OK, I'll admit it. I've been a Landlord 3 times. This is not my chosen occupation. You see, I'm not really constitutionally set up to be a good landlord. I don't enjoy being mean, nor do I like making reminder calls for over due rent.
I entered the land-lording business because I had bought a house. My first home came with a tenant. The tenant was actually a model tenant....neat, orderly, considerate and on time with the rent payments. If this was my sole experience, I'd be enthused about owning homes which other people live in. But it wasn't. I became a landlord two more times and those experiences were markedly different from my first entree into the industry.
The second time, not unlike many home owners, I had bought another home and had been unable to sell my current home. Since, I had one good tenant, I thought that having two tenants would be great. It was certainly better than having two house payments!
My prospective tenants told me that they had lived in military housing and had their home checked out all the time. The inference being they were very neat people...or so I thought. I'll never forget the day I walked into the kitchen to check on my home. There was a narrow pathway barely visible through the piles of junk, paper and garbage on the floor. These tenants also didn't like to pay for trash pick up, so they used my one stall garage as a trash dump. There were literally pizza boxes up to the ceiling. I ended up paying the tenant to leave the home.
Over the past 24 months in Grand Rapids, MI many homeowners are becoming reluctant landlords. When you've moved or bought another house prior to your home selling, this may be the only option to deal with the looming possibility of 2 huge payments every month. Unfortunately, this solution sometimes creates unforeseen difficulties.
I've learned some lessons through these experiences which I can now pass on the clients who are investors or need to rent their homes like I did. Taking these steps can reduce the risk of moving from the frying pan of a difficult financial situation to the hot fire of a home with renters who are ruining it AND not paying you!
1. Check our references.
- In my eagerness to collect rent, I didn't ask for or check out rental references. This is a big mistake. You can learn a lot from a call. Even if no negative information is shared, the reluctance to say anything about a renter may be cause for further investigation.
2. Obtain a Credit Check
- This is very important. Prior payment history will reflect what is likely to happen to you. If a tenant did not pay a previous landlord, there is a high likelihood that eventually they will stop paying you. Sometimes, a situation occurs which has a valid explanation and an exception may be made. But this should be done only after taking into consideration the entire picture including previous rental history.
3. Take A Drive in the Neighborhood.
- If you're renting out a home which is your primary residence and you intend to sell it, it may be wise to ask to drive by or ask to see the home that the person who wants to rent your home is currently living in. Their upkeep there will mirror what you may anticipate in your home. While this should not be the only criteria, it can be helpful. If they refuse to clean up now where they are...well they're unlikely to start when they move.
4. Join the Rental Property Association.
- In Grand Rapids, Michigan, this association is worth every cent of the $200 or so yearly fee. This organization gives landlords access to legal advice, excellent lease forms, seminars and teachings and the opportunity to network with other landlords. You can learn a lot from other people's experiences and avoid a lot of heartache.
5. Be Very Clear and Concise in the Terms of Your Lease Agreement.
- A clearly and concisely written lease can save you a lot of grief. Be clear about when a late fee kicks in and for how much. Be clear about how many tenants can live in the home and how many cars can be parked on the premises. Be clear about whether you will allow pets and what the fee will be if you have to repair damage. Be clear about the reasons why a security deposit will be forfeited.
6. Collect a Security Deposit.
- This should cover at least one months rent.
7. Detail the Current State of Your Home WHEN the new tenant takes possession.
- Make sure you fill out a detailed checklist of every room in your home and have your tenant fill out any issues which they observe as well. This written document will substantiate the state of the home. In addition, you may want to take pictures for posterity.
This list of 7 items provides steps which can significantly reduce the risk of having a bad experience...especially ifyou find yourself in the role of a reluctant landlord. If you're considering offering your home for rent, you may want to contact us. We can assist you in evaluating if this option makes sense for your specific situation. We can also place your home for lease on the local Multiple Listing System and increase the potential of getting a good tenant.
Photo courtesy of Thomas Hawk on flickr.com
Copyright 2007 Audu Real Estate All Rights Reserved
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Lola Audu, is the Designated Broker & Owner of Audu Real Estate. Our company specializes in helping people buy and sell homes in the greater Grand Rapids, West Michigan area. We've had the privilege of helping hundreds of clients succeed in their goals of purchasing and selling property including demonstrated success in the negotiation of Short Sale Transactions. You can contact us via e-mail @ info@auduhomes.com or by phone at 616-791-0511.
Lola, such a great post! Every time I have been a landlord, I get disgusted and sell the property. I know we Realtors are supposed to own real estate but I hate managing the tenants. Now I have a ski area condo that I rent on a short term basis and that is all. How much damage can they do in three days to a week? If they leave it looking like a pigsty or if they smoke in it, I don't won't rent to them in the future. In three years, I only have two names on that list.
Oh my, Lola! :) I am a landlord - and for the most part don't have any complaints. I think this might be why...
