Mike Gerard - YOUR NO-RISK GUIDE TO RENTING OUT YOUR PROPERTY

YOUR NO-RISK GUIDE TO RENTING OUT YOUR PROPERTY

Mike Gerard

Table Of Contents

To Rent Or Not To Rent?

You Control The Risk

Good Tenants = Rental Bliss

Weed Out Bad Apples

Red Flags

Get It In Writing

Regular Inspections

Laying Down The Law

Protect Against Damage

10. Fair Housing Act

11. Renting 101

12. How To Get Your Property Rented

13. Ongoing Property Management

14. How To Handle The Move

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About Mike Gerard Mike Gerard has an extensive background in real estate, property management, destination resort management and marketing, and international sports marketing. He acquired his real estate license over 30 years ago. In addition, he spent seven years in a leadership role at an international commercial real estate firm whose team evaluated and advised on over $1 trillion in commercial real estate assets. Through all of this, Mike has learned the value of providing exceptional customer service—and his unique background and perspective have allowed him to critically analyze the real estate industry and its practices. He brings a skill set not found among most real estate professionals. Mike Gerard's real estate and property management team is committed to modernizing and streamlining the experience of buying, selling, leasing, and managing real estate. As a broker associate at Berkshire Hathaway HomeServices California Properties, and co-broker/owner of Monarch Coast Property Management, Mike Gerard knows that consistently exceeding service expectations requires a systems-oriented approach. His proprietary home marketing and property management systems are changing the game for property owners seeking to lease or sell their homes. Mike and his team implement a customized, modernized approach to each home he represents—and emergent technologies are leveraged to ensure maximum exposure. Fanatical about communication, Mike is renowned for keeping clients fully informed at all times. He measures success through the satisfaction of those he serves. One client at a time.

If this all sounds personal, that’s because it is. Hiring an experienced and effective real estate professional is critical to your success as a real estate investor. Having the opportunity to protect your property while maximizing its financial return to you is what drives Mike and his team. As a Luxury Property Specialist serving the South Orange County coastal communities, Mike Gerard is a member the National Associations of Realtors, the California Association of Realtors, the Orange County Realtors Association, and the Institute for Luxury Home Marketing. His professional designations include the Seller’s Property Specialist (SPS), Resort and Second Home Property Specialist (RSPS), Senior Real Estate Specialist (SRES), and Property Management Master (PMM). Finally, Mike Gerard is active in the community. He is currently president of the Laguna Niguel Rotary Club, a member of the City of Laguna Niguel's Military Support Committee, and a Chamber of Commerce member in the cities of Dana Point, Laguna Niguel, and San Juan Capistrano. DRE# 01034441

Testimonials & Reviews for Mike Gerard Here’s a list of people whom I have helped buy or sell a home, and what they said about working with me: The Best! “Can’t say enough about Mike, he is a kind caring professional responsive hard-working agent who is so genuine. His knowledge about the real estate market is excellent and we really felt that added a lot of value for us as his clients. He works extremely hard, and we were always able to get a hold of him. We really felt he went above and beyond when trying to find a property for us. He clearly understood what we were looking for and made it very easy to narrow down and easily find us a home. We also love how he followed up once the process was complete, and we were in our home. We look forward to having him represent us in the future.” - Christin N. Outstanding Service. Our Forever Realtor! Mike Gerard is the most organized, detail oriented, and most patient and understanding Realtor we have ever worked with. I would highly recommend him as he is the most knowledgeable and trustworthy agent around. He sold our ocean view home for a price higher than we ever expected and found the replacement property of our dreams, and it wasn't even listed on the market for sale! My husband and I felt he went over and beyond to find us our home, especially during this tough market. - Rosie J. Representation You Can Trust! “Mike Gerard represented us in the sale of our home. He also represented the buyers. Normally, this would be a concern for me. But not with Michael. He has incredible integrity and character. I trust him implicitly and he delivered everything he said he would—and more!” - Don C. vii

A Home Run! “Michael is among the best, if not THE best, Realtor I have met! Referred by a friend, Michael provided exemplary services from day one and found our luxury home within one week of our initial meeting. We closed exactly 42 days after our first meeting. He was always present and always found answers promptly and happily. Not to mention, he is a great person! Michael far exceeded my expectation and I highly recommend this brilliant and capable professional.” - Douglas P. No One Better! “I cannot PRAISE Mike Gerard enough for his heart, professionalism, disposition, follow through, knowledge, communication skills, and reliability. Mike helped me (a remote landlord) through a sudden tenant move-out with strategizing and recommendations, repairs, paint, junk removal, and more, and then listed my property and sent me applications same day, then processed the move-in of the new tenants, all in 30 days. I thoroughly trusted him and enjoyed working with him. Mike Gerard is a true mensch, and I could not recommend him more.” - Nikki T. Mike Gerard is Terrific! “Michael Gerard is terrific. I was relocated to Orange County from Spain by my company and Michael was personally referred to us by a colleague. He came highly recommended and provided outstanding service in all areas. Our family was looking for a high-quality home with very specific lifestyle attributes and Michael was relentless in his property search. Once we found the right property, he handled every detail of our transaction with professionalism, accuracy, and integrity. I will not hesitate to recommend Michael to anyone who needs a great real estate professional. He is a professional of the highest caliber who exceeded our expectations in all areas.” - Pablo M.

