If you are new to landlording and about to start searching for a tenant, here are some things experienced landlords want you to know.
We asked ten professional landlords and investors who collectively manage hundreds of properties to share the hard lessons they learned, and the things they wished they knew before they started.
These tips are a summary of their advice.
Never rent to family, friends, or coworkers.
Never rent to friends or family. Never believe any sob story. Treat it like a business never take anything personally. Don’t make decisions based on your feelings. If you decide to help a family member, give them money or buy them a property as a gift but don’t rent to them. If you can’t evict someone, don’t rent to them.
Check references every time.
The vast majority of landlords and property managers don’t bother to call previous landlords. The reasoning is that if the tenant had eviction it will show in their background check or the landlord wouldn’t tell them the truth anyway. We’ve had the opposite experience. We recently called the references of a tenant who was in a hurry to move in and was pressuring us to process his application fast. We have systems in place from which we don’t deviate for anyone so we called his current landlord. It turns out that he is currently being evicted for nonpayment of rent, hence the need to move fast.
Never mix personal finances with business finances.
Create an LLC and a business account. It will help you track income and expenses and protect you if something were to happen. If you don’t treat your rental properties as a business you are not only increasing the risk to your personal assets but you may be missing deductions because separating personal from business expenses can be a nightmare when they are mixed.
Set aside an emergency fund for your personal life and for your business.
Plan and be ready for the worst-case scenario. You will make a lot of mistakes along the way, learn from them. If you are not already making 10k per month, go back and find a way to do that.
It is not worth investing if you don’t have money to invest.
Get a rock-solid lease and include every little detail no matter how small it may seem.
A detailed well-written lease can serve as a guide for the tenants and you when problems arise. When tenants are aware of the rules in advance, they react better to notices and even fines because it’s in the lease.
Read and know your state’s housing laws.
After years of renting to amazing renters – one crazy tenant can change your relaxed attitude. It’s a business. Know your legal rights as a landlord so you can enforce them and stand up to “professional” tenants.
Pre-screen applicants by email.
If they don’t answer they are probably flakes. If they do you can prequalify them. Have a strong list of pre-screening questions and only show the unit to the most qualified applicant. And don’t overlook red flags.
Have a strict screening process.
The housing market is crazy right now. Everyone is looking for a place to rent. So take your time and find the right tenant. Don’t let their bad financial decisions become your losses. We list our minimum requirements in the ads we post so we can weed out the bad apples. Here are our criteria:
- Their income should equal three times the rent.
- A minimum credit score of 600.
- No prior evictions
- No sex offenders
Stick to your rules, don’t bend.
If you give them an inch, they will take a mile. If they don’t pay rent on time serve an eviction notice immediately. People lie, don’t listen to sob stories.
Focus on cashflows, appreciation will come with time.
Invest in a home with at least $400+ profit per month or in multi-unit properties with positive cash flow. Look for areas where appreciation is driven by the rental income. When making a decision on where to buy a rental property, use the Internal Rate of Return to calculate which will be a better investment for you. Don’t throw darts at the board of properties for sale and just hope to hit a profitable target.
Document everything.
Use move-in and move-out checklists, take lots of photos and videos. Do semi-annual inspections and preferably use email or text to communicate with tenants so you can have it in writing. These are the basic documents you should have in writing:
- Rentals application
- Credit and background report
- Lease with the appropriate addendum
- A welcome package with letter and move-in checklist
- Documented maintenance requests with follow-ups.
- Lease renewals
- A move-out package and move-out checklist.
Buy in good neighborhoods.
Rental properties in high crime areas bring more cash flow but with it comes the stress of managing them. The tenants in those areas are typically living paycheck to paycheck and any unexpected problem can cause them to be late with the rent. You will deal with a lot less drama if you buy in middle-class neighborhoods. Many property managers refuse to work in high crime areas so if you are investing out-of-state and would be relying on a property manager, this can be a problem. Rentals in good areas are much easier to manage even from a distance.
Renovate the property before renting it.
It‘s a lot cheaper in the long run if you do all the necessary renovations before the first tenant moves in. As a long-time landlord, I can confirm that a clean, updated home tends to attract tenants who take better care of the home and stay in it longer. You should aim for your rental to be competitive with what’s on the market in your area.
Inspect and maintain your properties regularly.
Preventing little problems from becoming expensive repair bills is the key to keeping maintenance expenses under control and tenants happy.
Being a new landlord is tough, accept that you will make mistakes, just make sure that those mistakes don’t take you out of the game. Create systems for everything you do and don’t deviate from them. I can guarantee you that you will sleep better and your pocketbook will thank you.