1. I require an application that is processed through a company that is tremendously thorough. I will know if this person has ever been evicted anywhere in the United States. I will also know why.
2. If the person passes the credit/eviction check the next hurdle is the criminal background check. This has saved me literally thousands of dollars.
3. I require a security deposit payable at the time of lease signing. If the person can't pay it in full then they don't rent. Strung out deposits are a sign that you aren't going to get all your money at one time - ever.
4. I don't allow pets. It's in the lease in plain English. I highlight it in yellow and the prospective tenant initials and dates that clause.
5. Late payments are also highlighted. And they are steep in the sense of it is the maximum the law allows. I make sure that the tenant knows I have no reservations about collecting it. Non payment of late fees is cause for eviction.
6. I also use two separate addendums - one is a Drug Free Housing Policy that clearly states that if there is evidence of illegal activity on the property while the tenant is in residence then they can bet on an eviction notice. There is no second chance if the information is verified through local law enforcement. I also use a General Housekeeping/Maintenance Policy that spells out lawn care, snow removal, trash removal, recycling schedules and parking. Violation of this policy results in ONE warning. There is not a second one.
7. I don't allow pools of any kind. This is also highlighted and initialed/dated by the tenant. If they choose to install one anyway it is grounds for eviction.
So far I have only had to toss one tenant. And it took me 5 months to get it done - but we never went to court. I knew when she was gone that it was going to cost me major dollars to fix the house, and it did - just a little over $5700.00.
Right now I have 2 tenants and 2 vacancies. I would rather have the vacancies than deal with filth, destruction and non-performance. My accountant and attorney both agree. :)
Being a landlord is certainly not for everybody. Some people don't treat it like a business and they wind up getting taken advantage of. For me it's a business, plain and simple. And I'm not in business to lose money or subsidize someone's existence in one of my properties.
Thanks Fred.
Lania...I feel your pain. :) Hope all goes well.
Very good tips Carol! Thanks for adding some valuable insights for prospective landlords. Now, where was this post when I needed it?? :)
This is a great list. I gave a similar list to one of my clients who chose to rent out his home this year instead of selling it. As you pointed out, it can be a good situation or it could turn into a nightmare. You need to go into it with your eyes wide open. Thanks for sharing!
Lola,
This is some excellent info on becoming a landlord. I always take a video of the property to keep until the tenant leaves, but I like the idea of them signing off on a checklist. That will be good enough to stand up in any court, should it come to that. Thanks for an excellent post. I bet there are a few Realtors who are considering becoming property managers that would benefit from these pointers as well.
Had some great experiences...had many, many more bad ones. I'm out of the landlord business and my hair has started to grow back. I feel 10 years younger and I get a full night's sleep (that is, once my daughters get home from their dates).
Actually, it wasn't QUITE as bad as that and no doubt I'll do it again, but I'll follow your tips a little more closely.
Lola,
Great post, especially during these current market conditions where more and more homeowners are finding themselves in a position to either become a landlord or start paying 2 mortgages. As a mortgage broker, I discuss the pros and cons of renting, lease options and land contracts and your insight will be valuable as my clients evaluate becoming a landlord.
Thanks!
Lola, this is a great checklist for landlords!
I don't particularly care for dealing with tenants and toilets myself, but I understand how homeowners find themselves faced with the necessity in this market.
Lola, Great post and very sound advice. I also thought the comments/suggestions above made by Carol Smith added additional value with this post, for anyone who is looking to become a landlord as an investment opportunity or simply finds themselves in a situation where they cannot sell and must rent to be able to make payment.
Sounds like your old tenants should be investing in the pizza industry!! :-)
I've been a Landlord for over 20 years. This has been very good for me. My rentals started out as a college fund for my kids and have far surpassed that. I make more money being a Landlord than selling real estate and I have a retirement fund that the wife and I will probably never deplete. My biggest problem now is how do I minimize my huge tax bill.
However, being a Landlord is not for everyone. The key is to screen all tenants. Check past references and credit. I hire a company to do this. I have had very few problems with tenants. (The minor problems I have had is when I lowered my standards. A few years ago the pool of qualified renters had shrunk because all the best ones we buying houses.)
Treat being a Landlord just like a business. Consider your tenants customers. Just like being a Realtor, it is a people business.
Do not rent to someone just to fill the space. I used to think I was a good judge of character. Hah! Rely on the screening process. When a tenant moves out, do all the repairs before the next one moves in. Drive to where they are living now and see how they live. Knock on the door because there was something omitted on the application and see how many cats they have. (They always belong to the mother in law!) Are there junk cars on the property? Very, very few people are going to change the way they live when they move into your property.
There are obviously risks to being a Landlord. All businesses have risks. The Landlord Tenant Laws highly favor the Tenant and need to be followed to the letter. However, if it is done correctly, it can be a profitable business.