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Highly Recommend! “We sold our home with Mike Gerard, and we couldn’t be happier! We studied the market for a long time and talked to a lot of Realtors before being introduced to Michael by a friend. While other agents were accommodating, nothing compared to the services provided by Mike and his team. He was a tremendous communicator and the more we got to know him, the more we trusted him. We highly recommend him to anyone who needs a true professional on their side.” - Jamie T. Best Experience Ever “It was an absolute pleasure working with Mike. He lives in south Orange County and is familiar with the surrounding area. He made the entire process smooth and seamless. He was responsive to all of our questions and needs. Above all, he was friendly and polite in all of his dealings with us and others. We would not hesitate to recommend him.” - Meghan P. My Realtor for Life! I was so fortunate to have found Mike Gerard to help me sell my condo and buy a new one in another area. He is amazing! His professionalism, mentorship, knowledge, honesty, and hard work ethic are much appreciated. He also introduced me to a wonderful lender. Mike was always answering every call or email no matter what time of day or night it was. I now consider him a dear friend highly recommend him to anyone that is searching for a new home. - Tatiana S Investment Property Mike Gerard is a knowledgeable, personable, and dedicated professional! He helped us to see the vision for a fixer upper town house in the mountains which had the exact layout, location, and budget we wanted. With his guidance, it only took minimal work and has become a wonderful home- Could not speak any higher of someone, will use his services again if the opportunity allows in the future. - Scott G.

About Monarch Coast ch Coast Property Management If you own rental properties, you know first-hand how challenging they can be to rent, manage, and maintain. Working with a professional property manager can make your life a lot easier on multiple fronts. While there are many options available, finding the right property management partner is key. The larger franchise operators may boast large portfolios, but with that comes a generic, one-size-fits-all approach to their management systems that may lack the personal touch you desire. At the same time, many of the smaller operators may not have the expertise and experience needed to best serve your needs. Monarch Coast Property Management is here to fill this niche. As a boutique property management firm, we specialize in serving luxury real estate in South Orange County, CA. Our team is locally based; and we’re passionate about what we do. Monarch Coast Property Management’s mission is to provide superior, personalized service to every owner, tenant, and property we serve—and we are committed to exceeding your expectations at every touch point. Our leadership team has over 30 years’ experience in real estate and property management. We are full time professionals who constantly monitor the pulse of the national, regional, and local real estate markets. At the same time, we are hands-on and responsive to the day-to-day service needs of you, your property, and your tenants. Bottom line, we are a local, full-service property management team that is committed to being the best in the business. Thank you for considering our services. MonarchCoastPM.com xi

CHAPTER 1 To Rent or Not to Rent?

You’re ready to move on from your home to another. Maybe you want to switch neighborhoods, maybe you’ve found the house of your dreams, maybe you’re relocating to another city. Many people just default to selling their home in these types of situations, but have you ever considered renting out your property instead of selling it? Perhaps you know of someone who’s done just that, with great success; however, perhaps you’ve heard of someone left in an unpleasant situation with bad tenants who’ve disappeared with unpaid rent, or damaged the property. Is renting out your property even a good idea? Why go this route instead of just hiring a real estate agent, putting your house on the market, and selling it as quickly as possible? Brandon Turner, real estate investor and author, writes on Forbes.com, “Owning two homes can actually work and be profitable if you decide to rent out the previous home. By keeping the house, you can begin building serious wealth through cashflow and equity.” But determining whether renting out your home, rather than selling it, is a good idea, is a personal decision that will take some time. In the meantime, here are five main reasons for you to consider renting out your property:

REASON #1: MARKET WORTH

One of the biggest reasons to consider renting out your property instead of selling it involves market worth. How is the market currently doing in your location? Is it improving in your favor? 1

If that’s not the case, it might be worth your time (and money) to wait to list your home until things improve, rather than selling for the current value and selling yourself short (and losing out on thousands). This way, you can wait until the market has appreciated, sell it at a higher price down the road, and rent out your property in the meantime. If you’re not sure of the current market worth in your location, you can always do some research, ask someone “in the know,” or hire a professional who specializes in this area. Further, you don’t have to worry about your mortgage payments and other bills while you wait for the perfect time to sell—your tenants will take care of those payments for you, whether you rent out your home for a year, two years, three years, or more—whenever the market improves enough to the point where selling will be worth your while. This leads to another big reason that homeowners rent out their properties before selling them: long-term investment potential.

