As a real estate entrepreneur, you have two options when it comes to managing your property. You can either self-manage or you can hire a professional property manager. Here are tips if want to go the DIY route.
1) Screen your tenant prospects. Get an application with their signature that will allow you do to a credit, criminal and public record check. You will also want to look at their financial and income situation to make sure they can cover the rent. If the prospect had prior evictions, violent crimes or has some nasty lawsuit going on, you may want to reconsider having them as a tenant. Finally, call the previous landlord and their current employer to verify they actually work for them.
If everything checks out, get to know them. You will want to ask if they have any pets and if they are housebroken. Do they plan on getting a roommate in the future? Do they work night shifts or odd hours? Do they smoke anything? If so, do they smoke indoors or outside? Do they have any friends that will be spending overnights at the unit and will not be on the lease?
Be aware that you need to abide by fair housing rules; I created some content as it relates to pets and will include a link in the description.
2) Always get a lease. Having a standardized lease for all your units is critical to protecting you and the property. Make sure everyone that lives there over the age of 18 years signs the lease. Here is an example of why: You have a married couple move into the unit. The wife signs the annual lease, making her responsible for the rent. Two months later, the wife decides to leave the home and the relationship. The husband is not obligated to the terms of the lease because he didn’t sign it. Spend the money and get an attorney to draft a document that will hold up in court. There are many places online where you can just download a lease, but I don’t recommend that. Every state has very specific laws that cover everything from fair housing to late payments to security deposits. An experienced attorney will make sure all these laws are followed and keep you out of trouble. It’s also worth noting that having a lease in place will also help you when you go to sell or refinance the property as banks typically want this information for deal underwriting.
3) Document everything. When you are onboarding tenants, take plenty of video and photos of the property. Have it stored online so it can be accessed at any time. Be sure to have the tenant sign off on a checklist that outlines the current condition of the unit. After they get settled in, document any and all phone calls, emails and text messages as well as the outcome of the discussion. If you are unable to do it yourself, hire a virtual assistant to keep track of those items for you. All this will become important if you need to evict down the road.
4) Issue a 3 day if they are late or violate the terms of the lease. This part is important; If they do not pay, send the 3-day notice immediately by certified mail and taping it to their door. I prefer my managers hand it to them as the counting of three days will not begin until the tenant has the document in their hands. When they have the notice, the tenant will have 3 days to either pay the rent or move out. You can offer them help in the form of contacts at the local church for food and money to cover the rent, but make certain you kick off the 3 day without delay.
It will be up to you if you want to accept partial payments or work with the tenant to get them caught up. It really depends on their track record and how far behind they are. Further, you will need to turn the unit once they leave, which could cost you thousands. This is something you will want to consider on a case by case basis. Besides the cost of turning the unit, it is expensive and time consuming to go through the eviction process. Regardless, you are under no obligation to do anything outside the terms of the lease. My personal experience says that most times, it’s just best to cut your losses with that tenant that is always late and push on with an eviction.
5) File the eviction. In some areas, it could take as long as 60 days to get a Writ of Possession that will ultimately get a non-payer out of your unit. In that time, you will not only lose rent, but they will also poison the other tenants. You will be surprised what a tenant will come up in terms of deferred maintenance and inaction on your part as an owner. This is why documenting any and all interactions are critical. While all this is going on, you as a landlord can’t turn off the utilities, change the locks or have all their belongings moved. Those sorts of actions will get you sued. As a side note, make sure you have the right insurance on the property in case of damage caused by the tenant or if you get unscrupulous tenants that may try to sue you. I heard a story of a tenant that faked a garage door falling on them just to slow down the eviction process and also get some insurance money. Make sure you are covered.
Those are my 5 Self-Management Tips for a DIY Landlord. Personally, I prefer to bring in professional property management to the deals my team and I buy. They handle routine and emergency repairs, maintain good relations with our residents, collect rent and track tenant deposits, but most importantly, they know all the federal, state and local laws that keep us out of trouble. They keep our aggravation to a minimum and allow us to focus on building and scaling the real estate business.
With professional property management in place, I don’t need to be on call 24/7 and I can focus on my core competencies: operations and acquisitions. If I want to be my best and provide the best value to my investors, I can’t use my time becoming a master at all the laws and ordinances that govern precisely how to manage a rental property. Many property managers are great at what they do. Let them focus on that while you focus on operations, acquisitions or whatever your core competency is.
In my experience, bad tenants make up the majority of the problems when taking on a new deal. Underwriting tenants is absolutely critical to seeing your multifamily deal succeed. As you speak and get to know the potential tenant, trust your gut and back it up with data in the form of their credit report and background checks. Just be careful not to overstep your boundaries and break any privacy laws, Fair Housing laws or laws as it relates to service animals.
Remember that there is no such thing as “income-producing” property. Properties don’t produce income. People and systems do.
Anyway, do you have any tips for finding good tenants? Have you recently transitioned to a professional property management company? Let me know in the comments.