Lola, very good points. I would also remind the readers that there are many things that you can do to increase cash flow, and incerease the chances of recooping the costs of bad tenants.
I have a short article and a podcast on my main site addressing these, and I will probably post them here eventually.
I advocate a specific clause that allows the landlord to not only keep the deposit, but get an additional 3-4 months of rent from a "Deadbeat tenant."
Irina...you can learn a lot from a drive by!
You're welcome Kelly.
Sally, if you've got good tenants, it can be a real blessing to provide for someone's need for shelter and have them reciprocate by taking care of the property. It's the tenants who are inconsiderate which are a problem...
Hi Andrew...The tenant checklist is mandated by law here in Michigan...but many landlords don't do it.
Bruce LOL...you have me laughing as I read your comment. I sooooo understand. Better luck next time.:)
Debbie...and you've survived! :)
Sharon...You're absolutely right! Property management IS a specialized skill set.
Thanks for your comment Evan.
Yep, Joan...learned this the hard way.
Thanks for stopping by to read and comment Bill & Barbara Jo.
Anonymous...tenants have a lot of rights & landlords have to be aware of them to keep on the right side of the law. Fortunately, most tenants are good and simply desire a good place to live.
Eric, Thanks for your comment.
Robert...may you have many more peaches! :)
Therese...Carol Smith's comments were excellent. I had no idea that a garage could be used in that fashion.:)
Wayne, Thanks for some very good advise. Your comment along with Carol Smith's have really added value to this post.
Carol...Thanks for this addition to the discussion. I do have them identify all occupants by name.
Ryan...the rental association can be a life saver when it comes to a resource pool of knowledge and support.
Very good advice. We have been landlord once and that was a great experience. I was blessed to have a good tenants.
All you have recommended here I have followed well except the number of cars. That was a great thing you suggested. I have noticed one of the rental homes in a neighbor's subdivision have 7 to 10 cars park on the drive way or on grass. That was awful. I think there are at least 15 people live there "illegally". If that was my rental property I would not allow that many people live there.
One of my clients went to prison and lost his job all because Tenant's one phone call. You have to be very careful how you treat your tenants. I think the best way is to check them out carefully before you bring them to your home.
Good luck!
LOL Lola...
I should have known your comment on my post would turn into a post. Good for you.
As a Big Bad Landlord myself I would add one more thing...
Collect first month, last month and a security deposit. It's been my experience that this gives tenants the incentive not to break their lease :)
It's also a great idea to take photos of the property right before the tenant moves in. This has shocked several of my tenants when they tried to tell me those holes in the walls were there they moved in. Liar...Liar...Pants on fire :)
Okay...I'll knock it off... But you know I could go on and on about this topic. But I won't. Why? This is your pretty blog post :)
P.S. Are you going to tell these nice folks not to build relationships with tenants? LOL. I guess I lied about knocking it off :)
TLW...ROAR!
Lola...
Did I mention the Cars? No...
Well...I "Always" look inside a potential tenants car. How the inside of the car looks will reflect how your rental house will look once it's in the hands of a tenant.
If the car is full of trash and beer bottles...That's what your rental house is going to look like :)
TLW...ROAR!
Lola,
One thing I would recommend to a landlord, especially a first-timer, is to have the property inspected by a profesional inspector. Many inspectors, myself included, do rental inspections. Yes, it's an additional expense, but a lot cheaper than trying to wring the repair costs out of the tenant in court with limited proof. I suggest a rental inspection both at the time of the client taking possesion and the day after the tenant moves out.
Hi Bob & Carolin...Hopefully, this list will reduce the number of horror stories! :)
John Denver...that's an interesting notation about the special clause for deadbeat tenants...haven't heard of that one before.
Thanks Paul.
Christy...Being a landlord is quite a job...certainly not for everyone. :)
Linda, I'm glad that you've had pretty good experiences. The cars being registered is also a risk management issue from the landlord's perspective. This is an additional way of keeping tabs on who is actually renting your home. Thanks for sharing your insights.
Robert...I'm a little more cautious...I tell the clients that I'll take care of the painting.
Sean...Sooooo true! Having good counsel can save a lot of grief. Sounds like you gave it! :)
Lola...
Just so you know I actually cracked myself up with all of that yesterday :)
Vrooooooooooooom :)
TLW...ROAR!
Lola, Why don't you try making your reluctant landlords sellers by using a lease option?
Some of the commenters are so tough that the prospective tenant would qualify for a mortgage easier.
I've had some really good tenants that could never "qualify" by these extra tough standards. They treated me well and they treayed their unit well as well.
Bill Roberts
Lola- Been there, done that.....some people just don't care about a property they don't own. If I have heard it once i have heard it a million times...."It's not my house" when asked why they didn't fix something, or do something requiring basic upkeep.....
Your list is pretty good.....I also used to look at the car, and who was waitnig outside in it...sounds funny, but it saved me a few times when I did Apartment Rentals :) :)