REASON #2: LONG-TERM INVESTMENT POTENTI TENTIAL

The long-term investment potential of renting out vs. putting the home on the market right away is a big draw for many homeowners who are on the fence. But the basic principle is simple: Charge your tenants more than your monthly mortgage payment and utilities, etc., and bingo!, you’ve got a profit with that additional income. You can make money from your old home, while living in and paying for another home. Think of it in terms of an almost-free investment that someone else is paying for: not only are they paying more than your monthly mortgage, but they are also ultimately paying down your overall mortgage balance. Then, as your house improves in

value over time, you can charge more for rent; this way, instead of just having someone cover your monthly mortgage bills and paying off your mortgage, you can make a profit—every single month—on what someone pays for living in your old home vs what you were paying for the mortgage.

The long-term investment potential is real, and exciting!

REASON: #3: BUILD EQUITY WHILE LIVING ELSEWHERE

Another reason you might want to consider renting your house is having someone else pay to live there while you live in another house. This might sound similar to reason #2, but the difference is that you are actively choosing to rent out your home—not because you have to move and the only alternative is selling, but rather because you can turn your primary residence into an investment property, and then purchase a second primary residence, whether it’s in your same neighborhood, the same city, or in entirely different location, and begin to build equity.

You’ll be building an investment portfolio off your own house.

REASON #4: ALTERNATIVE TO HOME LANGUISHING ON THE MARKE N THE MARKET

Renting out your home is a great option if your property has been languishing on the market and you’ve been unsuccessful in selling it, or even if you are unable to sell it for enough money to pay off your mortgage balance. Perhaps you first purchased your home when it was worth more than it’s worth today, and you can’t seem to sell it without needing to write out a check. If this is the case, sometimes the better alternative is to rent out your house so you don’t lose money while you wait for the market to improve to relist your home. You

can get your monthly mortgage payment covered, and maybe make extra money each month, as you wait for the market to appreciate, recover, and sell your home down the road at a better, more profitable time.

REASON #5: TEMPORARILY OUT OF TOWN

Finally, consider renting out your property if you don’t need to, or want to, sell your home but you’ll be away temporarily. Are you heading out of town to spend time with or care for family for an extended period of time? Do you have a temporary-only job transfer? Are you going on an extended work vacation? And are you planning to return and settle back into your home without the hassle of house hunting? This is a fantastic reason to rent out your home while you’re away. You can rest easy, knowing someone else is covering the mortgage payment and taking care of the house for you, or at least covering the costs of taking care of your house, and then your home will still be there waiting for you when you move back into town. Throughout this handy no-risk guide to renting out your property, we’ll be discussing more about these reasons for renting, as well as other issues, such as dealing with tenants, the actual renting process, and ongoing property management. Despite the myriad benefits of renting out your property rather than selling it—or even before selling it down the road—many people interested in the idea become stressed or overwhelmed at the prospect, because of all the unknowns, the potential risks, and more. But renting out your property isn’t as scary as you might think.

CHAPTER 2 You Control the Risk ol the Risk

I’ve given you some of the top reasons that renting out your property can be beneficial to you. Yet many people are still resistant to the idea because of the stress and potential risk. I have some good news for you. This section of the book will address two main reasons you don’t need to worry. The first? You can rent out your house with minimal risk. How? You control the risk! Let me explain. There are things you can do and steps you can take to minimize the potential risk to you. This doesn’t mean you eliminate the risk; that’s nearly impossible. But there are steps you can take to dramatically and drastically reduce possible risks associated with renting out your home to others. You’ve probably heard “horror stories” of renting situations gone bad. Stories of terrible tenants, the ones homeowners and landlords absolutely dread and fear. The deadbeat who moved in and didn’t pay rent for six months or even longer and wouldn’t leave, even with legal action. The tenant who held party after party, long hours into the night, upsetting the neighbors and disrupting the entire neighborhood, even involving the police. The tenant who not only failed to take care of the home, but also lost their damage deposit and even completely destroyed the property, leaving the homeowner with thousands of dollars in repairs. Are these among your fears? They don’t have to come true if you do your due diligence. The reality is that for most of these horror stories (and they do happen), the person renting out the home 5

didn’t know how to reduce the risks. There were no background checks and no references; no policies, procedures, protocols, checklists, or terms and conditions put in place; and no basic strategy to reduce these risks. The property was often rented out to whoever showed interest first and was essentially ready to move in. This is a huge mistake many people make when deciding to rent out their homes. Sometimes, homeowners are so excited about the idea of making money while renting out their property that they neglect the process of actually finding the right tenant and going through the proper legal procedures to protect their investment. Sometimes, people are in a hurry to leave and need to rent out right away, so they seem desperate and let the first available person move in, no questions asked. Big mistake! You want to reduce risk, not increase it. Remember the title of this chapter: You control the risk. That’s the good news—you can avoid being a player in your own renting disaster. Here are some of the mistakes people (or you) could make that can lead to such horror stories:

