($50,000 PER rental - and this is not including the equity build up due to your tenants paying down the loan for 10 years), and now you're netting $600/month/rental, or $2400/month total.

As you can see, leveraging not only gives you better ROI at the beginning, it also results in more increases in net worth and cash flow down the road than paying in cash does. Of course, there is more risk with being so leveraged, so that is something you have to weigh, and decide how much exposure you want.

You should have written in your offer that you wanted to see copies of all leases/rental agreements, and that you wanted each tenant to sign an estoppel.  If the seller refused to give you this, you could simply back out of your offer and get your earnest money back.  How else would you know what the terms of the tenancies are without getting that info during your due diligence period?

I don't think you have a right to their SSNs, etc., as that is personal info.  You also may not be able to make the tenants sign any sort of new rent rules or rental agreements if they are still on leases with the current owner.  Once you close escrow, you are bound to the terms of any current leases/rental agreements between the seller and tenants, which is exactly why you want to see those asap.

We never accept checks for holding deposits, security deposits, or the first month's rent for exactly that reason - it might be a bad check.  We insist on cash, cashier's check, or money order.

As for accepting a whole year's rent up front, that usually seems suspicious to me.  As others said, they're often hoping you'll overlook some not-so-good info (past eviction, poor credit, etc.).  Also might make it hard to evict them if they violate the lease during that year (look into the legalities of that).  If you screen them and they meet all your requirements, I don't see why they couldn't still just pay the rent every month.  If they're worried about forgetting to pay sometimes, they could set up some sort of auto-pay out of a dedicated bank account they have set up just for rent.  They could either do direct deposit into your account, or have their bank automatically mail you a check every month; we've had tenants do both of those things.