Residential rental properties can be a great investment, or a continuous headache, depending on these factors:
- Location, Location, Location
There’s a reason that real estate professionals talk about location – and it’s because real estate can’t be moved! If a property is on a lakefront or next to a paper mill, these are not facts that are going to be overcome by better marketing. This means that in selecting the property that you want to rent out requires considering everything around it. That property next to the paper mill is probably terrible for a residence, but might be great for a warehouse. Think about who your market is – who is likely to want to rent this kind of property, in this area? Retired people, working professionals, and people with kids want different things in a home.
- Property Condition and Amenities
You’ll want to become familiar with similar properties in the area, and the amenities typically offered. For example, if the current style is granite counter tops, your property won’t attract the same quality tenants with your formica counters, even if they’re in perfect condition. Consider parking and security concerns, as well as the availability of a pool, or on site gym, or other recreational areas, which are often included with apartment complexes, and having these available may make up for a less private environment for certain tenants.
- Pricing
Watch the market, and be aware of new properties for rent in your area. Go and visit some of the properties to see how they compare to yours, and consider what you can do to make your property more desirable by comparison.
- Marketing
The most common marketing is through MLS listings, a sign in front of the property, flyers, FaceBook and other online listings, networking events and email lists. But please don’t spam, send random texts or cold call people. It’s unlikely to work, may be illegal, and irritates most people.
- Tenant Screening
Be sure you get a complete application so that you have fully identified the tenant, and think ahead of time about what your rental criteria will be. Some landlords have a requirement that a prospective tenant produce recent pay stubs to show they can afford the rent. Others insist on a criminal history check. We typically require that we can verify employment (by actually calling the company) and contact the last landlord to verify that they took care of the property and paid the rent. Many online searches are also available that can tell you what you need to know about the prospective tenant – are they involved in litigation? Are they getting divorced? Have they been evicted before? These may matter more than a 10 year old DWI conviction.
While we’re on the subject, I’ve seen residential leases where a company is listed as the tenant. This may be a clue that something is wrong – if they insist on having the company as a tenant, I recommend at least getting a personal guarantee, preferably from someone who lives locally. I recently reviewed a residential lease in which the tenant was listed as a limited liability company. The company is not registered to do business in Texas, and the principal of the company lives in Indiana. Service of an eviction is likely to be more difficult than usual, and the likelihood of recovering any unpaid rent or fees is virtually non-existent.
- Good Lease Agreement
Make sure you are using a good lease agreement, prepared for use in your state. Forms used by Realtors are updated every couple of years, and you’ll want to use the most current form. Make sure you have a lease that is residential (commercial leases are very different and much more variable). The lease should specify that the property will be used only for residential purposes. Also, we recommend that the property not be allowed to be used as an Air B&B – such tenants aren’t looking for a place to live, they’re looking to start a business, paid for by you, with no investment on their part, and they have little interest in maintaining the property.
Also, be careful about including any unusual requirements (such as regular inspections). Tenants want to be left alone to enjoy the property and live their lives – including clauses like this is going to drive away lots of potentially good tenants.
- Good records
Renting property is a business. You’ll need to start a folder for each lease, where you’ll keep a copy of the lease application, lease agreement, renewals, copies of rent payments and a rent ledger. Be sure to keep a copy of the MLS listing and other advertisements. Keeping these records as things occur makes it much easier to deal with later for tax purposes, a potential eviction, complaints about misrepresentations, or providing references for former tenants. Hard copies are convenient, but you may also want to have an electronic copy of everything, backed up to somewhere it can’t be lost or destroyed. And calendar lease renewal dates. A year can go by surprisingly quickly!
- Be a Responsible Landlord
Taking care of problems as they arise is actually easier and cheaper than avoiding them, and it keeps your tenants happy. Happy tenants move less often, which means less down time while you clean, repair and paint the property while not collecting rent between tenants. For the same reason, try to work with your tenants where necessary – it’s much cheaper than finding a new tenant!
Congratulations, you’re a landlord!