NOT KNOWING HOW TO ATTRACT A GOOD TENANT

One of the first issues homeowners face after deciding to rent out their homes is attracting a good-quality tenant for their home. Why? Is it luck? No—there’s a process. You have to learn HOW to attract a good tenant. Yes, this involves work. It takes time, energy, and effort. But it’s worth it to you to avoid the potential risks, disasters, and horror stories to put in the work required in this area. For example, you’ll have to do some research, learn a little about marketing, and use whatever resources available to you. If you don’t put in the time, if you don’t learn and put to use some

marketing skills, and if you don’t have (and use) the right resources to find a good tenant for your house, that’s one of the biggest mistakes you can make when renting out your home. Many people mistakenly think they can just throw a sign in the yard and somehow, a magically perfect tenant will just show up. Here’s the real deal: It takes time, effort, energy, marketing, and proper screening to find a great tenant for your house. Some people do “luck out,” and some people know a friend of a friend, but in most cases, you won’t find that great tenant without that effort.

NOT SCREENING TENANTS PROPERLY

Another common mistake people make when renting out their home is not screening potential tenants properly. Some get lucky, but many others end up with a “bad apple” occupying their home for much longer than they’d like. Later on in this book, I’ll discuss this critical issue of properly and thoroughly screening all potential tenants, but for now, let me emphasize that this is probably the most important thing you can do in the renting-out process. Screen your tenant prospects! It can’t be said enough. Do everything you can to keep those “bad apples” out of your precious home. If you don’t, and you end up with “that” tenant, you have no one to blame but yourself. It’s your responsibility to find a decent tenant for your home. Far too many people avoid this step and end up in awful situations that you wouldn’t wish on your worst enemy.

NOT HAVING A GOOD LEASE

Another area where people often make mistakes is not having a good lease in place. Just any lease isn’t enough; you need a rock- solid lease! The lease needs to work for the specific intricacies of your area, and for the laws of where you live. Lease laws

change depending on where you live. And this doesn’t just mean state to state or even city to city; the legalities of some landlord- tenant relationships can vary within a city or neighborhood. So please ensure you have in place a great lease that is specifically tailored to your location—the local area, the exact city or town, the precise neighborhood, etc., so that all your bases are covered. Later on, we'll talk more about the all-important lease.

NOT CHECKING ON THE PROPERTY REGUL Y REGULARLY

Many homeowners who rent out their property run into trouble when they don’t bother, or forget, to check in on the house on a regular basis. They assume that by screening and choosing a great tenant, that the tenant is just automatically going to take care of the home. Big mistake! Maybe the tenant could be trashing the place, either through neglect or damage (or both), and the owner has no idea because they didn’t check up on the house for a year. Then, when they finally do—let’s say the owner is moving back, the tenant is moving out, or the tenant is evicted—the home and property are so damaged that expensive repairs are in order. So, how to avoid this potential catastrophe? You need to check on your house a minimum of every six months during the tenant’s residency. That way, if there are any minor issues that arise, you can deal with them early on; if there are bigger issues, you can deal with them, too, and either evict the tenant due to the extensive damage they’ve caused, or ensure they pay for the damages before you allow them to continue living there. This bears repeating: Just like you simply must screen your rental candidates, so must you check up on your house regularly, and often. Don’t let more than six months go by in between inspections, during which time you need to look at the entire house and property to ensure they’re in the same condition and being taken care of. Go through every single room, carefully.

You can stop a problem in its tracks through your vigilance and regular, frequent inspections.

NOT KNOWING HOW TO EVICT SOMEONE

It seems simple: You’ve got a bad tenant for whatever reason (not paying rent in full, not paying rent on time, not paying rent at all, noise disturbances, theft, vandalism, bringing in pets that aren’t allowed, operating a business illegally, selling illegal substances, property destruction, etc.). Just evict them, right? Problem is, most people don’t know how to evict someone. It’s not as simple as just making a call or kicking them out. So, in the case of a non-paying tenant, when the tenant stops paying, the owner just “leaves it alone” for a month or two (or three) because they don’t know what to do, and they’re busy with their job, their family, and other life obligations. Because they don’t know how to evict a tenant, they don’t have the time toevict the tenant because they don’t have the time to learn how. As a result, the tenant stays in the house for much longer than they should. You need to know the law, the regulations, the processes, the procedures, etc., and how to deal with all the paperwork involved. Without this knowledge, and the ability to execute it, you could end up in a sticky situation.

