If You’re A First Time Landlord – Read This!
On the surface, being a landlord seems pretty simple. You find a tenant and wait for the first of every month for rent checks to pour in. At the end of the lease you repeat the process and start all over again. Anyone who owns rental property knows this isn’t exactly how things work.
There are always unexpected phone calls at all hours of the night and problems with tenants that pop up from time to time. In most cases you can eliminate these issues by taking some extra time to make sure you know who you are renting to. Waiting an extra day or two to tie up any loose ends and answer any questions can be the best thing you can do for your property. Finding a tenant is not enough. You need to make sure you have the right one. Don’t sign anything until you cover these five important items.
- Security deposit. Regardless of how long it took you to find a tenant it is always a relief when someone commits to your rental. The next step after commitment is signing the lease and accepting the security deposit. Most tenants understand that if they want to rent, they need at least a month, or two, security. If they balk at this or ask you to hold the property it is a giant red flag. You can consider waiting 24 hours to get their funds together, but anything longer is a risk. This is an indicator that they don’t have the money to rent and you will probably have to chase their payment every month. As much as they may love the property you need to move on and find somebody else.
- References. Every landlord, at a minimum, should have prospective tenants complete an application. This application should include information on their job, income and current housing. It should also have a place to list any references, including their current landlord. If everything looks good, you need to reach out to their landlord to get an idea on what kind of tenant they are. Tenants will tell you anything you want to hear if they really want the property. They will tell you how their current landlord may have did them wrong and how nothing was their fault. Contact as many current, and previous, landlords as are listed. Make sure that you take a minute to cross reference these numbers to ensure the person you are calling is really their landlord. In most cases the landlords will give you honest feedback as to how they took care of their unit and whether they paid on time every month. A landlord usually doesn’t have a grudge and any reason to smear the tenant on the way out. Without calling the references you really have no idea who you are renting to and nobody to blame if they turn out to be a nightmare.
- Reviewing lease. Just because you sent your prospective tenant a copy of the lease doesn’t mean they read it. As you move closer to commitment you should reiterate the important sections of the lease. If you are firm on not having pets or not smoking in the rental you need to stress that, along with the consequences. Also review any items regarding parking, storage and housing people not on the lease. Now is the time to go over the consequences for being late and just how quickly eviction can happen if payments are not received on time. If there are any questions, issues or concerns you should address them now, prior to any security being exchanged or the lease is signed. Getting these items ironed out now can save you a potential headache a few months into the lease.
- Document move in condition. You are now at the point where everything is signed and the security check was issued. Before you give the keys and send them on their way you need to document the move in condition. As smooth as things may have gone up to this point, nine months or a year from now could be a different story. When your tenant wants their security deposit back they will argue with you on almost anything. The best way to avoid any potential issues is by documenting everything when they move in. Take pictures of every room, or better yet take a video. Send these over to your tenant by email so they have a copy of them as well. This will serve as your evidence and easily settle any disputes they may have in the future. Without this you could be looking at a case of he said/she said that could get ugly.
- Set up separate account. It is important to run your rental like a business. This means setting up a separate account for the security deposit. Not only does this make your life easier, it may be illegal in some states. By law, you must return the security deposit plus whatever interest accrues for the period you hold it. As rare as it may be, if the tenant calls you out you should have documentation showing any interest gained. Your separate account can be also be used to collect any rent and pay the mortgage every month.
Never rush a tenant into a property until you are comfortable with every potential issue. Before you commit to a lease review these five important tenant items.