NOT BEING WILLING TO EVICT SOMEONE

Knowing how to evict a tenant who isn’t paying rent or is causing damage isn’t enough; you have to actually be willing to go through with the eviction process. This might not sound like a big deal, but you might be surprised at how many homeowners aren’t willing to evict someone who isn’t paying them or is otherwise not the ideal occupant. It can be

a very emotionally draining and unpleasant experience to evict a tenant, especially if the homeowner is someone who prefers to avoid confrontation, and/or if the tenant is especially difficult to deal with. But here’s the thing: You’ve got to do what you’ve got to do! Even if things are emotional, uncomfortable, or worse, you need to force yourself to push through any discomfort and pain and make that decision you need to make. If a tenant is always late with payments, or is paying you in incomplete amounts, or is refusing to (or, sadly, unable to) pay you at all, then they’ve got to go. Look at this way: Technically, they’re stealing money from you by not paying according to the terms of the lease. If you let someone live in your house for free without paying you and you don’t file for eviction, then you might as well give someone access to your bank account and let them have at it. That might seem a bit harsh, and I’ll be the first to admit that it’s often challenging to evict people who need to go, but in this business, you have to be prepared to make tough decisions and then follow through when the time comes. Evicting people who don’t deserve to live in your home is just one example of a tough decision you might have to make when renting out your property. If you just can’t handle confrontation and dealing with potentially tough and difficult emotional challenges, then maybe serving as a landlord is just not cut out for you. This doesn’t mean you can’t rent out your home and reap the many benefits that come with that, if you do it right; it just means you should consider having a professional property manager manage your home for you. I can say this confidently because, as a professional property manager myself, I know that if I don’t make those tough

decisions, if I don’t file for eviction on someone who’s stealing money from my landlords, I’m going to get myself fired. And so, technically they’re stealing money from me, from my family. So, that’s why you need to be willing to evict somebody, even when it’s a tough and emotional decision. Be willing to make the tough decisions (screening candidates, doing proper inspections, evicting, if necessary) when the situation calls for it, and you’re on your way to becoming a successful landlord, reaping all the benefits of renting out your property for income. Now that you’re aware of the most common mistakes homeowners make when renting out their home, and how to avoid them, let’s move on to discussing the benefits of having good tenants, and why this will make or break your decision to rent out your property.

CHAPTER 3 Good Tenants = Rental Bliss ental Bliss

You’ve likely heard of “horror stories” of homeowners dealing with bad tenants, whether from friends, family, your Realtor®, or even in the news. This is one of the biggest reasons people shy away from renting out their property—the risk and fear of ending up with bad tenants (e.g., tenants who don’t pay their rent on time, in full, or at all; tenants who engage in risky behavior; or tenants who cause property damage). However, this doesn’t have to be your situation. In fact, if you ensure you have a good tenant—someone who pays their rent, takes care of your property, and respects your policies and rules—then you shouldn’t have many issues. Good tenants make all the difference in whether renting out your property ends up being a pleasant and fruitful decision. Good tenants = rental bliss! Allow me to give you an example of why this matters and why I believe it’s true. Consider the criminal justice system. Even though you hear or read in the news of all these people committing all kinds of crimes, the reality is that most of the population doesn’t end up in jail. Most people are good citizens and follow the laws that govern them—sure, plenty of people get speeding tickets, but most people don’t go around robbing banks, assaulting their neighbors, engaging in illegal activities, etc. When you bought your current home, for example, you probably didn’t think about whether your neighbor was a murderer. Of course, you need to exercise caution and take precautionary measures when the situation calls for it. However low the risk 13

may be, whether it’s renting out your property to tenants or finding a new neighborhood, bad things can happen and good people can get scammed or hurt. The same is true with tenants. As of this writing, the average credit score for an American citizen is 695. That means that the average person has a credit score that’s good enough to buy a house, good enough to buy a car, good enough to get a credit card, good enough to do just about anything that requires credit. Honestly, for the most part, tenants are good people—but not all are. You want to ensure you do end up with good tenants, and not risky ones. You want tenants who pay their rent on time, take care of your property, are easy to deal with, and won’t cause any major issues. What can you do to ensure you get the good tenants, and not the bad ones? First-class marketing is a start.

FIRST-CLASS MARKE SS MARKETING YOUR PROPERTY

Using first-class marketing for your property will bring in plenty of tenants. The better your marketing efforts, the more interested candidates you’ll attract, and the more you’ll have to pick from, allowing you to weed out the risky ones—the “bad apples”—and attracting the good tenants.

1. Post Your Home on All Websites

To give your rental property the most exposure possible, you’ll want to post ads on any and every single realty website, including the most popular ones, like Realtor.com, Zillow, and Trulia.

2. Write a Fantastic Ad

Think about it: What good is posting your ad to all these websites if your ad, well, stinks? You need to write a great advertisement

that highlights the best features of your home and property in a captivating and attention-grabbing way! How do you do this? Tell renters why they’ll love living in your home. Describe its best features and benefits, and maybe include some of the home’s history. Here are some other ideas: • a nice view • special features (large yard, fenced-in yard, a patio or deck, a home office, a nice garage, a pool, recent renovations, etc.) • special amenities in the neighborhood (great shopping options, restaurants, services, police, parks, riverfront walkways, community centers, nightlife, etc.) • is your home close to local quality schools and/or public transportation? • is the overall “feel” (ambiance, atmosphere) of your neighborhood something worth advertising? Is there a community feel? Does it feel safe? Could potential tenants picture themselves living there? If writing and marketing are not skills that come naturally to you, consider hiring a professional. It could make all the difference in helping you narrow down the candidates for your property.

Special Note: Fair Housing Act

When writing your ad and marketing your property, don’t forget to follow Fair Housing Act laws. This is extremely important, because if you don’t, it could come back to hurt you down the road. In the listing, don’t ever mention whom you’re hoping to attract—this is considered discriminatory and could get you into

legal trouble. For example, don’t advertise “this house would be great for single people.” Some people could complain, claiming you’re discriminating against couples and families, who wouldn’t feel accepted or welcomed in your home. This is definitely something you want to avoid.

Minimum Qualification Standards

The best way to avoid any issues with Fair Housing laws is to set your minimum qualification standards and follow them for every single tenant. We’ll be discussing these in greater detail in Chapter 3. One thing to mention now is that you should check with your attorney on the legality of your standards. You need to ensure you’re following the law at all times during this process regarding acceptance and refusal of tenants. If you don’t understand the process, you can easily step into a legal minefield and get yourself into a heap of trouble. I recommend reviewing all of your guidelines with an attorney before you start. Here’s an example of why this matters and why this is so important: Let’s imagine you’re renting out your house, and you have in place a strict “no pets” policy. You just found a great tenant, but then discovered they have a service dog—but for emotional support, not for any apparent disability(ies). You have no idea if the service dog is actually legitimate. When you meet the dog, you discover he’s a huge Great Dane who probably weighs up to 150 pounds. You don’t want to discount the prospective tenant’s need for a service dog, but part of you wonders if it’s a scheme—if they’re just using the “service dog” as an excuse to have their large pet move with them into your home. But you don’t know how to handle the situation. For example, are you even allowed to ask if the dog is a legit support animal? What do you do? Do you just rent the house to them and accept the risk of having the “service dog” damage your property (chewing a hole in the front door, wrecking your new sofa set, tearing up

your brand-new wood floors, etc.)? Do you refuse to rent to this individual and worry about a Fair Housing complaint? How do you handle the situation without breaking the law? If you’ve done your research and set up your minimum qualification standards before you ever marketed your property, then you’ll know how to handle the situation. You can be fully prepared to protect your interests, rights, and investment. You need to make these types of decisions before marketing your property and accepting rental applications. This will ensure everyone will be treated fairly and that you’re not breaking the law.

3. Take Appealing Pictures

In addition to posting your home on all realty websites and writing a stellar ad—while taking into account Fair Housing laws and your minimum qualification standards—you absolutely need to take high-quality, appealing photos of your property. You won’t attract enough tenants—or the right tenants—without this important marketing step. A picture says a thousand words. A great picture of your house can be worth more than a thousand words of a great description that talks about all the amazing features and benefits that your house has. In fact, even if your ad isn’t perfectly written or doesn’t contain all the important information, you can still have marketing success and attract tenants with some fantastic photos.

Here are some tips:

• Don’t use your cell phone to take the pictures (even the most high-tech cell phone won’t do your home justice); use an actual camera, and get a professional to take this

step if you’re not confident in your abilities • Make sure you have decent lighting—for example, take pictures during the day, and open up all the blinds and curtains; the natural lighting will result in much higher- quality and appealing pictures of your home • Remove background clutter that could interfere with the pictures; while decluttering in general is important before you put your home on the rental market, you don’t want some background mess to detract from a good shot of your home, so clean up and put things away (out of sight, out of mind!) • In the case of a tenant already living in your home, but their lease is up and you need to re-advertise, get some good-quality photos of the outside of your home, as well as your property in general; if you can, get permission from your current tenant to take a few pictures of the inside of your house So now you know that “good tenants = rental bliss,” and the pathway to rental bliss involves first-class marketing techniques outlined above. Good marketing will attract good tenants. But now, how do you ensure you get a good tenant and not a “bad apple?” Part 2 will focus on protecting yourself against bad tenants. In Chapter 4, we’ll talk about screening prospective tenants and your minimum qualification standards.

CHAPTER 4 Weed Out Bad Apples

Without a doubt, the most important step for a homeowner to take during the entire rental process is screening all potential candidates in order to weed out the “bad apples” and find a good- quality tenant. In most cases, good tenants lead to rental bliss. However, a bad tenant will almost always result in a bad tenant experience, leading to an overall bad rental property experience. There’s no way around it—you must screen every single tenant! You must ensure you’re comfortable renting to them before you have them move into your house, to protect yourself, reduce your risks, and avoid a potential disaster.

SET UP MINIMUM QUALIFICATION STANDARDS

The first step in the screening process involves setting up minimum qualification standards to protect yourself. You might be wondering what these are. Basically, these are the very minimum standards that you decide each and every single prospect must meet in order to qualify as a potential tenant. If an interested candidate doesn’t meet all your standards, then they aren’t able to rent your home. Plain and simple! This way, you can quickly move on to the next candidate. These standards also ensure you check through every item before approving a tenant so you don’t miss anything and accidentally let in a “bad apple.” Further, because you apply these minimum standards to all tenants, you can also avoid any accusations of discrimination, such as with the Fair Housing Act or Americans with Disabilities Act (ADA), or favoritism.

Minimum qualification standards also keep you on track so that problem tenants don’t slip through the cracks. Having in place standards, and checking each and every item with each and every potential tenant, will drastically reduce the odds that you’ll forget something important. Think about how easy it is to forget something. It’s human nature! In most cases, people get lucky and nothing significant happens. However, you can’t rely on sheer luck when you’re renting out your property. If you don’t have a checklist, it’s easy to forget even just one small thing, but that “small thing” can lead to a host of problems that could have easily been avoided. A bad tenant could cost you hassles and headaches, plus thousands of dollars in lost rent and damages, and lawsuits. Minimum qualification standards also help reduce the risk of a Fair Housing complaint, and will make things easier for you in defending yourself in case a complaint does arise. Let’s say someone does file a complaint against you, claiming that you discriminated against them by not renting your house to them because of reason X. With minimum qualification standards in place, you can confidently reply: “Actually, I didn’t rent to you because you didn’t meet my minimum qualification standards. Your allegations of discrimination have nothing to do with reason X. I didn’t rent it to you because of reason Y, and you did not qualify to rent my house. My minimum qualification standards are legal and in compliance with all Fair Housing and ADA laws.” You can prove that you chose not to rent to them, not because of their alleged reason X, but because of reason Y, which is clearly defined and stated in your minimum qualification standards. I recommend that you think about, determine, and put in place your exact minimum qualification standards before you ever place your property on the market.

SUGGESTIONS FOR MINIMUM QUALIFICATION STANDARDS

Everyone will have their own basic and more specific ideas for their minimum qualification standards when they’re thinking about how they will screen tenant candidates, but here is a list of some different standards to consider. Keep in mind that these are suggestions only. Please check with your attorney to ensure they are legal for your particular property and that you’re in compliance with any and all laws and regulations, which often vary from location to location. • The minimum deposit you’ll require. Most people charge a security deposit equal to one month’s rent. Some add a non-refundable pet deposit, and some charge larger amounts in credit-related situations (for example, if the person has had credit issues or if their credit does not meet the minimum standards). • The minimum credit rating you’ll require. What kind of credit rating are you going to require for a tenant? You want to do the check yourself, but remember that you must have their permission to check their credit. • Will you allow pets? If so, what type? What’s the maximum number? What’s the maximum size? “Pets allowed” is often a big draw for tenants looking to rent, but the truth is that pets can add a lot of stress for landlords. In fact, most landlords prefer not to rent to pets just to avoid the potential issues pets bring. If you choose to allow pets, make detailed rules, but consider increasing the security deposit or adding a non- refundable pet deposit, or even adding a monthly fee on top of the rent. Find out the standard—as well as what’s

legal—in your area.

If you’ve decided “no pets,” do your due diligence to ensure tenants don’t attempt to sneak pets in. One way is through regular inspections; another way is through social media (are they posting pictures with pets?). If this happens, tell them: “I found out on social media that you have pets. If you’re planning on bringing them with you, we need to deal with this now, as you’ve agreed to no pets. I’ll be checking up on this house after you move, and if any pets or evidence of pets are found, I’ll be filing for eviction.” • Will you allow smokers? Smokers can cause of lot of issues for landlords and homeowners; as a result, most prefer non-smokers. This allows for fewer issues with the home (smell, stains, etc.) and higher chances for a continued influx of good tenants. Smokers are not a protected legal class under federal laws, so you are legally allowed to refuse tenancy to smokers federally, but you might want to check with your attorney to ensure smokers aren’t a protected legal class under local laws. If you do decide to open up your home to smokers, think about the specific requirements, such as smoking outdoors only or a certain distance from the home. • What are the income requirements? Income is another major area to cover. After all, you need tenants who can pay their rent—in full and on time! In most cases, this means checking the tenant’s paystubs to make sure they earn a minimum of X. Some jurisdictions require you to accept all sources of income, whether a paycheck or child support; your attorney can advise you on local requirements. You’ll also need to think about types

of income, such as regular employment, self-employment, seasonal employment, unemployed or underemployed but receiving benefits, child support, Social Security, etc. What are your minimum standards in these situations, and what are you actually comfortable with? Remember, you want to reduce risk and also keep your peace of mind every month, knowing that your rent money is coming! Then you’ll need to go through steps for verification and proof, such as pay stubs, earnings statements, W-2 forms, tax forms, letters from employers, proof of other income, etc. At the same time, you must ensure you aren’t violating any laws about the types of income requirements you’re allowed to have for someone who wants to rent out your property. • Will you rent your home to extra adults? A common example is college students or people in a roommate-type situation. You’ll need to consider your rules and requirements for these tenant candidates, and determine if you’re in compliance with the law. Maybe you’d rather not rent out to college students for fear of frequent parties and ensuing property damage, but your preference needs to be within the law. Check with your attorney on any legal uncertainties. • How many people will you allow to rent your house at once? For example, will you rent your two-bedroom house to a family of two adults and eight children? They might not seem like ideal tenants, but please be warned: make sure that whatever policies you put in place don’t violate any Fair Housing Act laws. It’s a good idea to research Fair Housing laws, rules, and other guidelines when considering renting to families with children. • Will you rent your house to people who have filed for

bankruptcy? If so, how recent a bankruptcy filing will you accept? In addition, what are the bankruptcy requirements? For example, will you have different requirements for somebody who filed a Chapter 7 bankruptcy vs. someone who filed a Chapter 13 bankruptcy? • Will you rent your house to someone who has been through a foreclosure, short sale, or car repossession? If so, how recently? These are all major issues to consider, and many landlords don’t wish to attract these types of tenants, as they’re often viewed as “higher risk” and “lower quality.” Some questions to consider: Would you allow someone to rent your house if they just had their house foreclosed on last month? Would you rent your house to someone whose car was repossessed last month? You need to put your requirements and guidelines in place. • Will you accept someone who shows up late to a showing? A late-showing tenant is a red flag. Let’s imagine that you’re someone who’s on time everywhere you go, and you think punctuality is an important indicator of whether someone is a responsible person. You agree to meet with a tenant at 2:00 p.m., but they show up at 2:15; will you rent your house to a tenant who was 15 minutes late? If you decide not to rent to the tenant because of that issue, make sure you are within the guidelines of the Fair Housing Act. • Will you accept someone who’s breaking a current lease or has been evicted? This is an area that some would-be landlords fail to consider in their minimum qualification standards. Consider whether a potential tenant is

breaking a lease with their current landlord—what’s going to protect you if they decide to do the same thing to you at some point? Or, what if the tenant has been previously evicted? For most landlords, an eviction is a major red flag and they’ll absolutely refuse to rent their house to somebody who’s had one because it’s an indicator of a much bigger problem, such as rent payment issues or property damage. However, other landlords are willing to overlook an eviction from further in the past. What will your rules be? Consider them and decide on your policies now—before you put your property on the market and end up with a curveball that’s difficult to resolve. • Will you accept people with a criminal background? It’s perfectly acceptable and common for landlords to deny tenancy requests for individuals with criminal backgrounds. It’s a potentially messy situation they’d prefer to avoid. However, it’s still something you need to think about it. If you’re open to accepting those with a criminal record, whom would you accept, and whom would you deny? Will you rent your house to people who’ve had a misdemeanor? What about a felony—what about sex offenders, or those who have been convicted of other violent crimes, such as domestic violence, assault, and murder? Where will you draw the line? You need to figure out what’s acceptable and comfortable to you. • How will you handle references? It’s pretty standard for owners renting out their property to ask for and check on

references for potential candidates. Still, it’s a decision you need to make, and there are still considerations.

You never know exactly who might be interested in renting out 25

your house. References are necessary for this reason. But what are your standards for references? Probably the best reference—and the most telling—will be the candidate’s former landlord(s). For example, let’s say you’re looking into a prospective tenant, and you ask a former landlord about their history of rent payments. The landlord says they rarely paid on time. Will you accept or deny that candidate? What if the landlord, when asked, tells you their former tenant never took care of the property and even trashed the place? Or brought pets in, under a no-pet policy? Will you rent to that person? Further, you should ask a former landlord the tenant’s reason(s) for leaving, and decide which reasons are acceptable. Don’t forget to ask whether they gave the landlord proper notice before moving, whether the tenant received their entire deposit back, and whether this landlord would rent out to their former tenant again. Essentially, you want the former landlord to paint a solid picture of what kind of tenant that person was, because it’s indicative of how they will be for you. • The tenant’s personal appearance. First impressions matter! Will you rent your home to someone who shows up without a shirt or shoes? You know the saying: No shoes, no shirt, no service. What are your own standards and policies for a potential tenant’s outward appearance—and hygiene? • Will you require every person over 18 in t r 18 in the house to apply? I recommend having every adult who will be living in your home apply. What if the main applicant is “clean” and meets all your requirements, but the others have poor credit, no job, a criminal record, or poor tenancy history? Even if your potential tenants are two parents with young adult children, have the children

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